MTN has consistently prided itself as the
foremost telephone company that is getting
Nigerians talking the most. Now the South
African company is about to set tongues wagging
across networks with revelations that it has
routinely been shipping billions of dollars
overseas to avoid paying its fair share of tax in
Nigeria.
An 11-month-long joint investigation by PREMIUM
TIMES, Finance Uncovered and amaBhugane
reveals that MTN has been running circles
around Nigerian revenue authorities using a
complex but noxious tax avoidance scheme
called Transfer Pricing.
For any economy, it is a slow death.
The red flag was raised the moment our
investigations showed that MTN Nigeria has been
making payments to two overseas companies –
MTN Dubai and MTN International in Mauritius –
both located in tax havens.
It was discovered that in 2013 for example, MTN
set aside N11.398 Billion from MTN Nigeria to
pay to MTN Dubai. A similar transfer of N11.789
Billion was made by MTN Ghana to the same
MTN Dubai, making it a total of N23.187 Billion
that was shipped to the Dubai offshore account.
In a rare disclosure in 2013, MTN admitted it
made unauthorized payments of N37.6 Billion to
MTN Dubai between 2010 and 2013. The
transfers were then “on-paid” to Mauritius, a
shell company with zero number of staff and
which physical presence in the capital Port Louis
is nothing more than a post office letter box. The
disclosure amounted to a confession given that
MTN made the dodgy transfers without seeking
approval from the National Office for Technology
Acquisition and Promotion (NOTAP), the body
mandated to oversight such transfers.
On the basis of an earlier management fees
agreement that was technically quashed by
NOTAP and on the basis of MTN’s reported
revenues, it is estimated that N90.2 Billion could
have been transferred out of Nigeria in
management fees alone since the company was
founded in 2002.
Transfer Pricing
For corporate organizations determined to
escape the taxman but still cleverly staying on
the right side of the law, Transfer Pricing is the
new cellar door constructed by the most
ingenious of accountants. It is a new global
disease to which Third World economies are the
most vulnerable.
Multinationals employ Transfer Pricing to move
their profits offshore, leaving behind a shrinking
tax base in their host countries and inexorable
cuts to public services.
In Africa, tax avoidance has been named as one
of the factors holding the continent back by
starving governments of the revenues it needs
for development.
A report jointly commissioned by the United
Nations and the African Union and drafted by a
high level panel led by former South African
president Thabo Mbeki considered tax avoidance
by multinationals to be an “illicit financial flow”
and a significant drain on government resources
across the continent.
In total illicit financial flows, which included
corruption and the proceeds of crime, were
determined to be costing the continent $50
Billion a year $50bn.
Just last year, South Africa’s deputy president
Cyril Ramaphosa had harsh words for tax
dodgers. He said: “Tax evasion is not only a
crime against the state; it’s also a crime against
the people of our country, ordinary people.”
Curiously, the same Cyril Rhamaposa was non-
executive chairman of the board of MTN
between 2001 and 2013 before he became South
Africa’s No.2 man. In effect, the same tax
practices which the deputy president strongly
condemned in his country as financial crime is
vigorously being promoted in Nigeria.
MTN is the largest cell phone company in Africa
with 227.5 million subscribers. The company,
which operates in more than 20 countries across
Africa and the Middle East, has Nigeria as its
biggest operation.
Until now, tax justice investigations had focused
on computer giants, corporations in the
extractive industry, food and beverages; in fact
everywhere but the mobile phone sector despite
the cell phone industry in Africa being one of the
largest and most important industries for the
continent.
Mobile phone has been a cheap and quick way of
rolling out the vital communications
infrastructure that has underpinned Africa’s
growth story over the last decade. As a result
the industry has seen explosive growth. With
685million mobile phone users in Africa, the
success story means that cell phone companies
are now the largest contributor to government
revenues in many African countries. That is when
they pay their fair share of taxes.
Artificial operating costs
To pay little or no tax, companies determined to
cheat begin by seeking ways to create artificial
operating costs in the country where they
operate. For example, a company is in Nigeria
but has a parent or subsidiary company in
another country. It makes huge profit but
decides to declare a much lower profit-before-
tax. To achieve this, it pays the parent and/ or
subsidiary company for services not rendered
and ships cash to them. Where services are
rendered, the costs are inflated. Such services
may include royalty for the use of brand name,
procurement services, technical services and
management services.
Typically, the recipient company is located in an
offshore territory under a different financial
jurisdiction. MTN has a substantial network of
subsidiaries in offshore tax havens, including the
British Virgin Islands, Dubai and Mauritius.
Because of the growing concerns that
multinationals are using intra-company trading to
shift profits around the world by overcharging for
services delivered or in more extreme cases by
creating artificial transactions where no services
was rendered at all, respective countries have a
maximum percentage of profits it can allow
companies to pay out as management fees.
For example, in Senegal, accounts from the
company Sonatel show that the company has a
‘cooperation agreement’ with parent company
France Telecom that is capped at 1.43% of
revenue.
