Nigeria’s Venture Garden, Kenya’s Umati Capital and Tanzania’s Ubongo Kids have been listed among firms extracting profits and avoiding tax in Africa according to a new report by ICJ dubbed Mauritius Leaks.
Mauritius Leaks is an investigation into how one law firm on a small island off Africa’s east coast helped companies leach tax revenue from poor African, Arab and Asian nations.
For long Mauritius has been a popular offshore destination for corporations that wish to avoid taxes against the warning of the European Union, IMF, various tax authorities and advocacy groups. The nation has been accused of facilitating tax avoidance harmful to poorer countries. Some countries have renegotiated their treaties with Mauritius but the majority have failed.
The Mauritius Leaks report reveals how multinational companies used Mauritius to avoid taxes in countries in Africa using a major law firm Conyers Dill & Pearman and major audit firms, including KPMG.
Conyers Dill & Pearman and KPMG enabled corporations operating in some of the world’s poorest nations to exploit tax loopholes. For instance, in 2015 the law firm reviewed documents regarding a loan made by Advance Global Capital Limited to Umati Capital, a Kenyan company, which was transferred to the Mauritius company.
According to an internal document, “Advice on digital trade financing”, prepared by Conyers in 2015, Umati Capital Mauritius is “a financial services company that offers various credit products to farmers, suppliers, processors, manufacturers and traders in the agribusiness sector through Umati Capital Kenya Limited as the disbursal agent. ”
Umati Capital provides standard invoice discounting, supply chain financing and outsourced payment services. The firm is run by founders Ivan Mbowa and Munyutu Waigi, both based in Kenya.
Some of their top shareholders include Accion Africa-Asia Investment Company, Blue Haven Alternatives LLC, Adolf H Lundin Charitable Foundation, Accion Asia Africa Investment Company, IDP Foundation Inc. Common Holders through a Series A round and Kenyan ICT CS Joseph Mucheru, Dominic Kiarie, Anne Marie van Swinderen of The Netherlands, Kenya’s Ace Micro Services Limited, Dataposit Limited and Ivan Kyeswa Joseph Mbowa and Munyutu Waigi.
Second on the list is Nigeria’s Venture Garden Group run by directors Olubunmi Akinbanjo Akinyemiju, Olubukunmi Olufemi Demuren, Steven Robert Flynn, Jonathan Josef Knapp, Graig Campbell Wilson and Andile Abner Ngcaba.
According to its business plan, the Mauritius-based company will act as an investment holding to the subsidiaries in Nigeria, which “will provide technologies to enable payment processing, revenue collection and data-gathering to governments and corporate across Africa. They will provide technological services in the following sectors namely Education, Oil and Gas, Power, Finance and Aviation and may also offer technological services in other sectors depending on the business climate in the future targeted markets. The targeted market shall be Nigeria in a first instance followed by other African countries (excluding Mauritius) in due course. In the long run, the Company may expand its scope of investment to other countries in Africa.”
Venture Garden Group is the parent company of Venture Garden Nigeria Limited, incorporated in Nigeria and investing in technology startups in the country.
In 2015 Conyers helped the Tanzanian company Ubongo restructure its ownership by moving it from the US to Mauritius. According to an internal Conyers document, “When Ubongo Inc. is dissolved, the shares it held in Ubongo Ltd. will be distributed to Nisha Ligon and EDSi” (Education Design Studio Inc.)”. Codan was the company administrator.
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.”
“Mauritius’ tax benefits are popular with African elites as well as foreign ones. The Mauritius company’s purpose is investment holding: it invests in companies “which produce and distribute educational media”, according to its business plan.
According to reports, Ubongo Group bought shares from the Tanzanian company Ubongo Ltd. from all its shareholders, only to sell the shares back to them. At a later stage, Ubongo sold its intellectual property rights on “Ubongo Kids” seasons 1 and 2, and “Akili and Me”, to its Mauritius parent company.
Ubongo Group then became the recipient of royalties and fees originating from the licensing or the Ubongo programmes, and loaned money to the Tanzanian Ubongo to work on season 3 of “Ubongo Kids” and season 2 of “Akili and Me”. Ubongo Group was also the recipient of investment from Pearson Affordable Learning Fund, Omidyar Network and Village Capital.
Ubong, however, denies these claims. In a statement sent to TechTrendsKE, the company says none of the above happened. ” No intellectual property rights were ever sold or transferred to Mauritius, no shares were moved, and this investment was never received. We cancelled the round because we felt it was not the right path for growth for our organization.” Nisha Ligon, Co-Founder & CEO Ubongo said.
Another company worth noting is IHS Holding Limited which has investments from World Bank’s International Finance Corporation (IFC) and the Korea Investment Corporation.
IHF’s other investors include Trief Corporation SA, UBC Services Inc., Investec Africa Frontier Private Equity Fund GP Limited, Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO).
Trief, a Luxembourg investment entity used by the French Wendel Group, invested US$125 million while in FY14, IFC Global Infrastructure Fund invested $75 million to IHS Holdings to help the company expand access to wireless phone services in remote and rural areas of Africa.
Some clients were not directly in contact with the Conyers Mauritius office. Instead, law firms or banks working with companies or wealthy individuals would ask Conyers for a “legal opinion” on proposed business involving Mauritian firms. Whenever possible, ICIJ provided the name of the end client.
Conyers performed services that included incorporation of “global business” companies that would qualify for the maximum Mauritian tax benefits. It reviewed documents, including loan agreements with international banks and other financing institutions, shareholder agreements and restructuring plans.
To avoid double taxation, Double taxation treaties or agreements (DTTs or DTAs) require the country where the multinational corporation is based and the country where it operates to agree to limit the collection of taxes. DTTs often affect the taxation of such payments as interest, dividends and royalties. Developing countries rely heavily on tax revenue from such payments and less so on revenue from income taxes, anti-poverty groups say.
Among its services, Conyers helped clients request an annual tax residency certificate from Mauritius that allowed companies to use DTTs to reduce taxes.
Although DTTs are legal, tax officials and researchers criticize them for allowing companies to divert profits and tax revenue from developing countries.
“I think Mauritius is the African tax haven,” senior tax researcher Martin Hearson said. “It’s the country that you use if you want to avoid taxes in a large number of African countries if you’re a multinational investor. It’s the tax treaty network that gives it that.”