How Christo Wiese got caught up in a ‘tax scheme’ that now owes Sars billions

According to a new investigation by amaBhungane, billionaire businessman Christo Wiese had to be “stopped” by the SA Revenue Service (Sars) to benefit from an alleged scheme set up by a European company to avoid or perhaps even evade paying tax.

The report says Wiese’s tax advisers at ENSafrica involved him and the London-listed company, Tullow Oil, in a multibillion-rand scheme that involved a convoluted series of payments through different companies. The assets apparently eventually ended up in a company based in the Netherlands, which has favourable tax conditions for corporations.

According to court papers by Sars, Tullow was attempting to avoid taxes of R940 million when moving assets worth about R3.9 billion out of South Africa in around 2007.

Tax avoidance through legal means can sometimes be legal, while evasion is not. Sars reportedly contends that what happened in this case was a “sham”.

ENSafrica, which is named as being central to the scheme, later allegedly sold a holding company that contained a tax shelter from Tullow’s restructure to Wiese through his investment company Titan.

By buying Elandspad Investments, Wiese’s firm became the “proud owner” of a taxable loss in another firm, Energy Africa, “which he could then use for future tax write-offs”.

Wiese has disputed this, saying neither he nor his companies benefited from the arrangement and. He is opposing Sars in court – primarily on technical grounds.

Sars, however, argues that Wiese was simply stopped before he could benefit. Sars alleges he “allegedly moved assets out of the company and sold it to a then ENS partner who told Sars there were no cash or assets left to claim”.

The upshot is that Sars reportedly now wants R217 million from Wiese, a former ENS employee and two others involved in the “scheme”.

In October 2016, Sars sought to hold Wiese and the three others personally liable for a R217 million asset that they had allegedly “knowingly dissipated … in order to obstruct the collection of [a R3.7 billion] tax debt” from Tullow.

The R3.7 billion tax debt is from a Sars calculation that it would have been owed R940 million if Tullow had merely paid what it should have, according to the revenue collector. With penalties of 150% plus interest, Sars’ claim increased to R3.7 billion.

In August 2017, the taxman demanded payment of R217 million from Wiese and the other three men within 10 days. Three weeks later, a high court sheriff served them with summonses. Wiese and the others filed a technical objection, claiming Sars had no facts to support its claim.

Their objection will be heard on 22 August.

Wiese told amaBhungane he did not wish to comment on their current questions about the case.

He was the biggest loser from last year’s Steinhoff fraud, which personally cost him nearly R60 billion, wiping out both his status as a dollar billionaire and being South Africa’s richest man.

Transfer invoicing as a bigger problem

The Tullow scheme, if proven to be a true reflection of what happened, may be part of a common problem that affects particularly African countries in which profits leave their country of origin without taxes being properly paid.

In 2014, after tracking illegal outflows from 2003 to 2012, the Global Financial Integrity (GFI) monitoring organisation estimated that South Africa lost about R147 billion a year to the illegal movement of money out of the country. Much of this was happening with the assistance of major “respectable” financial firms.

The Thabo Mbeki Foundation studied this problem and linked its origins to the 1960s, when many multinational corporations set up systems to move their profits offshore as a counter to the “threat of decolonisation”. Tullow was started in Ireland in 1985 to “exploit Africa’s forgotten oil fields”.

Profits from Africa have, over the decades, regularly moved to tax havens around the world through fake operations to hide the fact that taxes are owed to host countries.

According to journalist Sarah Evans, the “practice has become so common that at least one [unnamed] auditing firm released a tip sheet to its clients, mostly multinational corporations, to advise them on how to avoid paying taxes without alerting tax authorities”.

The GFI has estimated that developing countries lost $6.6 trillion (R88 trillion) in this way from 2003 to 2012. It continues to happen, relatively unchanged.

In 2013, NGO Platform London claimed Tullow was skilled at creating artificial structures to minimise its profit in the UK to avoid paying tax.

Read the full amaBhungane report here.