Until 2010 MTN Nigeria had an agreement with
MTN Dubai to pay 1.75% of revenues to the
company for management, and royalties for the
use of the MTN trademark. Nigeria requires that
management fees paid by multinationals are
approved by the National Office for Technology
Acquisition and Promotion (NOTAP). The fee
payments had been reversed following a failure
to come to a new agreement on management
fees with Nigerian regulators.
MTN’s previous agreement with NOTAP expired
in 2010.
Notwithstanding, MTN has continued to make
payments overseas. When we sent questions to
MTN over these unauthorized payments, the
company told us that this was because they
expected NOTAP to approve a new deal and
backdate it to the date of the expiry of the
previous deal.
MTN’s financial activities are now being
questioned by more than one tax authorizes in
Africa.
In Ghana the MTN subsidiary, Scancom, has
been paying vast management fees to
companies located offshore. Our investigations
reveal that Scancom paid 758m GHS in
management and technical fees to MTN Dubai
between 2008 and 2013. This was 9.64% of the
company’s revenue. Normally the maximum fee
level allowed in Ghana is 6%.
We can reveal that the high levels of fees
attracted the attention of Ghana’s intelligence
services, which launched an investigation into
“economic fraud” between 2012 and 2013.
MTN’s management fees need approval from the
Ghana Investment Promotion Centre (GIPC). The
Ghanaian “National Security Taskforce” has
called for a “review of all technology transfer and
management service agreements currently held
by GIPC to remove sections which are
inapplicable and wrongly provided for” and
upgrading and training of state systems and
staff.
In response to this, MTN in Ghana told us: “The
technical and management services agreements
between Scancom and Investcom were duly
approved by the GIPC.”
The current head of the GIPC is Mrs. Mawuena
Trebarh, who between 2007 and 2012 was
responsible for government relations at MTN
Ghana. This reporting team asked Mrs Trebarh to
comment on whether her previous role could be
perceived a conflict of interest. She did not
respond to our requests.
In response to our enquiries MTN confirmed that
the company paid 12 billion West African Francs
in 2012 and 14 billion West African Francs in
2013 in management fees to MTN International.
The figure for 2013 is equivalent to 5% of the
revenue made by MTN in Cote d’Ivoire.
Dubai paradox
Dubai is one of the places MTN ships huge
profits to. Meanwhile, MTN does not operate any
mobile phones in Dubai, yet it has significant
operations in the small city state.
MTN told us that it employs around 115 people in
Dubai who provides services to the MTN group
such as group procurement, group finance, legal
services, human resources and other corporate
functions.
One tool that campaigners have said will be
helpful is to look at company reporting on a
country by country basis. If a company is making
huge revenues in a country where it has few
employees but there is a low tax rate, which
would suggest that there may be some profit
shifting taking place.
In Uganda, a dispute between the Uganda
Revenue Authority and MTN has revealed that
the company is paying 3% of its turnover in
management fees to MTN International.
The fees have been challenged by the Uganda
Revenue Authority (URA) who issued MTN with a
“notice of assessment” in 2011. This was for a
number of tax issues between 2003 and 2009,
but a large portion was to do with a dispute over
management fees, most of which had been paid
to Mauritius.
Correspondence between the URA and MTN seen
by us show that the URA questioned the
legitimacy of these fees, and pointed out that
MTNI, the company providing “management
services” to MTN Uganda had not spent any
money in the years they had looked into. The
URA said this could only mean two things: that
management services provided to MTN Uganda
had either already been paid for by MTN Uganda
(and so MTN was in effect charging twice for the
same thing) or they were never provided at all.
The Ugandan authority told the company: “We
have repeatedly asked for evidence of specific
work performed by MTN Group for MTN Uganda
for each of the tax years 2003 to 2009. We have
only been provided with very little information
relating to 2009 and the latter years. This
information is very far from justifying a payment
of 3 per cent of MTN Uganda’s turnover as
management fees.”
NOTAP keeps mum
Asked to confirm the amount of fees paid out to
MTN Dubai and Mauritius based on the
company’s reported revenue between 2002 and
today, MTN told PREMIUM TIMES: “There is no
disclosure obligation for this information in South
Africa or Nigeria.”
Asked to explain the possible justification for
MTN Nigeria to pay fees for management and
technical services to a company with no
employees, MTN said: “It is the contracting
party’s prerogative as to how it elects to
discharge its contractual obligations.”
Meaning is that MTN Mauritius can perform its
task without a single staff member.
PREMIUM TIMES made sustained efforts to get
NOTAP and the Federal Inland Revenue Service
(FIRS) to comment on the MTN practices in
Nigeria.
The Director in charge of Technology Transfer
and Agreement, Ephraim Okejiri, initially pleaded
that he was in a meeting, and that the reporter
should wait.
But after over four hours of waiting, he sent a
secretary to say he would not be able to give
any information on MTN.
Similarly at Nigeria’s tax agency, the Federal
Inland Revenue Service, the Director of Public
Communications, Emmanuel Obeta, who had
earlier promised on three occasion to make
information available on the matter suddenly had
a change of mind.
He said relevant officials who should provide him
with the information sought were all not
available.