Tanzania's biggest gold miner caught in tax evasion scandal

04Apr 2016
Victor Karega
The Guardian
Tanzania's biggest gold miner caught in tax evasion scandal

A Tanzanian tax tribunal has accused Acacia Mining Plc of running an elaborate tax evasion scam by falsely declaring losses in its gold mining operations in the country, while at the same time posting "huge profits" and paying dividends to its London-based shareholders.

Operating mines – ACACIA

Local mining companies have long been suspected of being tax cheats, causing the government to get less than its fair share of revenues from the sector.

According to a ruling by the Tax Revenue Appeals Tribunal in Dar es Salaam, Acacia Mining has been carrying out a "sophisticated scheme of tax evasion" that effectively enabled it to dodge paying substantial taxes to the Tanzania Revenue Authority (TRA).

The tribunal has now ordered Acacia Mining to pay over $41.25 million (90 billion/-) to TRA as withholding tax from dividend payments to its shareholders, plus an unspecified amount as corporation tax said to have been dodged by ‘fictitious’ claims of losses at its Tanzanian gold mines.

Acacia (formerly known as African Barrick Gold or ABG) is the country's biggest mining company and owns three gold-producing mines in northwestern Tanzania - Bulyanhulu, North Mara and Buzwagi.

But over the past few years the firm has not been paying corporation or withholding taxes to TRA, claiming that it was making losses from all three gold mines.

Still, the London-headquartered company is understood to have paid over $412.5 million (901bn/-) as regular dividends to its shareholders from 2010 to 2013 alone.

This amounts to 10 per cent withholding tax to the tune of $41.25m payable to TRA, and even more in terms of corporation tax, all of which were not paid, according to investigations.

A dividend is a payment a company can make to its shareholders only if it has made enough profit. Corporation tax is revenue charged on taxable incomes, such as profits, of companies.

"...The fact that none of ABG's subsidiaries is declaring any profit that could provide its holding company with such huge net profits sufficient to distribute to its shareholders four years in a row is what in our respectful opinion constitutes the evidence of a sophisticated scheme of tax evasion," the chairman of the Tax Revenue Appeals Tribunal, Dr Fauz Twaib, said in the ruling dated March 31, 2016, as seen by The Guardian.

He continued: "Since ABG's only entities that carry on business anywhere in the world are the 3 Tanzanian gold-mining companies, ABG's only source of revenue that could create net profits or retained earnings would be the three Tanzanian companies - or one or more of them."

"While none of them was allegedly making any profits, and since the appellant (ABG/Acacia) has no other subsidiary anywhere in the world engaged in business, one is compelled to further conclude that at least one, if not more or all, of the appellant's 3 gold producing subsidies in Tanzania was making profit. We
see no other plausible explanation."

The ruling sides with a 2011 ruling by the Tax Revenue Appeals Board, which ordered Acacia Mining to pay the $41.25 million withholding tax to TRA as tax from shareholders' dividends.

The company rejected the Board's ruling at the time and sought reprieve from the Tax Revenue Appeals Tribunal, which has now dismissed the appeal with costs.

A TRA breakdown showed that Acacia Mining paid dividends to its shareholders as follows: $259.5 million (2010), $28.29 million (2011), $70.12 million (2012), and $54.54 million (2013).

The tribunal rejected the company’s explanation that it was able to pay the dividends to its shareholders from its distributable reserves and proceeds from an initial public offering (IPO) in 2010.

“In the circumstances, it is fair to conclude that the respondent’s (TRA) argument that the transactions were simply a design created by the appellant (ABG/Acacia) aimed at tax evasion was justified,” said the ruling.

“One also wonders as to how could part of IPO proceeds, a one-off event, even if those proceeds were distributable as dividends (which in law they are not), could explain the payment of four years, back-to-back dividends to the appellant’s shareholders.”

The tribunal insisted that proceeds derived from an IPO are part of the capital of the company, not profit, hence not meant to be distributed to shareholders as dividends.

When contacted by The Guardian for comment, a spokeswoman for Acacia Mining, Nector Foya, said the mining company would issue a statement on the tribunal ruling.