Mauritius Leaks - Documents, Audio Recording Reveal Tax Avoidance Schemes of Nigeria's Fintech Giant

Tax.

Despite enjoying huge government patronage and a near-monopoly in the processing of payments, particularly in the power and aviation sectors, Venture Garden Nigeria Limited, arguably Nigeria's biggest financial technology (fintech) company, has set up shop in Mauritius, a notorious tax haven.

PREMIUM TIMES investigation also revealed that Venture Garden Nigeria is also planning to transfer the intellectual property rights of its software from Nigeria to the Indian Ocean Island country, in a move experts say is geared towards avoiding paying tax in Nigeria, where it primarily conducts business.

These revelations were made possible by documents and audio files retrieved from the Mauritius office of international law firm and offshore service provider, Conyers Dill Pearman.

The International Consortium of Investigative Journalists (ICIJ) obtained and shared the documents with PREMIUM TIMES and other media organisations around the world.

After a 2017 buyout by its employees, Conyer Dill Pearman became known as Venture Law Ltd and Venture Corporate Services Ltd.

Venture Garden Group

According to a May 2015 Structure Chart of the company obtained by PREMIUM TIMES, Venture Garden Nigeria Limited is wholly owned by Venture Garden Group (VGG), a company incorporated in Mauritius. The ultimate beneficial owners of VGG are Olubunmi Akinyemiju and Olubukunmi Demuren. They both own 50 per cent each of the company.

Mr Akinyemiju, 42, is a fintech whiz and CEO of the company. In 2017 he was nominated as one of the top 100 Most Influential People of African Descent (MIPAD) in Business and Entrepreneurship. The award is given in support of the International Decade for People of African Descent to be observed from 2015 to 2024 proclaimed by United Nation's General Assembly resolution 68/237.

Perhaps he received that accolade because two years earlier he had spearheaded VGG's drive that resulted in a $20 million investment from one of Africa's leading venture capital firms, Convergence Partners.

His partner, Mr Demuren, is the son of a former director-general of the Nigerian Civil Aviation Authority, Harold Demuren. Skypower Aircraft Leasing Limited, owned by the senior Demuren, was found to have been registered in Mauritius, as well.

VGG prides itself as "a leading provider of innovative, data-driven, end-to-end technology platforms addressing reconciliation and payment processing inefficiencies across multiple sectors of the African economy."

The company is also involved in data gathering and management as well as revenue collection for government agencies, ministries and corporations. A big chunk of its investment is in payment automation and solutions in the sectors where it operates

The company reportedly has a $60 million investment in five main subsidiaries - education, power, fintech, aviation, and petroleum sectors.

In 2016, it established Greenhouse Capital, an investment company. Green House is a burgeoning investment octopus with its tentacles in at least 15 start-ups in Nigeria and five other countries. Its total investment chest is valued at over $4 million.

The start-ups in which Green House has investments include payment solution firm, Flutterwave; motorcycle hailing company, Max.ng; remittance provider, Sureremit; Growth Capital, a social innovation fund by Co-Creation Hub; Hellium, a healthcare service, and several others.

Vice President Yemi Osinbajo

In June last year, Vice President Yemi Osinbajo was on hand to commission VGG's tech hub in Lagos, named Vibranium Valley. Vibranium Valley currently houses over 30 startups, with a capacity to host about 20 more.

But while growing its tentacles in Nigeria, the company has also set in motion plans that could enable it to pay fewer taxes to the country where it is domiciled.

The Business Plan

According to VGG's "Business Plan" obtained by this newspaper as part of the over 200,000 documents obtained by the ICIJ, it chose to domicile its parent company in Mauritius because it is "located favourably in relation to some largest developing markets in the world."

The plan stated that the country's location near the Indian Ocean gives it easy access to developing countries in Africa, the Middle East, India, Indonesia and Vietnam.

"Mauritius has a developed an efficient financial infrastructure underpinned by a stable and favourable corporate legal system," the company said. "This makes it a good location for capital raising and running the operations of a business focused on the markets. Furthermore, Mauritius is an offshore jurisdiction with a wide network of double taxation treaties in interesting markets."

