Editorial: The moral scourge of perfectly legal tax avoidance

We’re used to thinking of unfair tax avoidance – the legal kind that leaves governments and their citizens short-changed – as something developed-world companies do to African countries. A hole appears in the ground. Minerals are carted out. Much money is made. But when it comes time to tally up what is owed to the government, dear oh dear, there seem to be no profits to be taxed.

Indeed, the issue is of increasing political urgency for our continent, beyond the fundamental unfairness of corporate tax structures that hide profits. Those who pillage Africa without offering due returns are robbing us of our very sovereignty.

Which is why it becomes a little uncomfortable when we’re the ones committing the robbery.

This week we report in a cross-border collaboration with colleagues in the Netherlands about how South African companies with headquarters in that country conduct themselves when it comes to their tax affairs.

What we found is not illegal. Quite the opposite. Companies such as Naspers scrupulously follow the laws of different countries in order to exploit profitable differences between those laws.


This makes for a bizarre world of one-employee letterbox companies that handle vast flows of cash, and structures so complex that even experts can only shake their heads. And, just occasionally, it makes for attempts to claim business deductions that make even the business-friendly Dutch call a halt.

South African investors – in Naspers, but also in property companies, energy companies and other sectors – have long profited from the contortions of these companies. With the way political winds are blowing, especially at the European Commission, those companies will increasingly find themselves with some explaining to do. Why, Mr South African Property Company, did you find it necessary to invest British money in Eastern Europe by way of a loan out of the Netherlands? Are you really telling us you think it fair that you ultimately paid a fraction of a percent of tax on the rents your Polish shopping-centre tenants paid you?

The questions are as fair as they are uncomfortable. We’ll enjoy watching the corporate high-fliers squirm as they are levelled. Until we remember the extent to which their trouble robs us of our moral authority to do the same to their European counterparts doing business here.

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