Mining company Paladin reduces Malawi tax bill by $43m
A new report from ActionAid has detailed how Malawi, the poorest country in the world, has lost out on US$43 million in revenue over the last six years, from a single company - Australian mining company Paladin Energy Ltd. While Paladin had not broken the law by avoiding this tax in Malawi, the tax revenue could have paid for 431,000 annual HIV/AIDS treatments; or 17,000 annual nurse salaries; or 8,5000 annual doctors' salaries; or as many as 39,000 annual teachers salaries.
The report entitled, “An Extractive Affair: How one Australian mining company's tax dealings are costing the world's poorest country millions” shows how the company through completely legal structures had managed to divert revenue from Malawi.
Before the company started mining in Malawi it had negotiated a tax break which meant that some tax rates were lowered in Malawi and they were exempted from paying some taxes altogether.
This included the lowering of the so-called 'royalty rate' that Paladin paid for the right to extract uranium. This rate was lowered from the normal 5% of sales to 1.5% of sales for the first three years and then 3% in all subsequent years. This tax break - which was negotiated in secret without public scrutiny - has cost Malawi US$15.635 million.
Paladin also set up a subsidiary in the Netherlands – which at the time Malawi had a tax treaty with meaning companies did not have to pay a 15% withholding tax normally applicable to interest payments and management fees transferred aboard. The Dutch company received a total of US$183.5 million between 2009 and 2014 in interest payments and management fees, money which was then sent on to Australia without being taxed in the Netherlands.
By routing its loan from Malawi to Australia via the Netherlands, Paladin lowered its withholding taxes in Malawi by more than US$27.5 million over six years. Between the lowered royalty rates and the avoided withholding taxes, Paladin lowered its tax contributions to Malawi by more than US$43 million.
The report calls on the Malawi government to stop handing out tax breaks and to review its tax treaties with other countries. It calls on wealthy countries with tax treaties with poorer countries to remove clauses which prevented those countries from applying rates of withholding tax which are set in their domestic law. Finally it calls on Paladin and other companies operating in poor countries to stop asking for discretionary tax breaks and shifting profits around the world to avoid paying their taxes in developing countries.
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