Beeld © Bart Maat / ANP

Dutch foreign minister involved in tax evasion scheme

The Pandora Papers turned the spotlight on Wopke Hoekstra’s investment in an African safari company via a tax haven. Apparently, there was no tax evasion, but that does not seem to be the whole story. Research conducted by Martijn Nouwen shows how the safari enterprise seems to have used an aggressive tax planning scheme to escape taxation in Africa.

After the Panama Papers (2016) and the Paradise Papers (2017), the Pandora Papers (2021) shone the light on a large number of offshore structures of politicians and some of the world’s wealthiest people. Multiple European political figures were mentioned in this massive leak of confidential records of offshore corporate service providers. Besides Czech Prime Minister Andrej Babiš, Montenegrin President Milo Ðukanović, and Ukrainian President Zelenskiy, Dutch Minister of Finance Wopke Hoekstra appeared in the papers.

Until his swearing-in as Dutch Finance Minister in 2017, Hoekstra was part of a private investment club that still uses a letterbox company in the British Virgin Islands, a well-known tax haven situated in the Caribbean. The Pandora Paper also linked Tom Swaan, chairman of the supervisory board at ABN Amro, Maarten Muller, supervisory director at Van Lanschot Kempen, and Alexandra Schaapveld, supervisory director at the French bank Société Générale, to the investment club.

The investment club used the offshore vehicle to invest in the African safari enterprise Asilia Africa. Letterbox companies are often used to hide investments, especially from tax authorities. In response to the negative headlines about his investment, Hoekstra emphasised that he did not evade taxes. ‘I have always reported this [investment] to the Dutch tax authorities.’ With his investment, he mainly wanted to do good by supporting a foreign venture of an old friend.

Aggressive tax avoidance?

But this is not all there is to it. The question remains whether the safari enterprise used an aggressive tax planning structure to avoid the taxation of safari profits in Africa. While internal tax avoidance is not illegal, it is increasingly being criticised across the globe. During a debate in the Dutch House of Representatives, Hoekstra admitted that he had never looked into the tax structure of the safari enterprise. He claimed that he was not aware of any aggressive tax planning: ‘I have no knowledge of the [..] specific things that the start-up has done. I simply don't know that.’

Hoekstra claimed that he was not aware of any aggressive tax planning

This statement inspired me to take a closer look at Asilia Africa’s tax structure and to assess whether the enterprise may have been involved in aggressive tax avoidance practices at the time of Hoekstra's investment. My analysis is based on public information about Asilia Africa, mainly found on its website and in online company and trademark registers. I am not in possession of the company’s tax returns; these are confidential and not published. The findings below should therefore be interpreted with some caution.

Asilia Africa’s activities and corporate structure

Founded in 2009, Asilia Africa claims to deliver ‘an authentic East African safari experience that leaves a positive impact on Africa’s crucial wilderness areas’. Every year, the safari operator, with its nineteen lodges and camps in Tanzania and Kenya, persuades tourists from all over the globe to cross the plains of East Africa to discover and absorb the beauty of Serengeti National Park and Greater Masai Mari, which hosts elephants, giraffes, zebras and many other animals.

Asilia Africa also organises trips to the tropical Zanzibar, a group of more than fifty islands in the Indian Ocean offering some of the best diving in Africa. In addition, the company recently started operations in Rwanda and Uganda, both premier gorilla-tracking destinations.

While Asilia Africa’s safari business looks and feels very much African, its corporate structure looks like the creation of an offshore tropical tax paradise. The local safari tour operations in Kenya and Tanzania have been mixed with paperwork executed by two offshore companies in Mauritius, an island in the Indian Ocean more than 2000 kilometres off the southeast coast of the African continent. The overview below shows a brief outline of what is publicly known about the safari enterprise’s corporate structure;

Simplified overview of Asilia Africa’s corporate structure with tax rates of the different countries. Asilia Africa Limited’s interest in Asilia Africa UK LTD, a UK-based travel agency, is not depicted here. For this company, see this page.

