MTN Rwanda in $12 bn tax dispute
Telecoms giant MTN Rwanda is in talks with the revenue authority to settle a Rwf9 billion ($12 million) tax dispute out of court.
In a case that has lasted over two years, the Rwanda Revenue Authority dragged MTN Rwanda, the country’s largest mobile phone services provider by market share, to the commercial court, accusing it of “illegal computation” and seeking to recover the amount.
The court ruled in favour of MTN Rwanda, but RRA has appealed the ruling in the High Court. “We appealed because we thought we had a strong case on management fees and they also had a strong case on other components,” Richard Tusabe, RRA Commissioner General, told The EastAfrican.
Sources familiar with the case say the tax dispute involves disclosure of information regarding the financial support MTN Rwanda claims to receive from its parent company, South Africa-based MTN Group.
RRA wants MTN Rwanda to disclose in its financial statements the exact amount of support it receives from its parent company.
The two parties have agreed to settle the case out of court. But The EastAfrican has learnt RRA is likely to only recover slightly over Rwf2 billion ($2.6 million), which MTN Rwanda has agreed to pay.
When contacted, MTN Rwanda confirmed the two parties are concluding an amicable settlement but refused to comment until the legal process is complete.
Meanwhile, RRA is crafting legislation to help curb losses from big businesses operating in the country as it seeks to boost domestic revenue.
The EastAfrican has learnt that the legislation currently being drafted aims to curb tax evasion by multinationals that have over the years taken advantage of loopholes in the country’s tax laws.
The tax body has also established a special unit in charge of international taxation issues including cross-border transactions.
The tax body wants to specifically deal with high level tax planning by multinationals that gives them room to evade tax. For instance, of particular concern is how to minimise losses incurred in management fees, income earned for services and labour as most multinationals continue to employ foreign nationals in managerial positions.
Multinationals are said to evade tax by “waiving” management fees owed to them by their limited partnership investors in exchange for profitable shares in the company through a carried interest.
Managers are deemed to have made a cashless contribution in the amount of the fee to the company, which is deemed to earn profits like an investor’s cash contribution.
Except that, however, managers have leeway to find profits to cover it. Company governing documents usually allow the general partner to find profits to cover the waived fee in any accounting period, so in fact it is a payable fee.
