An estimated $1.1 billion in profit may have been shifted out of Africa by Australian miners in one year, according to a new report by Oxfam and the Tax Justice Network.
- The Oxfam/Tax Justice Network report estimates $289 million in tax revenue may have been ripped out of developing countries in Africa in one year by Aussie miners
- The report’s authors say their estimate is “conservative” but imperfect because many companies are not transparent about taxes paid on a project-by-project basis
- The miners named have rejected the report’s claims as “false and misleading”
The Buried Treasure report, which bases its findings on 2015 data, said this could have resulted in an estimated $289 million in tax revenue being ripped out of developing countries in Africa.
The report does not accuse any companies of illegal activity, but calls on mining companies to pay their “fair share” of tax by aligning payments with actual economic activity, publicly renouncing the use of ‘tax havens’ and ending the practice of shifting profits to low-tax jurisdictions.
Oxfam Australia chief executive Helen Szoke said the almost $300 million lost was equivalent to seven times the total cost of national malaria control programs in nine of the poorest sub-Saharan African countries where Australian mines exist.
She called on the Federal Government to require Australian companies to publish more detailed information about the taxes they pay around the globe.
Ms Szoke said Australia was lagging behind other countries on mandatory tax transparency laws, with the UK and Canada requiring multinational mining companies to publicly come clean on their tax payments on a country-by-country and project-by-project basis.
Australia currently collects country-by-country reports from large public companies, but the data is only seen by tax authorities. It is up to companies whether they want to voluntarily publish more detailed information.
Minister for Housing and Assistant Treasurer Michael Sukkar said Australia was a global leader in the international fight against corporate tax avoidance and a “strong advocate of tax transparency”.
He said Australia was working with more than 125 tax jurisdictions dedicated to the elimination of multinational tax avoidance via the OECD’s Base Erosion and Profit Shifting (BEPS) framework.
No transparency about tax affairs
The report ranked 40 ASX-listed Australian mining companies on a scale showing which are the most and the least transparent on public reporting of their tax affairs.
It found the tax affairs of mining giants remain “shrouded in secrecy”, with half of the companies analysed falling into the worst category.
“The reported data is so unclear, incomplete and patchy that no definitive, accurate amounts of global tax payments across the entire industry can be identified,” it said.
“Reporting in this way can help to veil unethical tax practices and enable companies to hide their profits in order to avoid paying the right amount of taxes in some of the poorest countries in the world.”
However, some of the big miners including BHP and Rio Tinto were ranked in the report as being transparent about their tax affairs.
Both miners have for several years voluntarily moved to report taxes paid in each country, and on each project they operate.
An International Consortium of Investigative Journalists (ICIJ) Mauritius Leaks investigation released this week noted overall one in every six dollars that flow into Africa is from tax haven usage, making it highly likely to result in tax revenue losses.
Oxfam said its $1.1 billion estimate, resulting from Australian mining companies’ $40 billion investment in Africa in 2015, was “conservative”.
It noted the amount of inflows relative to outflows, using various information sources including IMF data, was low.
“It is an estimate based on an imperfect econometric model, because we do not have the public data we are asking for,” Oxfam said.
“The $1.1 billion estimate in profits shifted, and resulting $298 million in tax lost, is relative to total global tax loss in Africa due to avoidance practices of around $15 billion annually, according to economist Gabriel Zucman.”
Aussie miners have a big impact in Africa
Australian miners have one of the largest impacts on African communities in terms of their tax contributions — 32 of the 88 Australian mines that were in operation in 2016 and 2017 are hosted in developing countries.
The vast majority of the 88 mining projects were owned by just four dual-listed companies subject to UK or Canadian laws: AngloGold, BHP, Rio Tinto and South32.
The report also drills down into the mining operations owned by three Australian companies: Perseus Mining, MMG and Iluka Resources.
It estimates that these three companies could have paid $149 million in additional corporate income tax than they did over five to seven years across the three countries, although the companies reject that.
Oxfam said since each of the three mines began operating, “they all appear to have exploited some form of tax concession or loophole”.
Despite turnovers of more than $150 million a year in most cases, it said the governments of Ghana, Sierra Leone and Democratic Republic of Congo (DRC) had received on average 0 to 0.9 per cent of these companies’ revenues in corporate income tax from 2009 to 2015.
The report notes that “while revenues do not always result in profits, given the corporate tax rate is at least 30 per cent for mining companies in Sierra Leone, Ghana and the DRC, and given these mines have been operating for some time, it is not unreasonable to expect that a higher proportion of revenues from these mines should have gone to governments in the form of taxes”.
