INVESTIGATION: How MTN ships billions abroad, paying less tax in Nigeria-Premium Times

MTN has consistently prided itself as the foremost telephone company that is getting Nigerians talking the most. Now the South African company is about to set tongues wagging across networks with revelations that it has routinely been shipping billions of naira overseas to avoid paying its fair share of tax in Nigeria.

An 11-month-long investigation by PREMIUM TIMES reveals that MTN has been running circles around Nigerian revenue authorities using a complex but noxious tax avoidance scheme called Transfer Pricing.

For any economy, it is a slow death.

The red flag was raised the moment our investigations showed that MTN Nigeria has been making payments to two overseas companies – MTN Dubai and MTN International in Mauritius – both located in tax havens.

It was discovered that in 2013 for example, MTN set aside N11.398 Billion from MTN Nigeria to pay to MTN Dubai. A similar transfer of N11.789 Billion was made by MTN Ghana to the same MTN Dubai, making it a total of N23.187 Billion that was shipped to the Dubai offshore account.

In a rare disclosure in 2013, MTN admitted it made unauthorized payments of N37.6 Billion to MTN Dubai between 2010 and 2013. The transfers were then “on-paid” to Mauritius, a shell company with zero number of staff and which physical presence in the capital Port Louis is nothing more than a post office letter box. The disclosure amounted to a confession given that MTN made the dodgy transfers without seeking approval from the National Office for Technology Acquisition and Promotion (NOTAP), the body mandated to oversight such transfers.

On the basis of an earlier management fees agreement that was technically quashed by NOTAP and on the basis of MTN’s reported revenues, it is estimated that N90.2 Billion could have been transferred out of Nigeria in management fees alone since the company was founded in 2002.

Transfer Pricing

For corporate organizations determined to escape the taxman but still cleverly staying on the right side of the law, Transfer Pricing is the new cellar door constructed by the most ingenious of accountants. It is a new global disease to which Third World economies are the most vulnerable.

Multinationals employ Transfer Pricing to move their profits offshore, leaving behind a shrinking tax base in their host countries and inexorable cuts to public services.

In Africa, tax avoidance has been named as one of the factors holding the continent back by starving governments of the revenues it needs for development.

A report jointly commissioned by the United Nations and the African Union and drafted by a high level panel led by former South African president Thabo Mbeki considered tax avoidance by multinationals to be an “illicit financial flow” and a significant drain on government resources across the continent.

In total illicit financial flows, which included corruption and the proceeds of crime, were determined to be costing the continent $50billion a year.

Just last year, South Africa’s deputy president Cyril Ramaphosa had harsh words for tax dodgers. He said: “Tax evasion is not only a crime against the state; it’s also a crime against the people of our country, ordinary people.”

Curiously, the same Cyril Rhamaposa was non-executive chairman of the board of MTN between 2001 and 2013 before he became South Africa’s No.2 man. In effect, the same tax practices which the deputy president strongly condemned in his country as financial crime is vigorously being promoted in Nigeria.

MTN is the largest cell phone company in Africa with 227.5 million subscribers. The company, which operates in more than 20 countries across Africa and the Middle East, has Nigeria as its biggest operation.

Until now, tax justice investigations had focused on computer giants, corporations in the extractive industry, food and beverages; in fact everywhere but the mobile phone sector despite the cell phone industry in Africa being one of the largest and most important industries for the continent.

Mobile phone has been a cheap and quick way of rolling out the vital communications infrastructure that has underpinned Africa’s growth story over the last decade. As a result the industry has seen explosive growth. With 685million mobile phone users in Africa, the success story means that cell phone companies are now the largest contributor to government revenues in many African countries. That is when they pay their fair share of taxes.

Artificial operating costs

To pay little or no tax, companies determined to cheat begin by seeking ways to create artificial operating costs in the country where they operate. For example, a company is in Nigeria but has a parent or subsidiary company in another country. It makes huge profit but decides to declare a much lower profit-before-tax. To achieve this, it pays the parent and/ or subsidiary company for services not rendered and ships cash to them. Where services are rendered, the costs are inflated. Such services may include royalty for the use of brand name, procurement services, technical services and management services.

Typically, the recipient company is located in an offshore territory under a different financial jurisdiction. MTN has a substantial network of subsidiaries in offshore tax havens, including the British Virgin Islands, Dubai and Mauritius.

