John Christensen ■ The Offshore Wrapper: A week in tax justice
Going down? Egypt’s richest family
Egypt’s highest profile tax case has taken a bizarre turn this week. The story starts in 2007 when Orascom Construction Industries sold their cement business to the French giant Lafarge.
In 2012 the company was accused by then President Morsi of tax evasion over the Lafarge sale. An investigation by the Egyptian Tax Authority (ETA) claimed that the company avoided LE7bn ($1bn) in taxes on the sale. The ETA demanded another LE7bn ($1bn) in charges and interest payments.
Nassef’s big brother, Naguib weighed in to claim the charges were politically motivated and the family threatened to move the company to Holland (which is what eventually happened).
The government retaliated and placed a travel ban on the Sawiris family. Eventually the company settled and agreed to pay LE7bn in installments.
But with the fall of the Morsi government, the company stopped paying the ETA. In March, Orascom Construction Industries put out a press release stating that Egypt’s public prosecutor had dropped all charges and completely exonerated the company and all subsidiaries of all accusations of tax evasion.
But here’s the twist. Ahram Online reported this week that the ETA never dropped the case. OCI, it is claimed, still owes the ETA a massive pile of cash. Alleged failure to pay has reportedly landed Nassef with a 3 year prison sentence in absentia.
The Sawiris family has launched an appeal, the case really does continue.
Wildlife Focus: half vulture, half wallaby
Tax transparency campaigners have accused an Australian Government Minister, Malcolm Turnbull (pictured), of investing millions of dollars in vulture funds based in the Cayman Islands.
The revelation came after Mr Turnbull moved his wealth from shares to managed funds, presumably to avoid accusations of conflict of interest.
But the Australian PM may want to consider whether his Communications Minister is up to the job after the move turned into a PR disaster.
It also comes after the Australian government has launched an aggressive campaign against offshore tax havens. Mr Turnbull says that all income from his investments is declared and taxed in Australia.
Caught short Down Under?
A report commissioned by the Sydney Morning Herald alleges that mining giant Glencore has paid almost no tax on corporate income of over $15bn AUS ($14 USD) in the past three years.
The report was written by a former executive of a major company who wished to remain anonymous. It accuses the company of engaging in transfer pricing and of base erosion and profit shifting through intra-company loans accruing interest of up to 9%.
The issue is particularly sensitive because the mining industry in Australia gets billions of dollars of government subsidies.
Glencore, which has its head office in Switzerland, its registered office in Jersey and was founded by a US tax exile, has hit back claiming that the company pays a substantial amount of tax in Australia.
It sent a letter to employees that was picked up by the Financial Times which states that the company had indeed paid A$400m (£218m) in corporation tax.
Seems the ball is now in Australian investigators’ and journalists’ court to shed further light here.
Kenya cracks down on transfer pricing
The Kenyan Revenue Authority (KRA) is looking to crackdown on abusive transfer pricing. This comes as more and more companies are shifting parts of their operations offshore to avoid paying tax, according to the country’s Standard media outlet.
Companies leaving the East African country include Supa Loaf, the continent’s largest baker which has moved its holding company to Mauritius.
KRA is building up its own database of prices so that it can compare them to the prices charged by companies when transferring goods from one part of the business to another. The Kenyan government expects to raise an extra 50bn Kenyan Shillings (£330m) from this move alone.
Just don’t do It, Nike
Nike, the global sportswear brand, has been accused of avoiding millions in taxes by basing its intellectual property in Holland.
Holland operates an “innovation box” system where profits derived from intellectual property are taxed at 5%.
The UK’s Sunday Times newspaper has reported that Nike sends millions in royalty cheques from sales of Manchester United kits to its European Headquarters in Hilversum, Holland where the company employs 1400 people.
Those employees handle all sales of goods throughout Europe and the Middle East and also deal with a number of other corporate functions as well as managing intellectual property.
In the UK the company “Manchester United Merchandising” which manages sales of Manchester United goods made £23m in sales last year and sent £8.3m of that in royalty payments to the Netherlands according to the Sunday Times.
Barclays publishes and is damned
Barclay’s Bank has made country-by-country reporting disclosures for the first time, and is now the first major bank to do so.
Richard Murphy, who pioneered country-by-country reporting and runs Tax Research UK, has published an excellent analysis of the profits made per employee in each country it operates.
And quelle surprise, Barclays makes much more profit per employee in Luxembourg, Jersey, Singapore and the Isle of Man than in the UK, Kenya, France, Italy and Spain.
In the spirit of the Ghana World Cup squad who demanded a plane load of cash to be flown out to Rio before they would play their final group stage game, the Wrapper will send a sponge cake to the first reader who can tell us the difference between the two groups of countries we referred to above.