MTN tax avoidance report a vindication - EFF

Fighters says it has long been raising the issue of unscrupulous profit-shifting by business


10 October 2015

The EFF notes the uncovered MTN tax avoidance and profit shifting schemes by the Mail and Guardian Center for Investigative Journalism taking place in African countries where MTN conducts most of its business. The report notes that MTN had engaged in tax avoidance and profit shifting to jurisdictions with low or 0% tax rate when Cyril Ramaphosa chaired its board between 2001 and 2013.

This revelation vindicates the EFF, as we have been at pains to explain the greed and immoral business practices of diverting profit from countries where business takes place to tax havens by people like Cyril Ramaphosa and many other multinational corporations not only in mining sector but across the board. This unethical practice deprives these countries of much needed tax revenue to meet increasing social and economic obligations.

Like Lonmin did with billions of rands that moved to Bermuda under the pretense of marketing and management fees, the Mail and Guardian has uncovered that MTN during Cyril Ramaphosa chairmanship had been channeling billions of rands under the pretense of shared functions such as human resources management, procurement and legal and financial services to other companies in its group in Dubai International Financial Centre, a free trade zone with a 0% tax rate. This is all the while its South African offices are responsible for those functions, clearly indicating that it is a ploy and deceit that has proved lucrative to capitalism to fuel its greed.

The EFF brought the matter of Base Erosion and Profit Shifting (BEPS) and tax avoidance to Parliament through various platforms including questions to the President, Deputy President and the Minister of Finance but they fail to appreciate the severe implications these schemes have on the ability to collect much needed tax revenue.

EFF submission to the Standing Committee on Finance, as well as the Portfolio Committee on Trade and Industry, has formulated concrete recommendation in all fronts of the political, economic and technical areas to address the problem of BEPS and tax avoidance.

Yet these recommendations have been pushed aside and now Parliament is engaged in rather reactive and unnecessary workshops aimed at understanding BEPS while companies like MTN, Lonmin, Glencore, Anglo-America and many other multinational corporations continue to loot billions of rand to offshore account.

In July, again the EFF wrote to the Commissioner of South African Revenue Services (SARS), Mr. Tom Moyane, requesting him to launch a full investigation into Lonmin R2.5 billion tax avoidance uncovered during the Farlam Commission into the Marikana Massacre, and ensure that all the money is recovered with immediate effect, and we are yet to receive a response. The EFF further wrote to the President Jacob Zuma to establish a Commission of inquiry according to Section 84(2)(f) of the Constitution of the Republic of South Africa, to look into tax avoidance through a comprehensive process going back to early 1990s so that it can be dealt with through appropriate responsive measures, however, Cyril Ramaphosa claims the problem is being dealt with, but as to how this is happening is not clear and the response from government institutions is always incoherent.

The EFF notes that the much celebrated reforms by the OECD, regarded as global efforts to combat widespread corporate tax cheating, however the process for these reforms continue to be undermined by groups of paid corporate tax advisors and lobbyist such as KPMG, Deloite, Ernest and Young and PWC who publicly advertise that they assist multinational corporations to structure their tax avoidance to authorities of low or non tax rates, as well as governments seeking to protect some of their pet tax breaks to businesses.

The correct observation by the Tax Justice Networks is that, as a result, OECD recommendations are weak and will create unnecessary administration requirements that majority of developing countries will not be able to carry out. It did not help that developing countries were only invited into the process at the concluding stage, something that shows the OECD serves its governments and multinational corporations. The South African government refuses to understand this fact despite mounting evidence.

The central problem that the OECD is failing to address is the way in which tax rules treat the various subsidiaries of multinationals as if they were merely loose collections of independent companies: supposedly ‘independent entities’ trading with each other at ‘arm’s length’ transactions. The ultimate solution to the problem of BEPS and tax avoidance is to make tax avoidance completely illegal with harsh penalties including expropriation of companies without compensation and jail sentences for directors such as Cyril Ramaphosa.

Until there is a clear Act of Parliament that prohibit tax avoidance as argued in the EFF written submissions to the Davis Tax Committee submitted in August, multinational corporations will always find sophisticated means to continue the looting.

This morning, the EFF has written to the Commissioner of SARS, the Minister of Finance and the chairperson of Standing Committee in Finance to make them aware of the MTN mischievous tax avoidance schemes and to remind them that the only solution is to make tax avoidance illegal.

Statement issued by the Economic Freedom Fighters, 10 October 2015