Because of the growing concerns that multinationals are using intra-company trading to shift profits around the world by overcharging for services delivered or in more extreme cases by creating artificial transactions where no services was rendered at all, respective countries have a maximum percentage of profits it can allow companies to pay out as management fees.

For example, in Senegal, accounts from the company Sonatel show that the company has a ‘cooperation agreement’ with parent company France Telecom that is capped at 1.43% of revenue.

Until 2010 MTN Nigeria had an agreement with MTN Dubai to pay 1.75% of revenues to the company for management, and royalties for the use of the MTN trademark. Nigeria requires that management fees paid by multinationals are approved by the National Office for Technology Acquisition and Promotion (NOTAP). The fee payments had been reversed following a failure to come to a new agreement on management fees with Nigerian regulators.

MTN’s previous agreement with NOTAP expired in 2010.

Notwithstanding, MTN has continued to make payments overseas. When we sent questions to MTN over these unauthorized payments, the company told us that this was because they expected NOTAP to approve a new deal and backdate it to the date of the expiry of the previous deal.

MTN’s financial activities are now being questioned by more than one tax authorizes in Africa.

In Ghana the MTN subsidiary, Scancom, has been paying vast management fees to companies located offshore. Our investigations reveal that Scancom paid 758m GHS in management and technical fees to MTN Dubai between 2008 and 2013. This was 9.64% of the company’s revenue. Normally the maximum fee level allowed in Ghana is 6%.

We can reveal that the high levels of fees attracted the attention of Ghana’s intelligence services, which launched an investigation into “economic fraud” between 2012 and 2013.

MTN’s management fees need approval from the Ghana Investment Promotion Centre (GIPC). The Ghanaian “National Security Taskforce” has called for a “review of all technology transfer and management service agreements currently held by GIPC to remove sections which are inapplicable and wrongly provided for” and upgrading and training of state systems and staff.

In response to this, MTN in Ghana told us: “The technical and management services agreements between Scancom and Investcom were duly approved by the GIPC.”

The current head of the GIPC is Mrs. Mawuena Trebarh, who between 2007 and 2012 was responsible for government relations at MTN Ghana. This reporting team asked Mrs Trebarh to comment on whether her previous role could be perceived a conflict of interest. She did not respond to our requests.

In response to our enquiries MTN confirmed that the company paid 12 billion West African Francs in 2012 and 14 billion West African Francs in 2013 in management fees to MTN International. The figure for 2013 is equivalent to 5% of the revenue made by MTN in Cote d’Ivoire.

Dubai paradox

Dubai is one of the places MTN ships huge profits to. Meanwhile, MTN does not operate any mobile phones in Dubai, yet it has significant operations in the small city state.

MTN told us that it employs around 115 people in Dubai who provides services to the MTN group such as group procurement, group finance, legal services, human resources and other corporate functions.

One tool that campaigners have said will be helpful is to look at company reporting on a country by country basis. If a company is making huge revenues in a country where it has few employees but there is a low tax rate, which would suggest that there may be some profit shifting taking place.

In Uganda, a dispute between the Uganda Revenue Authority and MTN has revealed that the company is paying 3% of its turnover in management fees to MTN International.

The fees have been challenged by the Uganda Revenue Authority (URA) who 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, most of which had been paid to Mauritius.

Correspondence between the URA and MTN seen by us show that the URA questioned the legitimacy of these fees, and pointed out that MTNI, the company providing “management services” to MTN Uganda had not spent any money in the years they had looked into. The URA said this could only mean two things: that management services provided to MTN Uganda had either already been paid for by MTN Uganda (and so MTN was in effect charging twice for the same thing) or they were never provided at all.

The Ugandan authority told the company: “We have repeatedly asked for evidence of specific work performed by MTN Group for MTN Uganda for each of the tax years 2003 to 2009. We have only been provided with very little information relating to 2009 and the latter years. This information is very far from justifying a payment of 3 per cent of MTN Uganda’s turnover as management fees.”

NOTAP keeps mum

Asked to confirm the amount of fees paid out to MTN Dubai and Mauritius based on the company’s reported revenue between 2002 and today, MTN told PREMIUM TIMES: “There is no disclosure obligation for this information in South Africa or Nigeria.”