Candace Management Limited, located in the British Virgin Islands, is the shell company used by the investment club. It invested in the safari enterprise's ultimate parent company: AfricanSpirit Group Limited. Since its incorporation in 2009, AfricanSpirit Group Ltd has been registered on the fourth floor of MITCO (Mauritius International Trust Co. Ltd) located in Ebene, Mauritius. MITCO is one of Mauritius’s largest creators of offshore companies, that is: companies that usually have limited or no employees and that are typically located not where the company actually operates, but where secrecy is high and taxes are low.

The Mauritian parent company acts as a holding company for several companies in Kenya and Tanzania from where the safari lodges and camps are operated, and safari tours are organised. AfricanSpirit Group owns Asilia Africa Limited, which is also administered by MITCO. The terms and conditions stated on Asilia Africa’s website indicate that the safari enterprise’s sales and booking infrastructure (website) is operated by this offshore entity. Additionally, online trademark registers reveal that this company is the legal owner of Asilia Africa’s trademark (company name and logo). 

Lastly, AfricanSpirit Group holds the shares in Asilia Lodges and Camps Ltd, based in Cape Town, South Africa. Asilia Africa’s website shows that multiple centralised service activities of the safari enterprise are conducted here, such as human resources and bookkeeping.

Asilia Africa’s tax business model: monkey business?

Tourists who booked their safari holidays via asiliaafrica.com probably expected that all their euros, dollars or yens would end up in the local economy and treasury of Tanzania and Kenya, but this may not have been the case for many years.

Why? When setting up the safari business in 2009-2010, Asilia Africa seems to have implemented a well-designed aggressive tax planning structure that enabled it to shift a significant part of its safari profits out of Africa into a tropical tax location: the offshore – tax-exempt – company Asilia Africa Limited in Mauritius. This structure is based on a tax avoidance practice that has been widely practiced by multinationals: the ‘parking’ of (trade or marketing) intangibles in an offshore company combined with an aggressive transfer pricing strategy. I explain this tax avoidance strategy below.

Mauritius: an offshore tropical tax paradise

The official company register of Mauritius reveals that Asilia Africa Limited was created in 2010 as a so-called Global Business Company Category 2 (GBC2). Until 2021, this GBC2 structure ensured that Asilia Africa Limited was considered a so-called non-resident company for Mauritian tax purposes. This means that it was fully exempt from paying taxes in Mauritius. Asilia Africa Limited was therefore not required to pay corporate tax, withholding tax (on dividend, interest or royalty payments), or other business taxes.

Another advantage of the GBC2 structure was that Asilia Africa Limited was not subject to any accounting or tax reporting requirements. As a result, it did not have to file a corporate income tax return. It did not even have to employ a managing director living in Mauritius. The appointment of a so-called corporate director, as provided by the corporate service provider MITCO, was sufficient to benefit from the GBC2 structure. As a result, the Mauritian offshore company did not need to hire its own staff or rent its own office building on the island.

The GBC2 structure and the full tax exemption were only open for offshore companies conducting business outside of Mauritius. Regular companies selling services and products on the island were – in principle – subject to the mainstream corporate tax rate of 15 percent. This offshore regime was clearly aimed at eroding the treasuries of high-tax jurisdictions, such as Tanzania and Kenya, which both have a corporate tax rate of 30 per cent.

Out of Africa, into Mauritius

But how could the safari enterprise get the lion’s share of its safari profits out of Africa into the tax-exempt offshore company in Mauritius for so many years? We now enter the world of transfer pricing: an area of tax law that is aimed at sharing the corporate tax pie (that is: the tax base / profits) between the various companies of the safari enterprise in the different countries.

To determine which slice of the tax pie belongs to Tanzania, Kenya, South Africa, and Mauritius, the internationally recognised transfer pricing rules require that all intra-group transactions between all companies of the safari enterprise must be priced at arm’s length. This means that the intra-group transactions must be set at the price that would have been agreed upon by independent parties. After all, the revenues and costs of the individual companies of the safari enterprise are to a large extent the result of transactions with other companies of the safari enterprise.

