The telecommunications giant confessed to making unauthorised payments between 2010 and 2013 to MTN Dubai in the sum of N37.6 Billion, without the approval of the National Office for Technology Acquisition and Promotion (NOTAP), an organisation established to oversee such transfers in Nigeria.
MTN has reportedly been evading tax payment in Nigeria, using ‘Transfer Pricing’, which in this case involves making payments to two overseas companies located in tax asylums; MTN Dubai, and MTN International in Mauritius. Investigations leading up to this report show that MTN has carried out these dubious activities on the Nigerian economy from 2010, although they originally began in 2002.
The telecommunications giant confessed to making unauthorised payments between 2010 and 2013 to MTN Dubai in the sum of N37.6 Billion, without the approval of the National Office for Technology Acquisition and Promotion (NOTAP), an organisation established to oversee such transfers in Nigeria. The transfers were then supposedly paid to MTN International in Mauritius, an outfit that is physically represented only by a post office box in Port Louis, and is devoid of any member of staff.
An estimation of N90.2 billion has been reached as a total sum in management fees that has been transferred out of Nigeria since 2002. This is based on an earlier management fees agreement nullified by NOTAP, as well as on the basis of MTN’s reported revenues.
Nigeria requires that management fees paid by multinationals are approved NOTAP. MTN’s previous agreement with NOTAP expired in 2010, and until then, MTN Nigeria agreed with MTN Dubai to pay 1.75% of revenues to the company for management, as well as royalties for the use of the MTN trademark. However, payments were reversed following the failure to renew an agreement with Nigerian regulators.
According to MTN, the justification for paying management and technical services fees to a company without employees (MTN Dubai) is that the contracting party (MTN) has the choice of discharging its contractual obligations as it deems fit.
The company’s financial activities, especially in the area of management fees, are currently being probed by various African tax authorities.
In a statement made by Cyril Ramaphosa, the South African deputy president, “Tax evasion is not only a crime against the state; it’s also a crime against the people of our country, ordinary people.” Incidentally, Rhamaposa was a non-executive chairman on MTN’s board before becoming deputy president, suggesting he could be an ‘accomplice’ in the crime he openly condemned, in Nigeria.
Even though it remains a crucial problem in international tax, transfer pricing – the method used by MTN in Nigeria – is not particularly illegal, except when it is in the form of ‘transfer mispricing’ which is manipulative and abusive, and occurs usually under ‘reinvoicing’. However it is still tax evasion, and poses a serious threat to the growth of any economy that it is practiced in.
Developing countries are more susceptible to the economic risks that come with the practice of transfer pricing. Taxing multinationals is a general struggle that developing countries face. Therefore, in order to attempt a reform at transfer pricing, tax authorities need to establish a solid taxation system, complete with economic and legal preconditions and requirements.
Source: Ventures Africa