Asked to explain the possible justification for MTN Nigeria to pay fees for management and technical services to a company with no employees, MTN said: “It is the contracting party’s prerogative as to how it elects to discharge its contractual obligations.”

Meaning is that MTN Mauritius can perform its task without a single staff member.

PREMIUM TIMES made sustained efforts to get NOTAP and the Federal Inland Revenue Service (FIRS) to comment on the MTN practices in Nigeria.

The Director in charge of Technology Transfer and Agreement, Ephraim Okejiri, initially pleaded that he was in a meeting, and that the reporter should wait.

But after over four hours of waiting, he sent a secretary to say he would not be able to give any information on MTN.

Similarly at Nigeria’s tax agency, the Federal Inland Revenue Service, the Director of Public Communications, Emmanuel Obeta, who had earlier promised on three occasion to make information available on the matter suddenly had a change of mind.

He said relevant officials who should provide him with the information sought were all not available.

Additional report ‎by Bassey Udo and Nicholas Ibekwe.


OBITUARY: Wife Critically Ill, Son Killed In Dubai

Diepreye Solomon Peter Alamieyeseigha, the first elected governor of Bayelsa state, did not die a happy man. He suffered multiple tragedies in his last days on earth and, on Saturday, went to his grave abruptly, apparently with a broken heart.

In October 2014, the man once known as the “governor-general of the Ijaw nation” flew to Dubai, United Arab Emirates, to retrieve the corpse of Oyamieyifa, one of his sons who died under controversial circumstances. No father wants to bury his child, and not even under such a cloud. Tonbra, his other son, broke up with his wife of seven months, Chikodi Stella Ononiwu, early 2015 in controversial circumstances after a dream wedding which was the talk of the town. That might have been of little worry to Alamieyeseigha, who had to also watch his wife, Margret, suffer so much pain as a result of bad health.

TheCable also understands that she is currently undergoing treatment for a life-threatening ailment. And in a most dramatic twist of fate, the British government recently requested his extradition to face trial for alleged money laundering, according to reports. Oyoms Alamieyeseigha Oyamieyifa died in controversial circumstances In September 2005, the UK’s Metropolitan police had detained him after finding about £1 million cash on him, and another £1.8 million in cash and accounts. He was subsequently charged with money laundering but he jumped bail after allegedly disguising as a woman, an allegation he denied. A family source told TheCable about how the former governor received the news of the plans to extradite him to the UK. “He was devastated over the plans to take him back to UK for trials. He told family members that he has suffered enough of the judicial processes and humiliation,” the source said. A few days later, he fell into a coma. He never recovered. He died on Saturday from cardiac arrest at the University of Port Harcourt Teaching Hospital, the Bayelsa state government said.

JONATHAN STOOD SOLIDLY BY HIM Jona Ala Alamieyeseigha and his protege, Jonathan Alamieyeseigha, a retired air force officer, used to enjoy a cult-like status among his people and his travails in the UK did not deny him of that. Loyalty is rare to find in the Nigerian political terrain but DSP, as his supporters called him, got that even from Goodluck Jonathan, his two-time deputy who would later become vice-president and president of Nigeria. Unlike the average politician who would capitalise on the misfortune of his superior to launch himself into power, Jonathan stood by Alamieyeseigha until he was impeached on December 9, 2005. In a chat with journalists shortly after he took over the reins of government in Bayelsa, Jonathan said: “You all know how I have been loyal to him from the beginning until this sad event made me succeed him.” In his last known interview before he died, Alamieyeseigha commented on what made him choose Jonathan as a partner. “I wanted a deputy governor who had high level of intelligence and stable character like Jonathan,” he told Vanguard. “I also needed an establishment person and somebody who was not too ambitious that if I was out, he could stand in for me and could run the state. I needed somebody, who would not attempt to cause trouble if I travelled out of the state so that I could sleep well.” And that was exactly what Jonathan did.

THE CORRUPTION ALLEGATIONS AGAINST HIM In July, 2007, Alamieyeseigha was sentenced to two years in prison and many of his assets were ordered to be forfeited to the Bayelsa state government. He was discovered to have owned real estate in London worth £10 million. In December 2009, the federal government hired a British law firm to help dispose of four expensive property acquired by Alamieyeseigha in London. In 2012, the US Department of Justice announced that it had executed an asset forfeiture order on $401,931 in a Massachusetts brokerage fund, traceable to Alamieyeseigha. The allegations of corruption against him were mind-boggling, arousing fury when Jonathan as president of the country, pardoned him in March 2013.

