Leaked documents and an affidavit from a whistleblower working at a major Western fishing company operating in African waters have given rare insight into how food multinationals can shift profits around the world to avoid paying taxes in developing countries.
The files, from Icelandic fishing giant Samherji, which supplies sardines and mackerel to major supermarkets such as Tesco and Carrefour, were uploaded to the Wikileaks website last year by a whistleblower. Johannes Stefansson was once the managing director of Samherji’s companies in Namibia, but he is now working with authorities there on a criminal investigation into what has been dubbed the “Fishrot” scandal.
Ministers and company executives were forced to resign after a series of explosive reports showed Samherji had paid millions of dollars in bribes to gain access to Namibia’s lucrative fishing quotas. The company brought in lawyers to investigate after Al Jazeera, Icelandic broadcaster RUV, and The Namibian broke the scandal late last year.
But Stefansson’s complaints were not limited to allegations of bribery. In a lengthy affidavit provided to Namibia’s Anti-Corruption Commission, he also claimed Samherji had shifted significant revenues to group companies in what he believed to be a tax-avoidance scheme.
An analysis of the leaked files by Finance Uncovered, as well as public documents and the company’s financial statements, suggest Samherji used various techniques to reduce taxes in Namibia by shifting money to low-tax destinations such as Cyprus and Mauritius.
These include sending at least N$93-million Namibian dollars in controversial “fee” payments to the group’s other companies in low-tax Mauritius and the United Kingdom, and selling fish below market prices to group companies in Cyprus.
In his affidavit, Stefansson also alleges Samherji overcharged its Namibian company for the cost of chartering trawlers, a strategy that shifted profits out of Africa and reduced its tax bills in there.
A spokesman for Namibia’s ministry of finance confirmed it was investigating the tax affairs of “Samherji, its affiliates and all companies, as well as individuals, implicated in [the] Fishrot saga.”
He added: “[Your] findings will go a long way in complementing efforts of the ministry to investigate and audit tax affairs of these companies.”
Samherji, one of Europe’s largest fishing companies, with annual revenues of about $700-million, first entered Namibia in 2012. After landing a deal two years later with a state-owned fishery that awarded it lucrative quotas to catch horse mackerel, it quickly grew to become one of the biggest players in an industry that brings in a fifth of the country’s export earnings.
Samherji strongly denies any wrongdoing. Its current co-chief executive, Björgólfur Jóhannsson, said there were legitimate business reasons for all the transactions raised by Finance Uncovered, arguing that it is standard practice for multinational companies to use specific subsidiaries to legally minimise legal, tax and operational risk.
He said Samherji had allocated “substantial” resources to investigate its operations in Namibia since the Fishrot scandal broke and launched a compliance programme to improve governance across all the group’s companies. But Jóhannsson declined to comment on detailed allegations in this article until an internal legal review was complete.
Fees, fees and more fees
Although there has been widespread reporting about similar schemes used by oil and mining giants in Africa, until now there has been little focus on one of the continent’s most precious natural resources — fish.
Maritime African countries are estimated to lose up to $1.6-billion a year in tax revenues through illegal and undeclared fishing, according to recent research. But Nick Branigan, chair of the North Atlantic Fisheries Intelligence Group, a network of international government agencies that works with the United Nations and Interpol on fisheries crime, said this figure is likely an underestimate.
“The problems of undeclared and illegal fishing in developing countries are magnified because multinational fisheries firms routinely strip operating profits out of developing countries and place these in low-tax countries,” he said.
New findings by Finance Uncovered, showing Samherji may have avoided paying millions of dollars in taxes by moving its money between jurisdictions and reselling fish between countries, underscore the problem, he added.
One of the key ways in which Samherji appears to have reduced its taxable profits in Namibia was by sending hefty fees to its companies in other jurisdictions. Although Namibia’s corporate tax rate of 32% is standard for Southern Africa, it is higher than in many European states and tax havens. The equivalent rates in the UK, Cyprus, and Mauritius are 19%, 12.5%, and 15%, respectively.
Finance Uncovered’s analysis of company accounts, as well as leaked invoices and contracts, suggests Samherji’s Namibian entities paid N$93-million to group companies in the UK and Mauritius for management, intellectual property and marketing.
According to emails found in the leaked documents, these payments appear to have been part of a plan to extract profits from Namibia. Stefansson, the whistleblower, told Finance Uncovered that neither the UK nor the Mauritius firm provided any services at all to the Namibian firms.
This is borne out by a 2014 email in which Samherji’s chief accounting officer, Ingvar Júlíusson, wrote to Namibian lawyer Andrew Theunissen seeking advice on a new corporate structure.
“What we are looking into is channelling the royalties derived from our Namibian operation out of Namiba [sic] to Mauritius,” he wrote. “Can you please provide reccomentions [sic] on how to structure this and your advise [sic] on how to do this properly.”
