Eric Mutema, Africa. Com
Batting for tax avoidance
When 8 Miles wanted offshore advice, it turned to the Mauritius arm of Conyers Dill & Pearman.
Founded in Bermuda in 1928 by Reginald Conyers, a speaker of the island’s parliament and a first-class cricketer, the firm is widely credited with creating the world’s first-ever offshore company. The “exempted” Bermuda company (not subject to requirements imposed on local companies) benefited members of the American Noble family, heirs to the Lifesavers candy fortune.
In a history of Conyers published in 1998, one attorney is quoted as describing a typical client as someone “who would rather spend $10,000 on legal bills than pay $5,000 to Uncle Sam.”
Documents from Mauritius Leaks identify companies from United States, Europe and Asia, as well as homegrown African investors, among Conyers’ clients.
In a section marked “not for publication” in its 2017 submission to a law firm-ranking competition, Conyers listed eight confidential clients. One of the eight was the Industrial and Commercial Bank of China, which Conyers advised on a $3 billion loan to MTN Group, Africa’s largest mobile phone company. Conyers also said it guided the $65 billion merger of two gas and engineering companies. Accompanying this particular disclosure was this emphatic statement: .” The documents do not suggest these transactions involved tax avoidance.
In 2017, three Conyers directors, Sameer Tegally, Ashvan Luckraz and Sonia Xavier, bought Conyers’s Mauritius assets. They renamed the business-management operation Venture Corporate Services and the law practice Venture Law Ltd.
As part of the sale, a local accounting firm proposed three routes for the directors to avoid or reduce taxes paid on the sale in Mauritius, according to draft tax advice.
Tegally, Luckraz and Xavier did not respond to questions, including any tax advice they did or did not follow.
And where there are tax shelters, there are Big Four accounting firms. KPMG, PricewaterhouseCoopers, Deloitte and EY all have offices on Mauritius.
In 2015 KPMG advised Ubongo Group, Africa’s largest producer of educational children’s television programs, whose shows reach 11 million households in 31 countries. Eyeing an expansion, the Tanzania-based company predicted a 35-fold increase in revenue over six years, according to a financial model.
KPMG provided advice on the “economical means of Ubongo Mauritius extracting profits from Ubongo Tanzania,” according to a Ubongo planning document. One KPMG suggestion was that the Mauritius subsidiary lend money to the Tanzanian one, so that the money used to repay the loan would be taxed at 3% in Mauritius rather than 30% in Tanzania.
Ubongo told ICIJ that it took advice from KPMG about how to grow across Africa, but did not follow through with the plans or recommendations. “We canceled the investment round before receiving any funds, and instead re-registered as a non-profit organization to better align our funding and structure with our mission,” Ubongo told ICIJ.
KPMG did not comment on specifics, but said its “tax professionals act lawfully” and “with integrity.”
‘No nefarious agenda’
Mauritius’ tax benefits are popular with African elites as well as foreign ones.
Patrick Bitature owns telecommunications, energy, media and hotel companies across Uganda. One of Uganda’s richest men, who once sat on the boards of one-third of the companies on the Kampala Stock Exchange, Bitature has been close to Uganda’s authoritarian president, Yoweri Museveni, according to The Indian Ocean Newsletter, a respected news outlet.
He is also majority owner of Electro-Maxx, which runs Uganda’s largest thermal power plant, located in the eastern town of Tororo. It is the first African-owned and financed company to produce power on the continent.
In 2011, the investment company African Frontier Capital LLC proposed a $17.5 million investment in Electro-Maxx that passed through a newly incorporated Mauritius company named African Frontier I LLC, according to minutes of the African Frontier board. The proposal included a $2.5 million personal loan to Bitature, the minutes say.
The company’s minutes, dated June 2011, also said it would apply for a tax residency certificate every year to “benefit” from the tax treaty between Uganda and Mauritius.
Robert Mwanyumba, a tax researcher focused on East Africa, said that if the company used the treaty with Mauritius, it would have been subject to its low corporate income tax rate instead of Uganda’s 30% rate.
Bitature confirmed the existence of a “bona fide” transaction and said the use of a tax treaty was a question for African Frontier, which did not provide a comment on the subject.
Responding to ICIJ media partner The Daily Monitor, Bitature said that Electro-Maxx sought external financing when it could not raise money for a new project. “The transaction was carried out within the provisions of the tax laws and fully accounted for in tax returns shared with” the Uganda Revenue Authority, he said.
“All taxes if any” were paid, Bitature said, adding “there was absolutely no nefarious agenda.”
African Frontier Capital, via the Mauritius company African Frontier I, ended its investment in Electro-Maxx in 2014. It told ICIJ that the investment was “a completely arms-length transaction” that fully complied with the laws of the countries involved.
In January, after years of complaints from its treaty partners and under pressure from international institutions, Mauritius overhauled the tax laws governing its offshore sector.
Gone is Global Business License 1, the form of shell company that poorer nations denounced as an exploitative tax-avoidance tool.
Mauritius now requires investors to have reasonable local staffing and to spend money on the island that reflects the activities of a real office – known as “enhanced substance” – to benefit from tax treaties or low tax rates. Shell companies are a thing of the past, Mauritius assures outsiders.
Bemoaning the new rules, one member of Parliament blamed the Panama Papersand Paradise Papers investigations by ICIJ, among other exposés, for soiling the offshore industry’s reputation. “Under pressure from the OECD and the European Union, who have at heart only their interest to further tax their citizens and corporations, Mauritius, once again, has kowtowed,” lawmaker Mohammad Reza Cassam Uteem said.
Corporations, fund managers and tax advisers warned the changes would make Mauritius less attractive for investment.
Others, however, suggest that its reforms may be little more than box-checking designed to keep the country off international blacklists. Mauritius, they say, has already found ways to continue providing tax-avoidance opportunities.
The island reluctantly agreed, for example, to a rule that allows a Mauritius treaty partner to deny tax-treaty benefits to a multinational corporation that opens in Mauritius with the “principal purpose” of exploiting those benefits. Experts say that poorer countries will rarely be able to make use of that provision: Denying treaty benefits to a corporation will require technical, financial and political resources that a developing country may not have.
Sol Picciotto, emeritus professor at Lancaster University law school in England, said of Mauritius: “They play the game so as not to be denounced as uncooperative, but they can manoeuver within the grey areas of the rules. They can say they’re doing it by the book, but the book is full of technical tricks, and Mauritius has some very skilled technicians.”
This year, Setsoto Ranthocha, the Lesotho tax official, negotiated with Mauritius to fix a treaty that he says has cost his country dearly. “They are tough negotiators,” Ranthocha said of his Mauritius counterparts. “They know what they are doing.”
Meanwhile, Mauritius is pursuing new treaties with 16 African states, bidding to bring its coverage to nearly 60% of the continent.