HE FORGAVE OBASANJO, HIS NEMESIS obasanjo Obasanjo Alamieyeseigha believed former President Olusegun Obasanjo masterminded his trial and ruined him politically because he opposed Obasanjo’s rumoured third term agenda. He spoke on his encounters with the former president, saying he had forgiven him. He said: “I cannot be living in the past because it does not help. It pains quite well but again, if it was not permitted by God, it would not have happened. And for me to be alive, I thank God. Sometimes when I reflect on where I am coming from, I even at times ask why I am still alive, having passed through what I have passed through. It reminds me of Psalm 23, somebody passing through the valley of the shadow of death. I passed through it several times. For me to be alive, I do not need to have anything in mind. “I have been at a very close quarters with Obasanjo twice. The first encounter was at the Katsina Airport during the wedding of the daughter of late President Yar’Adua. I did not even know that he was in the VIP lounge. I wanted to use the rest room and here was Obasanjo directly sitting inside. I was even scared because he almost passed out. “I held his hand and he said DSP what have I done to deserve a handshake from you? There were other people; Kenny Martins and one of his political friends present. I said I was shaking him for two reasons. One was because of the Almighty God who created us. Number two is that tradition demands that we should welcome our visitors. Then Kenny got up and said, great leader, great leader and he came to hug me. “The second encounter was when I was going to Dubai and if Obasanjo had known that I was in that aircraft, he would not have entered but I was already seated. We were very few in the aircraft. Because of fear, Obasanjo saw me and hysterically called me ‘Fayose, Fayose’ and I told him that I was not ‘Fayose.’ I said former president, Olusegun Mathew Okikiola Aremu Obasanjo, you are a devil incarnate. I said when we were small, our lesson teachers always talked about this devil and this devil and I never knew that the devil is a human being. I told him that you are a direct descendant of the devil. I told him that if you talk, I will throw you out of this aircraft. “I knew of truth that he did not sleep throughout the flight. The only thing he said was DSP, is it only you that entered prison. I too entered prison. He said you entered prison and I entered prison. He kept quiet and I left. But I have forgiven him.”

DICKSON WILL SURELY MISS HIM: One of those who would suffer from the demise of the ex-governor is Governor Seriake Dickson, who is standing for another election, in less than two months. The deceased was actively involved in the re-election campaign of Dickson. Responding to the news of the death, Dickson described Alamieyeseigha “a rare gem”, saying his demise “is a very painful and monumental loss to the entire Ijaw nation, which he has always stood firm for in all its ramifications”. Born on November 16, 1952, Alamieyeseigha was governor of Bayelsa state from May 29, 1999 to December 9, 2005 when he was impeached.





L-R: A portakabin used as lecture room at AIT in Ghana and the seven-storey building housing SMU one of their so-called private universitie

Knocks for Ghanaian President over energy proposal to Nigeria

The Ghanaian President, Mr. John Mahama, recently disclosed his country’s intention to supply electricity to Nigeria, but his comments have continued to generate diverse reactions from Nigerians.

Mahama’s comments at the Africa Global Business and Economic Forum in Dubai, coincided with Nigeria’s Independence Day, October 1. His comments also seem to have angered many citizens of Nigeria, who felt insulted by Ghana’s ambition to supply power to Nigeria in future.

Nigeria, the world’s most populous black nation, is often called the giant of Africa, a position that was further strengthened by a recent rebasement exercise that made the country’s economy the largest in Africa, ahead of South Africa’s.

But while South Africa generates about 45,000 MW of electricity, Nigeria only generates about 4,000MW.

According to Mahama, his government had made huge investments in power generation that would enable the country to export excess electricity to Nigeria and others.

“We have given priority to electricity generation in our country. We have prioritised energy in such a way that we want to become the hub for power production in West Africa. We want to generate electricity to the point that excess power can be exported to Nigeria, Ivory Coast and other countries that have power deficit,” he said.