While delivering the country's 2017/2018 budget speech, the Prime Minister of Mauritius, Pravind Kumar Jugnauth, spoke about his government's intention to make the country the fintech hub of Africa.

"Mauritius must also harness the benefits of the fintech revolution the more so that there is good potential for making Mauritius a Fintech hub for Africa".

Since then African fintech companies have been migrating to open shops in the country. Opening an offshore company in a country of lower to zero tax like Mauritius is not necessarily illegal. Many companies, including tech firms, are attracted by the relatively more favourable business climate in the country.

Tech companies, especially, are drawn by the promise of a regulatory sandbox - a place where fintech start-ups are provided with the chance to experiment with innovative products or services in a production ecosystem for a limited period of time before their actual launch.

Tax Avoidance?

However, for some businesses, their primary attraction to Mauritius could be its low to zero tax policies, while avoiding paying their fair share of taxes in the countries where they conduct business.

"The company may require a tax residency certificate, to be issued by the authorities in Mauritius after the incorporation of the company to benefit from the double tax agreement between Mauritius and Nigeria," a paragraph in the VGG business plan subtitled "Taxation Implication", reads.

As opposed to the 30 per cent corporate tax rate in Nigeria, Mauritius corporate tax rate is 15 per cent. But the country's take rate on foreign income is three per cent maximum.

Tax activists say multinational companies cash in on the type of ownership structure as VGG's through a cost pushing mechanism known as transfer pricing. In some cases, the parent companies registered in a tax haven charges its subsidiary in other countries for the supply of products and services. These transactions are usually artificial as they are mostly supplied on paper.

Critics say this type of ownership structure allows promoters of the parent companies to impose outrageous charges on their subsidiaries that are usually domiciled in high tax countries, which is more often the motivation for moving the earning to a low to zero tax jurisdictions like Mauritius.

Also, companies domiciled in Mauritius can further take advantage of the country's double tax treaty, which can effectively eliminate withholding tax on dividend, interest, royalty and capital gains. To enjoy the double tax treaty, an entity registered in the country needs a Tax Residency Certificate.

In 2012, Nigeria signed a double taxation treaty with Mauritius. While the agreement has been ratified by Mauritius with similar agreements with over 33 countries, Nigeria is yet to ratify it.

But taxation activists have argued that double taxation treaties rob countries like Nigeria the needed revenue for development. Multinational companies have been known to exploit loopholes in such treaties to shift profits to Mauritius in order to avoid paying appropriate taxes, said the UK-based tax watchdog, Tax Justice Network.

ActionAid has also frowned at the agreement and in 2014 wrote to the then finance minister, Ngozi Okonjo-Iweala, about the inherent danger of ratifying the treaty with Mauritius, arguing that "overall, the cost (financial and otherwise) of the treaty to Nigeria will outweigh the perceived benefits."

A review of the treaty commissioned by ActionAid highlights further trouble with the double taxation treaty with Mauritius.

"Given that Nigeria is a net importer of capital and will remain so for the nearest future, the DTT by limiting the taxing right of Nigeria on dividend, interest and royalty potentially reduces the tax base of the country which will impact negatively on the revenue generation for the country," the report explained.

Transfer of Intellectual Property Rights to Mauritius

Despite enjoying a string of patronage from several government agencies, ministries and near-monopoly in payment process solutions and data gathering in the power sector, where it currently has a five-year contract, and the aviation sector, VGG is planning to avoid paying taxes on the royalty earned from its intellectual properties.

In a move that one intellectual property expert described as raising questions about likely tax evasion, the Board of VGG is attempting to transfer the intellectual property rights of some of its payment software used in the power sector from its Nigerian subsidiary to its parent company in Mauritius.

In an audio recording of its board meeting held sometimes in 2015 obtained as part of the leak, Mr Akinyemiju while responding to a question about the ownership of the intellectual property of the software, revealed that the company had already initiated the process of making the transfer.

After telling the board that the software makes VGG the ubiquitous payment engine in the country and that it was awarded a five-year contract after managing to secure an industry-wide agreement involving generation companies, distribution companies and the government (transmission), one of the directors asked where the intellectual property right of the software resided.