Júlíusson told the lawyer the royalties would be for “access to technical knowhow and etc. Advise [sic] on how to describe this would be welcomed”.
In March 2015, Samherji became the shareholder of a newly minted Mauritius company, Mermaria Investments. An agreement was drawn up that gave the Mauritius company rights to 5% of the net revenues of one of the companies Samherji part-owned in Namibia.
These payments, according to the agreement, were supposed to be made in exchange for “know-how, management experience and good management team, including staff, sales people, directors and others, and for the use of the internationally established brands.”
According to invoices and payments records seen by Finance Uncovered, at least N$55-million ($3.7-million at historic rates) was sent to Mermaria Investments in Mauritius as “royalty payments” under the agreement.
Mauritius is a leading African tax haven that has played a huge role in tax dodging on the continent and beyond.
A similar set of internal agreements found in the Wikileaks files appear to have underpinned payments of N$38-million ($4.5-million at historic rates) in 2012 from a second Namibian company to Onward Investment, a Samherji firm registered in the UK.
These agreements included a “management” fee equivalent to 5% total revenue and intellectual property licensing fees amounting to 50%t of profit before tax.
Riva Jalipa, policy lead at Tax Justice Network-Africa, says that companies frequently pay royalty or management fees to affiliated companies in low-tax jurisdictions such as Mauritius to save taxes in countries in which they generate the bulk of their profits.
She said multinational food companies that tried to minimise tax payments in their operating countries were “rigging the system”.
“Not only do they deprive governments of their tax revenue, they also get unfair advantages over local companies”, which are unable to send profits offshore.
Samherji said that royalty arrangements were commonly used by multinational entities, and the royalty payments were under consideration by the company’s finance team and external advisors. Its co-chief executive, Jóhannsson, said Samherji’s companies had paid N$120-million in corporate income taxes over the eight years it had operated in Namibia and $400-million in other payments to the state, such as withholding taxes and export taxes.
Finance Uncovered has also seen Samherji invoices that suggest its profits in Namibia were being deliberately eroded by selling the fish it was catching in African waters to its own trading company in Cyprus at what appear to be artificially low prices.
The documents, which show the amount at which Samherji sold its fish from Namibia to Cyprus, then from Cyprus to clients in the Democratic Republic of the Congo, suggest these discounts were between 10% and 20%. The Cyprus company then sold the fish at market rates, thereby reaping higher profits in a country with a lower tax rate.
Based on publicly available accounts, Finance Uncovered estimates these discounts could have cost Namibian tax authorities $950 000 that year.
According to an expert in the field, a discount of even 10% would be far above the standard commission rates paid in the industry, which are usually in the range of 1.5% to 2.5%, and would be likely to raise questions. The expert said a 10% discount would be “very generous.”
Samherji said that the bulk of sales to Cyprus took place in 2012 and were justified on the basis that its customer base was not yet accustomed to doing business directly with Namibia. It said that in total the company’s trading with Cyprus was only 6% of the company’s horse-mackerel catch.
Samherji added that its commission arrangements were “in line with typical arm’s lengths agreements”. Nonetheless, the Icelandic company said it was now investigating the arrangements between Cyprus and Namibia.
Markups across borders
Stefansson’s affidavit to Namibian law enforcement officers also describes how Samherji allegedly inflated the price its Namibian companies paid to hire and operate fishing vessels as a way of reducing its tax bills.
In 2014, one of the Namibian companies entered into a charter agreement for a vessel with another Samherji subsidiary, this one in Poland. The rate was set at $75 000 a day for the vessel and additional expenses such as maintenance costs, fuel and insurance.
The contract does not state how this fee would be broken down into line items. But a business plan for the vessel created by Júlíusson in 2014 suggests that the Polish subsidiary, Atlantex, would charge a 15% markup on the additional expenses, yielding a pre-tax profit for Atlantex of $242 854 a month.
According to Stefansson, these costs could easily have been paid from Namibia, without the markup. But instead, Atlantex’s profits were likely to have come directly out of the Namibian company’s bottom line — and shifted to Poland, whose tax rate of 19% was much lower than Namibia’s 33%.
Samherji denied that Atlantex made $243 000 a month on the contract. The company said that after operating the contract at $75 000 a day for four-and-a-half months, the contract fee reduced to $55 000 and then to $35 000. The Polish company made net income of $111 000 on average for this whole period, equivalent to only a 6% markup, it said.
“Multinational companies use specific subsidiaries for specific transactions to minimize the spread of legal, tax and operational risk,” said Jóhannsson, the Samherji chief executive.
He said that charging a mark-up on intra-company contracts was usually required by law, and added that many of the allegations were from “sources that are dedicated to harming Samherji and painting a distorted image of our operations”.