The Finance Uncovered global network of investigative reporters published a cross-border investigation into South African telecoms giant MTN exposing how billions of rand from its subsidiaries in Ghana, Nigeria and Uganda have been shifted to a shell company in the small island tax haven of Mauritius.
MTN’s Offshore Payments
The reporting team discovered MTN revenue producing companies operating in Ghana, Nigeria, Uganda and Cote d’Ivoire made substantial payments to offshore companies in Dubai and Mauritius. These payments were counted as a cost of business for the operating companies, lowering their profits and potential tax bill.
The enormous sums were purportedly for management and technical services performed on behalf of these companies, as well as royalty payments for the use of the MTN brand. In Ghana, these payments accounted for more than 9% of the turnover of the company.
African journalists in Ghana, Nigeria and Uganda working with Finance Uncovered discovered that 55% of management and technical fee payments are directed towards MTN International, a company based in Mauritius. The Mauritius company has no staff and is little more than a post box. The remaining 45% was routed to MTN Dubai, where the company employs 115 staff who provide shared services to the group.
MTN told reporters that MTN International remunerates companies in South Africa for management services performed on behalf of the company. They were unable to answer why the payments were made to Mauritius first.
Company documents published by MTN said that money in MTN Mauritius was used to repay external debts of the MTN group and dividends, rather than pay for management services.
But after further questions were put to MTN, the company was forced to admit that not all of the revenue was passed onto South Africa. The company refused to disclose how much it kept in Mauritius.
The company said that MTN I is resident in South Africa for tax purposes and the Mauritian entity gives no tax benefit to the company.
MTN in Africa
Our revelations are particularly sensitive given the sheer size of MTN. The South African listed firm is the largest cell phone company in Africa with 227,503,000 subscribers worldwide. Almost one in four mobile phones in Africa are part of the MTN network a total of 161m.
This means MTN is the largest company in many of the countries in which it operates. It is also frequently one of the largest taxpayers in African countries so they are particularly vulnerable to profit shifting by the company.
Our investigation has established that a number of African countries have now challenged the offshore payments made by MTN. Authorities in Nigeria and Ghana have frozen payments and the Ugandan Authorities has placed a large tax bill on the company for management fees paid over a 6 year period.
Scancom, MTN’s subsidiary in Ghana, paid 758m Cedi (Rand 3.7bn, $401m) in management and technical fees to MTN Dubai between 2008 and 2013 equivalent to 9.64% of the company’s revenue.
An agreement between the Ghanian Investment Promotion Centre and the company that allowed the management fees to be paid expired in 2013 and payments have been frozen. MTN is currently negotiating a new agreement with GIPC.
MTN Uganda paid 3% of turnover in management fees between 2003 and 2009 to MTNI in Mauritius. The Uganda Revenue Authority 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. The total tax bill from the URA was R467m ($69m).
In 2013 the company disclosed that it had paid R2.5bn ($562m) in fees to MTN Dubai between 2010 and 2013. The company made this disclosure because the fee payments had been reversed following a failure to come to a new agreement on management fees with Nigerian regulators.
Despite these fees being paid to MTN Dubai, MTN confirmed to us that these fees are then ‘on-paid’ to MTNI in Mauritius and that MTNI Mauritius is the ‘ultimate beneficiary’ of the fees.
MTN has confirmed to us that the company paid 12bn West African Francs in 2012 and 14bn West African Francs (Rand 512.9m, $55.53m) in 2013 in management fees to MTNI. The figure for 2013 is equivalent to 5% of the revenue made by MTN in Cote d’Ivoire.
The reporting team
Finance Uncovered is a global network of journalists from over 55 countries across the globe. This investigation was undertaken by Craig Mckune of amaBhungane in South Africa, George Turner and Nick Mathiason from Finance Uncovered in London, Francis Koktuse in Ghana, Emmanuel Mayah in Nigeria and Jeff Mbanga in Uganda.