Ghana could lose GH¢400m in capital gains tax on MTN tower deal

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. In 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 say 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 a 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.”

By Emmanuel K. Dogbevi & Diarmid O’sullivan

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

Copyright ©2020 by Creative Imaginations Publicity
All rights reserved. This article or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in reviews.

  1. Francis Timore says

    I think you need to be educated. In technical areas of taxation you need to get your facts so you educate the people who may read your writing.

    1. Per Article 75 of the 1992 Contitution, The president can sign international agreements. Parliament must ratify the agreements.

    2. When an agreement is ratified, under section 98 of the Revenue Administration Act, 2016 says that, a treaty or agreement signed and ratified by Parliament supersedes the Income Tax Act. In other words the provisions of a tax treaty is given a first priority.
    3. In this case, the owner of the shares is in Netherlands. GHANA Parliament signed the Doouble Tax agreement with Netherlands on 10th March 2008.
    4. Undert article 13 clause 5 of the treaty, a sale of shares is not taxable in Ghana but only in Netherlands.
    5. This is what happened. When you sign international tax agreements, you choose to waive your right to tax.

    I hope you are clear on this

  2. Kwabena More says

    Interesting views Mr. Timore! Yes, the laws you refer to can be read with the same interpretation you provide.

    Does signing a tax treaty necessarily mean the sovereign waves its tax assessment rights as infinitum ?

    How do sovereigns navigate out of unfavorable tax agreements under these constraints without an outright cancelation of the agreement?

    How you respond to these questions, will have serious implications of how you view the transaction at hand, particularly when the SA parent has disclosed the bottom lines realized on the sale.

    Finally can the provenance of the transaction be traced such that, liabilities can be established?

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