International Tax Avoidance: How High Networth Individuals Like Patrick Bitature Do It And Cheat The Taxperson URA

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Last updated on July 14th, 2021 at 12:36 pm

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Last year, a series a documents of over 200,000 files from Mauritius, which is a tax haven, leaked exposing a sophisticated avoidance system that diverts tax revenue from poor nations to the coffers of Western corporations and African oligarchs.

I thought our government, before imposing heavy taxes on the ordinary people this Financial Year 2020 would first cover the loopholes in these Double Taxation treaties that high net worth individuals exploit to make Uganda Revenue Authority collect less taxes from them, in light of the leaked documents. But they have done nothing.

It’s great that Kenya responded by nullifying the Kenya Mauritius double taxation treaty through its High Court. These tax avoidance schemes have very little to do with transfer pricing through intellectual property.

Some aspects of the use of interest payments on loans to avoid corporate taxes that are now being limited by Section 25 (4) of the Income Tax Act may apply. However, now section 25 repealed Section 89 of the earlier thin capitalization rules. But that will not be the discussion.


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In July last year when these tax avoidance schemes leaked, thanks to the the International Consortium of Investigative Journalists, Electromaxx and Bitature released a statement in response to the effect that, there was nothing illegal about their tax avoidance schemes. In the very same statement they went on the defensive about how they did nothing abusive of the treaty.

As part of the leaked documents, I read the minutes of the African Frontier LLC Board, a company incorporated in Mauritius for the sole purpose of proposing a $17.5 million investment in Bitature’s electromaxx. I have scrutinized these minutes carefully. If you analyze the investment, it was structured in “3 separate tranches.”

It is very common for business deals structured in Mauritius which advances debt that ultimately converts into equity (shares) to sometimes be  ‘tranche investments’ – which may be domiciled in a different jurisdiction from other components. This is done for the ultimate purpose of limiting and avoiding capital gains tax. At least this was the purpose of this Bitature-Electromaxx tax planning.

Minutes of the board of directors of ” Alliance Africa” a Company that invested in Bitature’s Electromaxx that occasioned the Tax Planning to take advantage of the Mauritius-Uganda Double Taxation Treaty. That Shell company was set up that same year for the purposes of this tax planning.

Remember, capital gains tax on disposal of shares was introduced in 2010. So it was befitting and good timing for Bitature to conjure up a scheme to avoid it entirely. Capital gains tax (CGT) has these very simple rules. Capital gains tax is paid by a “chargeable person” making a “chargeable disposal” of a “chargeable asset.” But what makes Mauritius entities not pay the tax, is that under the treaty, Mauritius companies aren’t chargeable persons under the treaty they have with Uganda.

Additionally, the Uganda-Mauritius treaty also excludes CGT on shares even when more than 50% of their value is derived from immovable property. Embedded within those minutes that did this tax planning, I analyzed tranche 1, which advanced $5 million for the purpose of acquisition of 2.5 million shares from certain shareholders in Electromaxx. In my view, since African Frontier LLC ended its investment in electromaxx in 2014, they did not pay any capital gains tax to URA upon the sale of their shares in Electromaxx.

I read from those minutes that did the tax planning from Mauritius that that transaction applied for the Mauritius tax residency certificate (TRC) every year to benefit from the Uganda-Mauritius tax treaty.

Under this treaty, there is an alienation of shares in terms of paying Capital Gains tax in Uganda when a foreign Mauritius tax resident investor sells his stake in a Ugandan company. (See Article 14 of the Mauritius-Uganda Double Tax Treaty). This is done under the guise that capital gains tax has already been paid in Mauritius yet, funny as it might sound, Mauritius has 0% capital gains tax for Global Business License 1 resident tax companies, like African Frontier LLC is.

This tranche was, therefore, structured to deliberately avoid capital gains tax at all. This is vintage treaty round tripping. African Frontier LLC was incorporated in that same year in Mauritius for the sole purpose of this transaction. This is a very abusive use of the treaty. It is important that, for government to increase its tax revenues in this financial year 2020, it should have covered up such leakages in these treaties. They have done nothing about it and instead, this year, they have introduced more taxes on the ordinary Ugandan.

Tranches 2 & 3 were structured to have the same effect. They required Bitature to prepare a share purchase subscription, option and agreement. Here they were trying domicile the transaction in Mauritius to avoid any capital gains tax. Hitherto, URA has refused to study these transactions carefully to find fault where African Frontier LLC could have failed to successfully plan on how to avoid this tax.

From the very outset, there might be nothing illegal about this but such transactions reduce the amount of money that goes to our schools, hospitals and other social utilities. It is very abusive of the tax treaties.

I understand now Section 88 (5) of the Income Tax Act was later introduced to empower URA to use its discretion not to allow such befits under the treaty if in its wisdom they are used as tax avoidance schemes, however, that’s not enough. I think the entire Mauritius treaty should be cancelled and renegotiated.

It’s not only Bitature who has abused the tax treaty to do tax avoidance. 8 Miles LLP, which recently acquired a $9 million stake in Biyinzika Poultry International Ltd is domiciled in Mauritus for tax reasons. The story of how 8 Miles acquired this stake in Biyinzika was a result of a concertible note instrument that the original owners signed with 8 Miles to get some money in exchange of promise of shares.

This is possible because Mauritius introduced a flat corporate income tax rate of 15% with foreign tax credits that can drive that down to an effective rate of 3%. Mauritius rolled out Global Business Licence 1, which allows companies with operations elsewhere to be “resident” in Mauritius for tax purposes and pay its low rates. It went on to sign dozens of tax treaties with countries around the world, including 15 in sub-Saharan Africa like Uganda.

My learned opinion is that we should stop using the Organisation for Economic Cooperation and Development (OECD) model for our tax treaties, the UN model is more favourable to Africans. However, the western multinationals don’t like the UN model. They always threaten to withhold investment if we speak against the OECD model.

The OECD model Mauritius treaty isn’t only famous with western multinationals but also African elites like Bitature because of its nefarious agenda. Under the umbrella of the Western-dominated OECD, richer countries pushed for treaties that awarded most of the tax revenue to themselves, not the poorer countries where the business activity took place. I think this should change.


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