Mozambique Loses Billions in Tax Revenues through Abuse of Tax Treaties with Mauritius and UAE: SOMO Report

Allegations of Tax Evasion in Mozambique’s Extractive Industries

According to a new report by the Society for Threatened Peoples (SOMO), Mozambique’s extractive industries have been hit with allegations of tax evasion, costing the country up to $2.1 billion in potential tax revenues annually. [The report: “The Gas Companies” and “The Miners”]

Five Major Extractive Companies Avoiding Paying Mozambican Taxes

The report exposes how five major extractive companies, including TotalEnergies, Eni, and Vale, have evaded taxes by utilizing tax havens Mauritius and the United Arab Emirates (UAE). The companies are estimated to have evaded between $1.3 billion and $2.1 billion in taxes over the past few years.

Growth of Extractive Sector Amid Conflict and Inequality

The extractive sector has seen significant growth in the past decade, with gas exports beginning in 2022 and mining accounting for 78% of Mozambique’s total exports in 2021. However, the discovery of gas reserves and mining projects has also contributed to violent conflict and increased inequality in the country, particularly in Cabo Delgado province.

Manipulation of Tax Treaties with Mauritius and UAE

The report demonstrates how these corporations have manipulated Mozambique’s tax treaties with Mauritius and the UAE to lower their tax rates. Through the creation of subsidiaries in these countries, companies like TotalEnergies and Eni have avoided paying taxes on interest payments and loans made to their Mozambican projects.

Lost Tax Revenues

The lost tax revenues equate to approximately 43% to 67% of Mozambique’s entire 2021 government spending. This amount could have significantly improved the lives of Mozambicans, providing funding for essential healthcare and education, improvements in living conditions for conflict-affected communities, or additional educational resources for the approximately 650,000 children who do not attend school.

Tax Evasion in the Mining Sector

In the mining sector, Nacala Logistics Corridor mining operations avoided paying Mozambican taxes by financing their projects through a UAE-based subsidiary. This allowed them to evade approximately $97 million in withholding taxes, while a Mauritian mailbox company enabled Gemfields to avoid paying dividend taxes on its Montepuez ruby mine, resulting in Mozambique losing approximately $10 million in taxes.

Call for Action from the Mozambican Government

SOMO calls on the Mozambican government to take action by renegotiating or terminating tax treaties with Mauritius and the UAE. This move would limit companies’ opportunities for tax evasion and ensure a transparent tax policy.

Limitation of Resources for Preventing Corporate Tax Avoidance

The report reveals just the tip of the iceberg, as data on extractive industry investments in Mozambique is limited. The Mozambican government should also consider other measures to prevent corporate tax avoidance as outlined in the reports.

Addressing Tax Evasion in the Extractive Sector

As Mozambique continues down the path of economic growth, it is crucial to address tax evasion in the extractive sector to ensure that the benefits of these industries are shared equitably among Mozambicans.