A brutal lesson for multinationals: golden tax deals can come back and bite you – by Maya Forstater and Alexandra Readhead (The Guardian – July 6, 2017)


A dispute in Tanzania highlights the tense relations that often exist between mining companies and governments

Mines are long-term investments, but relationships between mining companies and governments are often tense and impatient. Governments fear that they will be ripped-off by multinational companies, while the companies worry that governments will hold their assets hostage. Nervous companies seek contract terms that allow them to recover their costs as quickly as possible.

However, this leads to taxes trickling in while exports are beginning to flood out. The risk is that governments see their fears confirmed and threaten to rip up the contracts. This risk just became reality for Acacia Mining plc in Tanzania.

The FTSE 250 company is the largest gold producer in the country, and has long faced criticism for the amount of tax it pays there. Acacia’s “payments to government” report [pdf] released last week shows that the company, which operates three mines in Tanzania, exported $1bn (£770m) of gold, copper and silver last year, and only paid 8% of this in taxes and royalties to the government. What’s more, between 2010 and 2015, it paid out $444m in dividends to shareholders while not paying any corporate income tax in the country.

CEO Brad Gordon admits that the original mining agreement was not equitable. “The industry can be its own worst enemy,” he said in March. “When it sits down and agrees these terms it’s gonna come back and bite us.” In 2016 Acacia agreed [pdf] to bring forward corporate tax payments by three years. However, public and political outrage has only grown.

It is now painfully coming to a head, with the Tanzanian president John Magufuli accusing the company not only of striking an unbalanced deal but of massively under-reporting its gold exports to evade tax.

Back in March the president decreed a ban on exports of unrefined metals, preventing Acacia from selling partially processed “concentrate” [pdf].

For the rest of this article: https://www.theguardian.com/global-development-professionals-network/2017/jul/06/a-brutal-lesson-for-multinationals-golden-tax-deals-can-come-back-and-bite-you