The pricing of such intra-group transactions is a complex exercise, but the key point is that the allocation of the safari profits to the various companies in the different jurisdictions is highly influenced by the way Asilia Africa has organised its most important functions, risks, and assets (value creators) within its tax business model.

Looking at the safari enterprise, the brand name, logo, client base, and website (in tax terms: marketing intangibles) are clearly valuable assets of the safari enterprise. This can simply be clarified. A tourist from Amsterdam, New York, or Moscow, probably books a safari holiday via asiliaafrica.com due to aspects connected to the international reputation of the Asilia Africa brand. The safari enterprise will have carefully designed the look and feel of its brand and website to persuade tourists from all over the world to book a trip to one of their camps or lodges in Africa.

As described above, Asilia Africa has ‘parked’ its marketing intangibles in the offshore company when setting up its tax business model. The mere legal ownership by this offshore entity of the safari enterprise’s brand may have allowed the company to very simply allocate a significant portion of its safari profits to the tax exempt offshore company in Mauritius. Under the international widely accepted transfer pricing rules applicable until 2017, no activities related to Asilia Africa’s marketing intangibles actually had to be carried out in Mauritius.

This stunning piece of aggressive tax planning – the parking of trade or marketing intangibles in a tax haven to escape taxation of so-called excess profits – has been widely practised by international companies in recent decades. Examples are the aggressive tax planning structures used by Nike, Ikea, and Starbucks. The possibilities for manipulating transfer prices were significant because the process of setting transfer prices is not an exact science. In practice, an acceptable transfer price often falls within a wide range.

What’s left for Africa? 

Until 2017, perhaps not that much. The tax authorities in Tanzania, Kenya and South Africa probably had to be satisfied with a small part of the corporate tax pie because the safari companies in these countries were engaged in so-called routine (simple) activities. An example concerns the safari tours and activities such as sleeping under the stars, carried out by the safari companies in Tanzania and Kenya. Another example is the provision of human resources and financial administration services by the South African company to other companies of the safari enterprise. These companies need to be remunerated – in line with market prices – for their intra-group services. 

The issue, however, is that under transfer pricing rules, a stable but relatively low remuneration is typically paid for such simple activities. They are generally not compensated with a remuneration form that highly depends on the success (or failure) of the safari enterprise as a whole. Therefore, a relatively low amount of profits may have been allocated to the African countries for many years.

Crocodile tears

The aggressive tax planning strategy used by Asilia Africa has been addressed by tax policy makers in recent years. In 2017, both the OECD and the EU labelled Mauritius’s offshore tax regime as a harmful tax practice, and requested the island to abolish the regime. Initially, Mauritius resisted. But when the European Union in 2019 voiced its intention to label the island as an ‘uncooperative tax jurisdiction’ and place it on its EU blacklist of tax havens, a political agreement was swiftly reached on the abolishment of the regime.

Based on transitional arrangements, the safari enterprise was able to benefit from the regime until July 2021. Although the offshore tax regime is now gone, Mauritius introduced several new tax schemes – including a partial exemption regime for foreign income (such as foreign interest income) and tax holidays providing full tax exemptions for either five or eight years – to ensure that its financial centre would remain attractive and competitive. Mauritius can still be a tropical tax paradise, particularly for a group with substantive operations across Africa. It is unclear whether Asilia Africa uses any of these new tax schemes. Only the safari enterprise’s confidential tax returns could tell us that.

African tax authorities may now more easily challenge the allocation of safari profits to Mauritius

But this is not all. In 2017, policymakers tightened the international transfer pricing rules to tackle the international tax avoidance practice of ‘parking’ (trade or marketing) intangibles in tax havens. The new rules target multinationals but may also affect aggressive tax planning practices of smaller companies, like Asilia Africa. Profits generated by, for example, marketing intangibles – like the Asilia Africa brand – can no longer be automatically allocated to an offshore company based on mere legal ownership.

