MTN offshore tower deal: Ghana could lose GHC400m tax

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Ghana could miss out on as much as GH¢400 million in capital gains tax following the sale earlier this year of MTN’s investment in a mobile phone tower business in the country.

Ghana may not be able to tax the sale because it took place offshore. MTN sold its shares in a company in the tax haven of the Netherlands, which owns the towers.

MTN’s latest financial results, published last month, say that its profit of 4.8 billion South African rand ((GH¢1.6 billion) from the sale is “non-taxable”.

MTN’s financial results did not say why it thinks Ghana cannot tax its huge profit. The South African telecoms giant did not respond to requests for an explanation.

But with capital gains taxed at 25 per cent, it means the country could lose out on a revenue windfall of more than GH¢400 million.

The possibility of missing out on such a huge sum comes as Ghana has been compelled by the outbreak of the global COVID-19 pandemic to revise its growth downward, making every tax pesewa count to fill in the gap. Growth was revised from 6.8 per cent to just 0.9 per cent.

However, a senior source at the Ghana Revenue Authority (GRA) told Ghana Business News that despite what MTN says, the profit may in fact be taxable in Ghana. “We consider every sale as taxable,” the source said, adding that the GRA would study the transaction “to ensure that revenue is not lost to the state.”

MTN Ghana is the biggest telecoms operator in the country with 67.7 per cent data market share and 57.07 per cent voice market share.

MTN Ghana rents mobile phone towers from the Dutch company, Ghana Tower Interco BV. The Dutch company was 49 per cent owned by MTN but following this year’s divestment, it now belongs entirely to the US-based American Tower Corporation. ATC has done a similar Dutch-based deal to acquire MTN’s phone tower investment in Uganda.

But with capital gains taxed at 25 per cent, it means the country could lose out on a revenue windfall of more than GH¢400 million.

Multinationals commonly own their investments in countries like Ghana via holding companies in tax havens, with the Netherlands being a particular favourite.

This kind of arrangement highlights a thorny problem for countries like Ghana which want to tax the profits that multinationals make from selling their investments.

When the corporation sells the investment, it can try to avoid tax in the country where the investment is located by selling the shares of the tax-haven company instead, and booking the profit in the tax haven.

This practice, known technically as an “offshore indirect transfer”, is not illegal. It relies on exploiting the wording of national tax laws and bilateral tax treaties between countries.

The World Bank and International Monetary Fund point out that asset sales via tax havens are “a concern in many developing countries, magnified by the revenue challenges that governments around the world face as a consequence of the COVID-19 crisis.”

Policymakers around the world are under growing pressure to curb this practice because of its huge revenue cost. Last month (July), a report by Finance Uncovered and Oxfam Novib showed that in just six deals, developing countries missed out on $2.2 billion in capital gains tax.

However, tax analysts said that Ghana’s tax treaty with the Netherlands should allow the GRA to tax this type of transaction.

“Looking at this scenario, MTN will be treated as having realized an asset due to the sale of the shares. The gain is computed as the excess of the consideration received for the shares over the cost of the shares at the time of realization. Under Article 13 (5) of the double taxation agreement with The Netherlands, the gains become taxable only in Ghana,” a tax expert in Accra, told Ghana Business News.

Commenting, Kwesi W. Obeng, Regional Programme Advisor Inequality – West Africa, Oxfam International, said: “Offshore Indirect Transfer (OIT), is very aggressive tax avoidance scheme used by multinational companies to avoid paying fair taxes especially in developing countries such as Ghana. OIT robs the government of millions of vital tax dollars, thus effectively contributing to the growing levels of poverty and inequality in the country.

OIT is a technique that involves complex corporate structures including the establishment of intermediary entities in tax havens and secrecy jurisdictions and used by mostly multinational companies is a major problem in Ghana. Despite the companies arranging their corporate structures and transactions to avoid Capital Gains Tax through OIT, countries like Ghana do have options to effectively ensure the taxation of capital gains.”

 

This story is a joint investigation by Ghana Business News and Finance Uncovered, a UK-based journalism organisation.

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