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Jamie Doward
Saturday 2 November 2013 20.04 EDT
A global consultancy giant has been accused of advising big business, including
UK firms, on how to avoid paying tax in some of Africa's poorest countries.
ActionAid has obtained documentation showing that Deloitte, which employs
more than 200,000 people in over 150 countries, has been advising foreign
companies on how, by structuring their investments through the tropical island of
Mauritius, they can enjoy significant tax advantages.
The charity claims that the strategy could help companies to avoid paying
hundreds of millions of dollars in tax. Deloitte insists the strategy is not about tax
avoidance and attracts much-needed investment to the countries involved.
A Deloitte document, "Investing in Africa through Mauritius", passed on to the
Observer, advises on investing in African companies via the island nation, which
has a population of 1.3 million. The document provides the example of a foreign
company investing in Mozambique, where more than 50% of the population live
below the poverty line and average life expectancy is 49 years. Normally, the
foreign company could expect to pay a withholding tax on the dividends flowing
back to it from Mozambique of 20%. A sale of its Mozambique investment would
see the company liable for a capital gains tax bill of up to 32%.
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see the company liable for a capital gains tax bill of up to 32%.
However, the Deloitte document explains that, if the foreign company made its
investment through a holding company in Mauritius, it could limit the
withholding tax it would have to pay to just 8%, while capital gains tax would be
reduced to zero. The potential value of capital gains tax to developing economies
is considerable. An Italian oil company was recently required by the Mozambique
government to pay $400m (250m) in capital gains tax.
The document explains that Mauritius could tax the holding company's profits at
15%, but that this does not happen in practice. The firm explains that any tax
liability in the island is wiped out by a foreign tax credit, issued because the
company has been taxed in Mozambique.
Deloitte presented the document at a conference for international businesses two
weeks before this year's G8 conference in Loch Erne, Northern Ireland, when
world leaders promised action to help impoverished nations improve their tax
regimes. It followed claims by David Cameron that aggressive tax avoidance was
"morally wrong".
More than 80 major international organisations attended the conference
addressed by Deloitte. Representatives from major banks and legal firms,
including Clifford Chance, Citibank, JP Morgan, the World Bank, Standard Bank
and several Chinese firms, were present.
Tax campaigners are increasingly concerned about how Mauritius is used by big
business with interests in Africa. The island has taken steps to aggressively
position itself as the "gateway to Africa" for companies looking to invest in the
continent. It currently has 14 double taxation treaties in place with African
countries and a further 10 under negotiation. But ActionAid said the terms of the
treaties could easily be abused by companies seeking to minimise their tax bills.
The charity wants a global clampdown on tax avoidance, which it says costs
developing countries hundreds of billions of pounds a year in lost revenue. It said
that, if companies paid their fair share of tax, the money could be used to fund
food, health and education programmes. It cited the example of a British sugar
company operating in Zambia. The money saved by the company through the
legitimate use of tax avoidance schemes was enough to put 48,000 of the
country's children through primary school every year.
"The tax strategy advised by Deloitte could potentially be used to deprive some of
the poorest countries in the world of desperately needed tax revenues," said Toby
Quantrill, ActionAid Tax Justice Policy Adviser. "In using the example of
Mozambique to illustrate their strategy Deloitte chose a country where the
average income is less than two dollars per day and one third of the population is
chronically food insecure. Developing countries need to grow their tax revenues,
which are vital to help lift people out of poverty. But that can only properly
happen if large companies stop avoiding their taxes."
A Deloitte spokeswoman said it was wrong to describe applying double tax
treaties, such as that between Mauritius and Mozambique, as tax avoidance: "The
absence of such treaties could result in a reduction of investment, and less profit
subject to normal business taxes in the countries concerned."
Topics
Deloitte
Tax avoidance
Mauritius
Africa
Financial sector
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