In addition, Mahama said his country had secured export-import financing from China and special funds from Abu Dhabi to start series of power generation projects. The Ghanaian President added that a third hydropower dam project was already at an advanced stage in his country.

Meanwhile, some respondents who spoke to Power Talkback, described Mahama’s comments as boastful.

A resident of Ibadan, Oyo State, Daniel Adewunmi, expressed surprise by Mahama’s comments, saying Ghana lacks the capability to supply power to Nigeria now and in the nearest future.

“I wonder why the Ghanaian President made the statement because the last time I was in Ghana, there were power outages, so I don’t understand the rationale behind his confidence. Power supply is irregular in Nigeria but if we are going to be importing electricity, it can’t be from Ghana. I know for a fact that West African Gas Pipeline Company in Nigeria supplies gas to Ghana, so what was Mahama talking about?” He asked.

A respondent in Lagos, James Okor, also described Mahama’s comments as ridiculous.

Okor said the Ghanaian President was only boasting about what he knew his country could not achieve.

“The man (Mahama) was only trying to make Nigerians feel like Ghana is better, which is as a result of the hype many Nigerians have given to Ghana. He probably hears about how Nigerians make disparaging remarks about their government and the power distribution companies, and then feels the problem is so much that we will need to turn to Ghana for help. But the situation is not so bad for us that we will turn to Ghana for solutions. Nigeria supplies gas to Ghana to boost its electricity, so how can Ghana be planning to be supplying power to its supplier at the same time?I always laugh when they compare them to Nigeria.A country whose capital is the size of Calabar.Even in neatness Calabar beats it by far.Who is Ghana compared to Nigeria? ” he also asked.

“This is happening because Nigerians have now flooded Ghanaian schools, which has affected the country’s esteem in the eyes of Ghanaians.”

However, another respondent, Mrs. Anjorin, said it doesn’t matter where Nigeria gets power supply from as long as homes get constant electricity.

“Should it matter where Nigeria gets its electricity from if there is constant electricity in our homes?” She said.

A Public Relations consultant with 30 years experience in the energy industry, Mr. Tokunbo Peters, described Ghana’s proposal as ironic.

He said, “We are supplying gas to Ghana through WAGPCo; it’s ironical that we are supplying gas to Ghana and Ghana is proposing supplying Nigeria with electric power. This is really an irony because the local power plants in Nigeria are always complaining of inadequacy of gas. Their major complaint is that they don’t have adequate gas to generate power. For instance, the two power plants at Olorunsogo close to Papalanto, Ogun State, since commissioning, have been producing below the installed capacity and the major complaint has been inadequate gas.

“So it’s really ironical that the same Ghana that we have been supplying gas to through WAGPCo is proposing to supply us with electricity. We have plants in Nigeria that require gas which are not getting gas, so our problem is not about our installed capacity, our problem is in our inability to provide those plants with sufficient gas to produce to their installed capacity. This administration has commissioned more plants than any other one but the problem is that they are not getting the gas required to generate power for the consuming populace.”

Peters, however, urged the Nigerian government to review its gas exportation policy by first satisfying the local gas consumption before exporting it to neighbouring countries.

He said, “There is a standing agreement between Nigeria and its neighbours on the supply of gas through WAGPCo, but Irrespective of that, we should satisfy local consumption first and foremost. There is an African adage that says that ‘you don’t leave fire burning in your house and assist your neighbour to quench fire. We cannot be crying about insufficiency of gas and at the same time be exporting gas to Ghana and other West African neighbours. My opinion is that we should take care of the local consumption first and after that we can begin to satisfy our West African neighbours.

“Are you aware that not too long ago, in the first quarter of this year, we were unable to supply gas to Ghana because of some vandalised pipelines and they had to start rationing power? If the same Ghana could ration power, then they could continue to ration while we satisfy our local consumption. When we do that, we can export the finished product to them rather than Ghana proposing exporting the finished product to us. Ghana’s proposal to supply electricity to us is similar to the practice of exporting crude oil to Europe and importing the finished products from them.

“If we give enough gas to the local plants, it means more power will be generated locally, more jobs will be created, goods and services will be delivered at cheaper rates, companies will spend less hours burning generators, companies will use public power supply to produce goods and that will translate into drop in the prices of goods. It’s simple economics.”

Copyright PUNCH.