The attribution of such profits nowadays depends on the risks to which a company is exposed and the functions it actually performs with regard to marketing intangibles. In the case of the safari company, for example, it is relevant which group company is responsible for the development, maintenance, protection and exploitation of the Asilia Africa brand.

Based on these new rules, the African tax authorities may now more easily challenge the allocation of safari profits to Mauritius. If the company in South Africa undertakes significant marketing efforts, such as legal protection of the Asilia Africa brand or the development of the website based on a new marketing strategy, this should be reflected in the profits allocated to South Africa. In case all the international marketing activities that determine the value of the Safari enterprise’s brand are performed in South Africa, there should, in principle, be very little or no profit left to be allocated to Mauritius. But again, only the confidential tax returns of the safari company could clarify whether this is the case.

The moral of this story?

Multinational companies are not the only ones who can use an aggressive tax structure to avoid taxation; African safari businesses can too. Hoekstra was probably not fully aware of this when he decided to invest in the foreign venture of his old friend. Fortunately, policymakers are on the ball, and the biggest tax loopholes are currently being closed. As a result, the safari company will probably have to pay more taxes on its safari profits in the future.

Responses

Wopke Hoekstra responded via his personal assistant: ‘Mr. Hoekstra has clarified all that he can disclose about this construction during the parliamentary debate on 5 October 2021.’

Asilia Africa informed us:

‘Asilia’s position is that the article is factually incorrect and unfairly suggestive on multiple points. While Asilia as a Company has grown to pay more than USD 5mn in annual taxes and levies and a similar amount in other fees in Kenya, Tanzania on an annual basis (as well as paying taxes in South Africa and Mauritius), Asilia’s shareholders have not benefitted financially from their investment in the Company since 2009, through dividends or otherwise. Percentage-wise our contributions to the local governments and institutions in the countries where we operate are similar to or higher than the equivalent in Europe. It must also be noted that Asilia complies with FATCA and CRS standards on an annual basis and is audited by a big four firm each year.

Mauritius – an integral part of Africa – is incorrectly labelled by the author as a tax haven outside Africa, using incorrect or outdated information. Mauritius is a legitimate business hub within sub-Saharan Africa and is recognised as such by reputable international institutions, ranking among the most stable and well-governed countries within the African continent, and with a corporate income tax rate and approach in line with the latest OECD taxation guidelines. Mauritius is a forward-thinking, open economy with solid tax frameworks including the adaptation of international tax treaties and DTS agreements to encourage intra-continental trading. Asilia would encourage other African governments to improve and create the same as we have experienced trading issues and hurdles in some of the countries where we operate.

Being responsible for the livelihoods of thousands of people in Africa and the protection of thousands of km2 of pristine nature areas, Asilia is proud to be recognised  as a genuine ‘ force-for-good’ in the world by international institutions like Norfund and others as a prime example of a positive impact company, ranking in the same range as better known B-Corp companies like Patagonia and well above most others. We have a formal policy of not conducting any aggressive tax practices and are externally audited on this and fully compliant.”

We would be interested in collaborating with you on a future “Follow the Money” story if you were interested in analyzing how safari dollars can make an impact and are an important part of building sustainable economies in Africa.’

To which the author responded:

‘I have taken note of the response from Asilia Africa. It claims that the article contains factual inaccuracies, but its explanatory statement identifies only one factual inaccuracy: the allegedly incorrect labelling of Mauritius as a tax haven. I would kindly make the following observation on this. My research shows that Mauritius operated the offshore GBC2 regime until recently. Under this regime international companies conducting business outside Mauritius did not have to pay any tax. The official company register of Mauritius shows that Asilia Africa was registered as a GBC2 company. Both OECD and EU have identified this offshore tax regime as a harmful tax practice. The existence of such an offshore tax regime is a reason to be labelled as a tax haven by the European Union.’

Read more Fold in