Monday, June 24, 2024

Pick n Pay remitting profits to overseas tax havens ÔÇô court record

At a time that the so-called Panama Papers have provoked interest in “tax havens”, the company that owns the Molapo Crossing Pick ‘n Pay Supermarket, Horn of Africa, has been accused of repatriating its profits to a tax haven that is currently being investigated by both the European Union and the United States.

Horn of Africa is suing the owner of Molapo Crossing shopping mall, Luc Vandecasteele and his company, Sphinx Associates, for defamation following an email that the latter wrote to the Pick n Pay franchisor in South Africa about the general condition of the Molapo store. Previously, these parties also went for arbitration over another dispute. The court case has brought issues that have been unknown to outsiders into the public domain. In terms of the lease agreement between Horn of Africa and Sphinx Associates, which Vandecasteele is managing director of, the latter has legal entitlement to shareholding information about the former. On the conviction that Horn of Africa was withholding some information from him, Vandecasteele conducted his own research on the company and his findings form part of an affidavit that he has deposed to.

From his research, Vandecasteele discovered that the majority shareholder in Horn of Africa is a company called Explosive Retailing which is based in the British Virgin Islands. The latter is a British overseas territory located in the Caribbean Islands to the east of Puerto Rico.

“This was never disclosed to [Sphinx Associates] and forms part of the arbitration that is currently awaiting an award from Mr. J. Salbany,” Vandecasteele says in his affidavit, referring to attorney Joao Salbany who has had to relocate to South Africa after the Botswana government rejected his application for a renewal of his work permit.

This is the second arbitration that the two parties have had to go for after one in 2012. During arbitration proceedings of the first, it was revealed that Explosive Retailing is controlled by a family trust comprising Christopher Linder, one of the Horn of Africa directors, and one Arthur Black. Vandecasteele says that nothing was said about who controls the shares and efforts to get that information were futile. The Horn of Africa lawyer, John Carr-Hartley of Armstrongs, is said to have stated that such information was publicly available, a statement Vandecasteele refutes. The latter contends that the attorney “knew very well that such information is not in the public domain.” He adds that if Sphinx Associates had known that “the main shareholder is a company registered in the British Virgin Islands, [it] would have refused to enter into a lease agreement with [Horn of Africa]”

Explaining why a foreign-registered company was a shareholder in Horn of Africa during the 2012 arbitration, Carr-Hartley is quoted as saying the arrangement was necessitated by “prevailing foreign exchange controls” in South Africa.

“To date, [Sphinx Associates] and the registrar of companies don’t know the real shareholders of [Horn of Africa]. In fact, upon further investigation into some other supermarkets the plaintiffs own, it became clear that yet another British Virgin Islands-registered company called Kaya Retailing Limited, is used in other supermarkets,” says Vandecasteele says in his affidavit and  further suggests that this arrangement enables the directors to easily move money around.

The British Virgin Islands is indeed a global tax haven and advertises itself as such. While its “aggressive tax planning” is morally objectionable, it is perfectly legal and the country is becoming rich from offering this service. Online, this is how one British Virgin Islands company called Intertrust Corporation explains why the islands are one the most popular offshore jurisdictions: “BVI companies and all amounts paid by them to non-residents are exempt from all local taxes and stamp duty. Upon the sale or transfer of shares of a BVI [business companies] to a third person, capital gains tax is not payable under the BVI law. BVI companies are not required to file tax returns or any other type of report or declaration to the BVI government regarding foreign-source income.” Naturally, other countries ÔÇô those in the First World included – are unhappy about this because they lose a lot of tax money. This aggressive tax planning costs Canada an estimated $6 billion to $7.8 billion in lost taxes annually.

The nub of the defamation suit is a February 19, 2015 email that Vandecasteele sent to Chris Reed, the franchisor and owner of the Pick n Pay brand who is based in Johannesburg, South Africa. In this email, Vandecasteele says that while “PnP prides itself to be a responsible company that will invest in the society it works and operates in”, the reality is that “it remits its profits to overseas tax havens” and “pays the absolute minimum in salaries.” In his affidavit, he refers to a “world-wide investigation” into how the British Virgin Islands attract in excess of 600 000 companies to its tax-free system.

“The reports uncovered an estimated total wealth held in the islands exceeding the total world debt. European governments as well as the United States, are now taking steps to stop billions of dollars/euros missed in taxes. It is therefore not defamatory to state that the plaintiffs use the British Virgin Islands to evade paying taxes,” Vandecasteele says in his affidavit.

According to a report from the Institute for International Finance that was published in January this year, the total world debt is $217 trillion.

The issue of the British Virgin Islands-registered company came up again during Salbany’s arbitration. One of the Horn of Africa’s directors, Christopher Linder, is said to have explained that transfer of funds from South Africa to Botswana is “illegal” while it was legal to do so through the British Virgin Islands.

“How was lost on me the arbitrator and me,” Vandecasteele says in his affidavit.

After receiving Vandecasteele’s controversial email, the franchisor despatched Mark Barnard, General Manager (Franchise) to Gaborone to investigate the allegations made in the email. In his report, Barnard writes in response to the allegations about Pick n Pay remitting its profits to overseas tax havens: “We are waiting for a report from the franchisees’ attorney.” It is unclear whether such report was ever submitted and whether it was shared with Sphinx Associates.


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