African mining industry ‘adept at tax avoidance’

Profit-shifting, capital flight and tax havens have emerged as major issues in recent years. Extractive industries have long been regarded by activists as among the worst offenders on this front, with African economies the biggest casualties. The Daily Maverick reports that the IMF has now probed the issue and finds that the mining sector in Africa proven adept at tax avoidance, at a cost to of about $600m a year. Tax Avoidance in sub-Saharan Africa’s Mining Sector unearths the fact that African countries are estimated to be losing about $450-$730m in CIT revenue a year on average from mining multinational enterprise (MNE) tax avoidance. ‘This baseline estimate suggests a loss of about $600m per year, based on the observed tax rate differentials between African countries and offshore affiliates in the same MNE group,’ the IMF said. Profit-shifting and tax avoidance come in a number of guises. A company, through its global network, might lend itself money, with the interest expenses claimed as deductions in a high-tax jurisdiction, while the interest income is channelled to a low-tax jurisdiction. ‘In Sierra Leone, one company used an interest rate well above its cost of borrowing from financial markets, adding a rate premium of 16% to the Overnight London Interbank Offered Rate. The cost of these loans means the local mining company is not expected to pay income tax on its mining operations for years to come,’ the IMF paper said.