TANZANIA'S largest gold producer, Acacia Mining Plc (formerly known as African Barrick Gold), is in talks with the Tanzania Revenue Authority (TRA) and other government authorities to try to resolve a major new dispute on whether or not the UK-registered firm has a taxable presence in Tanzania.
The latest tax confusion involving Acacia Mining comes against the backdrop of a robust tax evasion crackdown instigated by President John Magufuli since coming into office in November 2015.
Although all of the mining firm's gold-producing operations are from three large-scale mines in Tanzania - Bulyanhulu, North Mara and Buzwagi, respectively - the company is headquartered in London. TRA is seeking to levy taxes on the company as a resident firm in Tanzania.
Acacia Mining chief executive officer Brad Gordon confirmed the apparent impasse in a statement last week when announcing the company's 2016 financial results, saying:
"We are (…) dealing with claims to levy taxes in Tanzania on the UK-registered Acacia Mining Plc, which we believe have no basis in law given this company is tax resident and permanently established in the UK."
"Given the materiality of the amounts being claimed, we are also addressing a constructive resolution of these issues as part of our ongoing engagement with the Tanzania Revenue Authority (TRA) as well as at a senior level in the government."
According to Gordon, the company has also been embroiled in several other legal tussles with TRA over the past year on claims of back-tax payments.
"During 2016, there have continued to be a number of tax cases that are being dealt with in the court system in Tanzania which we are seeking to resolve," The Acacia Mining CEO said.
He added: "As communicated earlier in the year, we recorded a tax provision of $69.6 million in respect of historic capital deductions at Bulyanhulu, North Mara and Tulawaka as a result of a (Tanzania) Court of Appeal ruling."
In April last year, the Tax Revenue Appeals Tribunal accused Acacia Mining of tax evasion and ordered the company to pay $41.25 million (over 90 billion/-) to TRA in withholding tax.
Acacia vigorously denied the tax-dodging claims, saying the tribunal's judgment was "fundamentally flawed."
Kigoma Urban member of parliament Zitto Kabwe, from the opposition ACT-Wazalendo party, was among the first persons to raise the issue of Acacia's tax residence status in Tanzania.
In a public statement way back in 2011, Zitto asserted that Acacia Mining (then known as African Barrick Gold, or ABG) should pay revenues as a ‘tax resident’ in Tanzania because all its gold-producing operations were within the country.
"You will take a strong note that while all ABG operations are in Tanzania, it is Her Majesty's Revenue and Customs (in the UK) collecting its corporate tax," the MP said at the time.
He added: "ABG has designed Tanzania (Dar es Salaam) as a logistics office, while Johannesburg is largely a procurement office and London is the HQ. This structural design is one of the ways used by multi-national corporations (MNCs) to minimise tax payments to developing countries."
Tanzania is Africa's fourth-largest gold producer, and also has vast deposits of natural gas, coal, diamonds, uranium and gemstones.
Addressing members of the judiciary in Dar es Salaam earlier this month, President Magufuli ordered the courts to enforce payment of tax claims worth more than 7.5 trillion/- from big businesses in the country, including mining companies.
Big companies remain the government’s main source of tax revenue because Tanzania’s large informal economy still goes basically untaxed.
Without naming any particular company, Magufuli said: "It is unacceptable that an investor is extracting our minerals but not paying taxes. That investor was taken to court and lost both the case and the appeal, yet still refuses to pay the taxes."
According to the president, the failure by various firms to pay 7.5tr/- worth of taxes even after losing tax claim cases against them in the courts was hurting the country's economy.
But according to Acacia Mining's CEO, the company pays its fair share of taxes in Tanzania.
"As a major contributor to the Tanzanian economy, we were pleased to be able to increase our contribution during 2016 through incurring a corporate tax charge amounting to $55 million," Gordon said in last week's statement.
He added that "this was a result of the strong performance at North Mara”, and included an agreement to pre-pay $20 million of cash corporate taxes.
“Our increase in tax payments, which when added to royalties of $47 million, payroll taxes of $40 million and other taxes of approximately $20 million, provides a significant contribution to the Tanzanian government's aim of self-funding the national budget," Gordon stated.
The international law firm Squire Patton Boggs said in a recent note to clients that where a company is treated as tax resident in two jurisdictions and a double tax treaty between those two jurisdictions exists, the treaty will determine which jurisdiction has the right to tax the company.
"If there is no tax treaty, however, the company could be treated as tax resident in both countries. This resulted in a problem for Acacia as there is no double tax treaty between the UK and Tanzania," said the law firm.
It added: "To show that Acacia was liable to tax in Tanzania, however, the Tanzania Revenue Authority would have to show that the company had a taxable presence in Tanzania.”
“Acacia was not incorporated in Tanzania but, for the purposes of Tanzanian tax law, the company could still be treated as resident if it could be shown to be 'formed under the laws' of Tanzania."
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