Companies reject report’s claims as ‘misleading’
But all three companies have rejected the report’s claims as false and misleading.
While Perseus is named in the report as relatively one of the most transparent companies about taxes paid — as it is required to report to the Canadian Government — Oxfam said it still needed to be more transparent.
The report said Perseus Mining had not paid a cent in corporate tax to the Ghanaian Government since it began operating the Edikan gold mine in the town of Ayanfuri in 2011, despite an annual turnover of $250 million in most years of operation.
“It is possible the mine has exploited the Ghanaian rules on carry-forward losses and capital allowance to continuously offset millions in profits and not pay any income tax,” the report said, although the report’s author’s noted that doing so was not illegal.
The report estimates that the mine could have paid at least $57 million in income tax from 2012 to 2017.
“This amount is enough to pay for more than 8,000 Ghanaian nurses’ annual salaries,” the report said.
But Perseus Mining managing director and CEO Jeff Quartermaine said the report had made “a series of unfounded allegations about Perseus’s activities in Ghana that are false and misleading”.
“To date, as Perseus has not earned any taxable income from its Edikan Mine, and therefore no income tax has been payable or paid to the Ghanaian tax authorities,” he said.
“The statement that ‘the mine could have paid at least $57 million in income tax from 2012 to 2017’ is false.”
He added that the company was obliged to pay a royalty amounting to 5 per cent of revenue to the Ghanaian Government and had done so, since the first gold was mined in 2011.
“In 2018 alone, this amounted to US$19 million,” he said.
MMG’s Kinsevere mine
The report also claimed that MMG paid almost no tax in the Democratic Republic of Congo and has an effective tax rate of zero just about everywhere it operates around the world.
Since MMG Ltd acquired the Kinsevere mine in late 2011, the mine has paid on average 0.9 per cent of total revenues in tax, the report said.
By assuming that the Kinsevere mine actually makes profits on par with the industry average of 12 per cent, and applying the DRC’s corporate tax rate, the report estimated that MMG could have paid at least $US39 million ($52 million) extra in taxes between 2012 and 2015.
“The [$52 million] in potential tax lost would be enough to pay the full cost of responding to the latest Ebola outbreak 1.5 times over,” the report said.
Futhermore, MMG wholly owned subsidiary Anvil Mining, which owns the Kinsevere mine, shares the same registered address as the firm at the centre of the ICIJ Paradise Papers expose, Appleby, in the British Virgin Islands.
In its right of response to Oxfam, the company noted that “MMG Ltd engages the Appleby law firm, and its affiliate, Estera for advice on legal and corporate secretarial matters”.
MMG also stated it was “simplistic to apply an industry average profit margin to revenue, as there are different factors impacting the financial performance of a mine”.
Iluka’s Sierra Rutile mine
The report suggests Iluka’s Sierra Rutile mine in Sierra Leone — which Iluka Resources acquired in 2016 — paid on average only 0.4 per cent of total revenues in tax between 2009 and 2015, largely due to tax concessions that the previous owners got.
“As a result, the Government collected just $3.1 million in corporate income tax from 2009 to 2015, while the company turned over more than $700 million in revenue during the same period.”
The report estimates Sierra Rutile should have paid $40 million in income tax from 2009 to 2016, the period before Australia’s Iluka Resources took over ownership, which “would be enough to cover the health cost of more than 67,000 Sierra Leoneans for one year under the country’s Free Health Care Initiative”.
The report also points out that Iluka Resources holds about $US500 million in rolling tax offsets, which means the company can use this to deduct huge amounts of tax payable to the Government of Sierra Leone, with no end date.
“The Government of Sierra Leone could be set to lose hundreds of millions in future tax revenue for this Australian-owned mine,” the report said.
Iluka’s chief financial officer, Adele Stratton, said: “Oxfam’s report misrepresents Sierra Rutile’s company income tax payments as its total tax payments to government.
“[The report is] providing an inaccurate and potentially misleading representation of Sierra Rutile’s economic contribution in Sierra Leone.”
The company had been disclosing its taxes paid in Australia, Sierra Leone and the United States publicly via annual sustainability reports since 2017, and since Iluka’s acquisition of Sierra Rutile in December 2016, Sierra Rutile has paid total taxes of $US50 million.
“Iluka notes that while this format does not align strictly with Oxfam’s views on how Iluka ought to report taxes on a country-by-country basis, the taxes paid as disclosed by Iluka align with where Iluka’s operations exist, with remaining jurisdictions being immaterial.”
Ms Stratton said significant carried-forward tax losses werecommon for mining companies given the significant upfront capital outlay required for a mining operation.
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