"Does the end result of all of these mean that Ventures Garden has propriety software that is used for payment in the industry in Nigeria? It would seem to me that there is a lot of intellectual properties that come with this. From the point of view of a director of the Mauritian company, how is that managed and valued and how is it actually held? Is it in the Mauritian company or is it somewhere else?" the business owner was asked.

"That is ongoing currently - the processes of moving the intellectual property onto Mauritius. There is the documentation and we are working with the Nigerian house of trademark that we registered. So, we are in the process of bringing that into Mauritius," Mr Akinyemiju replied.

"Software, IP is a funny one from a valuation perspective. It's a very difficult thing. There's very little... I wouldn't spend a lot of money trying to do that," he added.

"Not what it costs to value IP, but you actually have something that is working for the whole of Nigeria that somehow must be reflected in the books and records of the Mauritius company," the director replied.

Another director then cued in saying they should consider if the cost of migrating the intellectual property into the Mauritius company does not outweigh the benefits. He suggested that it may not be valuable in the long run if other operators decided to replicate the same technology.

The plan to move the intellectual property rights of its software to Mauritius, thereby denying the Nigerian government of taxes on royalties from such rights, highlights the hypocrisy of the company which prides itself as helping to secure "revenue assurance for the government."

During the meeting, the CEO of VGG also told the board that the Vice President, Mr Osinbajo, was aware and in on the company's move to become the main payment platform and data gathering firm in the power sector.

"We've sold it to the vice president's office... (inaudible audio). We've already cemented our position by virtue of the vice president relying on ... (inaudible audio)."

When reached for comments, Laolu Akande, Mr Osinbajo's spokesperson promised to investigate the claim but added that it was not in the character of the vice president to aide such tax avoidance scheme.

"As you must know sir, this VP will never be a party to or support such conduct & actions as you have alleged," he said.

An Incestuous transfer

While a company's decision to move its intellectual property rights to a low to zero tax jurisdiction like Mauritius raises some moral concerns, especially for a company, like VGG, which enjoys widespread government and corporate patronage in at least two important sectors of the economy, it is not ordinarily illegal.

But tax experts who spoke to PREMIUM TIMES say this is only if such transfer is done at arm's length.

According to Investopedia, "an arm's length transaction is a business deal in which the buyers and sellers act independently and do not have any relationship to each other."

The financial advisory site further explained that "the parties involved in an arm's length transaction usually have no pre-existing relationship with each other. Deals between family members or companies with related shareholders are not considered arm's length transactions."

"It is legal if it is done at arm's length and the appropriate TP returns filled and appropriate tax paid," said an official of the Federal Inland Revenue Service (FIRS) who asked not to be named because they have not been authorised to speak with the media.

Similarly, Ifeoma Okenyi of Legal IP Coach, intellectual property and legal practitioner, told PREMIUM TIMES that the only way the planned transfer can be legal was if VGG was selling its intellectual property rights to an unrelated party after deciding to shut down its Nigerian business.

"Intellectual property is territorial. For example, let's say you own the newspaper you work for and then you have registered it under trademark and it having to be your own intellectual property. You can't move it in the sense that it is going to be territorial first. You have to own it where it resides. You have to own it first in Nigeria," she said.

But when told that VGG primarily conduct business in Nigeria and its plan was to transfer the intellectual property rights to its Mauritius holding company where, as an offshore company, it is not even allowed to conduct business, Ms Okenyi said the plan sounded fraudulent.

"Then that is pretty much tax evasion and a whole lot of fraud on your hands right there. Because if they are not dissolving the company here in Nigeria and claiming we want to stop operation here, maybe because the marginal cost is too much, the operation is too much, and we are selling everything to our parent company, and we don't own anything anymore. This is like inside trading. You are basically taking it from the ground below upward, it is still the same company. You have to look into tax evasion.

"It is different if you are transferring your total IP portfolio to a totally different company that has no link to you," she added.

When reached for comments, VGG, through an email sent by its legal team, said it was not illegal to move its intellectual property rights to another jurisdiction. But despite evidence to the contrary, it claimed no discussion about the movement of its intellectual property rights from Nigeria has been discussed.

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