Mauritius the apple of Aspen’s eye

Low-tax Mauritius has been the key site in Aspen’s remarkable growth, but this has nothing to do with aggressive tax planning, transfer pricing or complex structuring, insists CEO Stephen Saad.

Aspen Pharmacare, the largest anaesthetics supplier in the world and the biggest pharmaceutical company in the southern hemisphere, has had a horrid year.

It has been accused of “price-gouging” by European competition regulators and has been subjected to a nasty competition commission probe at home in SA. So the last thing CEO Stephen Saad wanted was Aspen’s name all over the “Paradise Papers”.

But given that Aspen had made extensive use of Appleby, the offshore law firm from which 6.8-million documents were leaked, and that Aspen owns 71 companies through Mauritius, a pivotal “secrecy jurisdiction” with low tax rates, it was probably inevitable.

“We understand there may be companies established in Mauritius with little or no substance,” Saad says. “Nothing could be further from the truth in respect of the Aspen Group.” 

He says his company is fastidious about avoiding illegitimate structures. He points out that Aspen Global manufactures drugs, structures deals and does real work in Mauritius, with 220 staff who live there.

Deputy CEO Gus Attridge says Aspen never used Appleby for tax advice. 

“Under Mauritian law all companies need a management company to be appointed as company secretaries … Appelby’s appointment was as a management company [only].”

Saad says: “When we set up, we had no idea we’d be that successful offshore. Initially we had an office in the UK, but then moved it to Mauritius. We set it up in 2007 or 2008 and we’ve got a proper, proper set-up there.”

He says Aspen doesn’t do “aggressive tax planning”, such as transfer pricing, financial instruments or complex structuring.

This may be hard to square with Mauritius’s reputation as a highly secretive country which bends over backwards to help customers hide information, while charging an effective 3% corporate tax.

If there is one of Aspen’s deals structured through Mauritius that raises eyebrows, it’s the 2010 purchase of Brazilian medical company Dismédica.

At the time, Aspen was planning yet another step in its triumphant quest for global domination, a trajectory that had taken it from the back room in a house in the commercial backwater of Durban, to a company with 26 facilities on six continents, exporting to over 150 countries, in just two decades.

But with the Brazilians there was a hitch: the Brazilian sellers weren’t entirely keen to pay capital gains taxes. So they asked Aspen to structure it “differently”.

The advisers came back with a plan so labyrinthine as to make the Gupta money-funnelling network seem positively vanilla. 

Dismédica’s shares would first be transferred through a British Virgin Islands company (at cost), then diverted through the Netherlands, and finally on to Mauritius (where it would be housed in Aspen Global).

It seemed risky. 

Aspen’s lawyers warned that “considering that the non-Brazilian companies were incorporated immediately before the sale and that the sole purpose of these companies is to hold the investment of Dismédica, Brazilian tax authorities may understand that the whole purpose of the incorporation of these companies was to avoid [taxes] that would be applicable [if] the shares of Dismédica were sold directly.”

If the Brazilian authorities think this, the lawyers warned, they could hit the sellers with the full tax, as well as penalties.

It made more than a few people uncomfortable. 

Saad admits that at the time of doing the deal, Aspen “raised our concerns about the complex structure that was being proposed by the seller”. So Aspen hired Deloitte to give it an outsider’s view on the structure.

Though the deal was “complex”, Saad says Aspen wasn’t seeking to avoid any taxes.

“The memorandum clearly indicates that Aspen assumes the capital gains tax obligation. We did not benefit from this transaction, but actually assumed a tax liability,” he says.

Nonetheless, the implication is that the Brazilians wanted to reduce their taxes, so they artificially diverted the deal through Mauritius. It’s the sort of convoluted structure typical of modern tax advisers, like Appleby.

While there’s no evidence Aspen indulged in any of these tricks, a classic “transfer pricing structure” is for a company to stash its intellectual property or “marketing arms” in a tax haven, then charge the operating company a fortune. This reduces the taxable income in the place it actually does business.

In Aspen’s case, it holds its global intellectual property through Mauritius and also funds deals through the island. “We are careful to avoid illegal structures,” says Saad. 

“All the loans are made on an arm’s-length basis and we follow strict rules in applying domestic law and transfer pricing principles.”

Saad points to several “transfer pricing, base erosion and profit shifting audits” in the past five years, which didn’t lead to any “significant adverse assessments”. 

And when the ever-suspicious SA Revenue Service (Sars) pitched up asking questions of Aspen’s Mauritian business, it apparently left after a “rigorous review” which ultimately confirmed the “tax legitimacy of these operations”.

Certainly, that Mauritian business has grown immensely. Nine years ago, Aspen bought the Cyprus company Pharmalatina, and soon shifted its headquarters to Mauritius.

One Appleby adviser told Aspen to “align the tax status of the company with the Aspen group policy” — though the places where it is registered, and doing business, differ.

An Aspen employee said it made sense for Pharmalatina to “make use of treaty benefits should it receive dividends or generate capital gains on the disposal of its investments”.

Says Saad: “No tax advantages arose from this transaction — in fact, Pharmalatina may potentially suffer more tax as a consequence.”

But if that’s so, the question remains: why set up shop in Mauritius in the first place?

Saad says it did so because of “easier access to funding due to lack of exchange controls, ease of doing business, and investment protection under Mauritian commercial and intellectual property law treaties”.

The fact is, says Saad, the Aspen of today makes only 15% of its money in SA. 

“We’re an offshore company today. We’d never have been able to do the large deals we’ve done were it not for our company in Mauritius.”

* Written in collaboration with the Financial Mail (RSA).

The amaBhungane Centre for Investigative Journalism produced this story. Like it? Be an amaB supporter and help us do more. Know more? Send us
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Micah Reddy
Before joining the amaBhungane team in 2017, Reddy was the national coordinator for media freedom and diversity at the Right2Know Campaign. He holds a Masters in African Studies from Oxford University and a BA Honours in History from Wits University
Will Fitzgibbon
Will Fitzgibbon is a senior ICIJ reporter. He is also ICIJ's Africa and Middle East partnership coordinator.

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