Minister of Finance Pravin Gordhan makes comments after the presentation on Two decades of freedom, presented at the Nelson Mandela Foundation on Monday. Picture: Timothy Bernard 04.11.2013
Minister of Finance Pravin Gordhan makes comments after the presentation on Two decades of freedom, presented at the Nelson Mandela Foundation on Monday. Picture: Timothy Bernard 04.11.2013

NGO highlights tax avoidance

By Ann Crotty Time of article published Nov 13, 2013

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Johannesburg - Finance Minister Pravin Gordhan’s insistence on the need to ensure companies in Africa pay their fair share of tax comes just weeks after UK-based NGO ActionAid released a damning report on a document issued by auditing and consultancy services group Deloitte, which advises companies on how to avoid paying tax on their African operations.

According to ActionAid, the Deloitte document advises international companies to invest in Africa through Mauritius to avoid tax. ActionAid, which acknowledges that tax avoidance is legal, states that the Deloitte report provides companies wanting to invest in Mozambique with details on how they can achieve a 60 percent reduction in withholding tax and a 100 percent reduction in capital gains tax by investing through Mauritius.

“Mozambique is one of the poorest countries in Africa where over 50 percent of the population lives below the poverty line and the average life expectancy is just 49 years,” ActionAid said.

Mauritius, which has been described as the “gateway to Africa” for international businesses, has 14 double taxation treaties with African countries.

An example used by Deloitte describes how a Chinese company investing directly in Mozambique would be required to pay a 20 percent withholding tax on profits remitted as dividends to its Chinese parent. The withholding tax is in addition to the 32 percent tax paid on the profits. If the Chinese company sold its Mozambique operation it would have to pay 32 percent on any capital gain.

However, if the Chinese company invested in Mozambique through Mauritius it would only have to pay 8 percent withholding tax on any dividends paid to China. In addition, it would have to pay no capital gains tax if it sold the Mozambican operation at a profit because of the double taxation treaty Mauritius has with Mozambique.

In its response to ActionAid’s criticism, Deloitte said that the absence of double tax treaties, which were freely negotiated between the governments involved, “could result in a reduction of investment, and less profit subject to normal business taxes in the countries concerned”.

However, ActionAid tax policy adviser Toby Quantrill countered that these treaties were being used to deprive poor countries of hundreds of millions of dollars in tax.

“These techniques may be legal but that does not mean they are moral. Tax revenues are desperately needed to meet peoples’ most basic needs and to move countries away from aid dependency,” he said.

He added: “Big businesses have an important role to play in economic development in poor countries. But they also have to act in a socially responsible way. Deloitte is failing Africa for as long as it continues to advise on tax avoidance strategies in the way [it has] been doing.”

According to ActionAid, the Deloitte report was presented at a conference in Beijing held just two weeks before the start of the Group of Eight conference in Northern Ireland in July. A key topic at that conference was what action could be taken to combat the impact of tax avoidance internationally. - Business Report

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