We Need Greater Transparency Over Tax Payments

April 20th, 2011

A complaint over tax payments by a Glencore subsidiary could prompt the Zambian government to undertake an audit of all mining companies to assess how much tax they owe
Mining equipment near a school in Zambia


The contrast between the poverty of most people in Zambia and the natural riches of our country was highlighted this week in an incident that is highly embarrassing for one of the companies profiting from our mineral wealth.

The company – Swiss commodities giant Glencore – has just announced its intention to launch itself on to the London Stock Exchange.

So it will have been less than happy about the timing of the formal complaint which my organisation, the Centre for Trade Policy and Development, and four others filed last week with the Organisation for Economic Co-operation and Development (OECD).

The complaint is about the behaviour of a mining company, Mopani Copper Mines (MCM), which is largely owned by a Glencore subsidiary and which operates in Zambia’s copperbelt, near our northern border with the Democratic Republic of the Congo.

Put simply, our concern is that Mopani may be selling Zambia’s copper to Glencore at prices which favour Glencore and which reduce the amount of tax the company pays in Zambia – a desperately poor country, where life expectancy is 46.

Specifically, our complaint alleges that Mopani is violating the OECD’s guidelines for multinational companies, which require trade between subsidiary and parent companies to follow the “arm’s length” rule. In other words, related firms must buy and sell with each other at open market prices.

The basis of our concern is a leaked auditors’ report that highlighted a series of “problems” in Mopani’s figures for costs and revenues, including a failure by the company to show that its copper sales were done on an arm’s length basis. The report was commissioned by the Zambia Revenue Authority.

Glencore, for its part, has strongly disputed the auditors’ findings, saying the report contains factual errors and is based on flawed analysis and assumptions.

For me, the leaked report lends some support to Zambian civil society organisations’ claims that mining companies are depriving us of social and economic benefits which are rightly ours, through tax evasion and avoidance.

I hope that the leaked report – and now our complaint to the OECD – will prompt the Zambian government to do a financial audit of all mining companies, so that the Zambian Revenue Authority can update its assessments of the tax they owe. Donor countries such as the UK – which gave Zambia almost £50m in aid last year – should support our government in such an exercise.

I also hope that our complaint to the OECD will draw attention to the existence of a much bigger problem – tax dodging by multinational companies – which stretches far beyond the copperbelt and indeed Zambia itself.

According to Christian Aid – one of my organisation’s UK partners – developing countries lose some $160bn a year in tax revenue to the manipulations of multinationals. That is considerably more than they receive in aid each year.

A major part of the solution to this global curse is for governments to require companies to reveal more about their finances, with details, such as profits made and taxes paid, published for every country in which they operate.

This sort of information would help tax authorities – including Zambia’s – to identify suspicious cases where companies appear to be artificially shifting their profits out of poor countries and into tax havens. It would not transform the balance of power between tax collectors and a company’s army of tax accountants and lawyers, but it would help.

The EU is looking into just such a country-by-country reporting standard for all companies listed in member states. If this resulted in the disclosure of payments to governments, it would help civil society to hold governments to account when they are misusing money.

But to shine a light on cases where companies are flouting the OECD’s critically important arm’s length rule, we need underlying financial information.

If Europe were to require this kinds of disclosure, then here, in Lusaka, we would applaud.

This article was originally published on the Guardian’s “Poverty Matters Blog.” It has been reproduced here with permission.

Image License: AttributionNoncommercialShare Alike Some rights reserved by Breadbreaker, Flickr

Written by Savior Mwambwa

Follow @FinTrCo