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UN contractor’s low tax payments draw taxman’s attention

FINANCIAL STANDARD
By Moses Michira | September 3rd 2019
Emmanuel Annasis, founder and chairman of Canadian form DAC Aviation International, a major logistics provider for the UN that is now on the radar of tax evasion in East Africa.

Emmanuel Anassis’ first flight in his plane was to deliver unimix – a nutritional flour mix - to a starving village in Jonglei, South Sudan.

Vultures were waiting for the weakest to die before digging in while grossly malnourished children looked helplessly as some of their parents breathed their last.

Though Mr Anassis describes the situation in Jonglei as one of the “worst human catastrophes in modern-day history” it is what marked the beginning of an aviation empire the Canadian built in just two decades.

Unicef, the United Nations arm that responds to emergencies involving children, had just contracted DAC Aviation for a fortune to help deal with the South Sudan emergency.

In a span of just 26 years, Mr Anassis’ global business has grown to operate about 30 planes in its Kenyan subsidiary alone, which is based in Nairobi’s Wilson Airport.

It is, however, not Mr Anassis’ business prowess that caught the attention of the International Centre for Investigative Journalists (ICIJ) but the complex manner in which DAC Aviation has structured its business and the potential impact that it has had on the company’s tax obligations in countries of operation.

In Kenya, for instance, the Kenya Revenue Authority (KRA) has opened a tax assessment of DAC Aviation’s operations with a view to determining “suspected profit shifting through creative accounting.”

UN agencies

Findings of the ongoing assessment are expected to offer insights into how the company has over the past two decades handled its Kenyan operations estimated to be worth billions of shillings from the numerous multi-million-dollar contracts it has won mainly with the UN agencies.

ICIJ says in a recently published report that DAC Aviation has, through aggressive tax planning, managed to book most of the revenues and profits in countries with lower tax rates, technically referred to as tax-efficient, instead of doing so where the actual business took place.

ICIJ documents show that DAC Aviation has mainly used the servicing of loans borrowed to acquire aircraft to lower its tax obligations. It all starts with DAC Aviation acquiring aircraft it uses to deliver humanitarian aid and to pay leases on the same aircraft to related companies in Mauritius.

ICIJ’s Mauritius Leaks, as the latest round of the network’s investigations are known, received a trove of secret documents indicating how major investors in Africa like Anassis have channelled their businesses through the tiny island nation with the aim of avoiding full payment of taxes.

A 2012 discharge letter shows that it all started in 2005 when DAC Aviation got a loan from Eastern and Southern African Trade and Development Bank to acquire two Bombardier Dash aircraft via Trident Enterprises Ltd, a company incorporated in Mauritius.

Commonly known as Trade and Development Bank or previously PTA Bank, the lender is owned by 18 countries, including China and the African Development Bank.

Proceeds of TDB’s loan to DAC Aviation were used to acquire the two Bombardier jets registered as 5Y-MOC, which at one point flew “UN” brand on its tail and 5Y-PTA that was leased to the World Food Programme (WFP).

The planes were then leased to Trident Aviation Kenya and provided to the UN and WFP for use.

Then came the leak of a law firm’s records and correspondences with customers around Africa. ICIJ says the documents have offered critical insights into how DAC Aviation and several other Kenyan companies evade tax.

Conyers Dill & Pearman, a Bermuda law firm with an office in Ebene, the financial district of Port Louis Mauritius, was either approached or had been approached by numerous investors to offer secretarial, management and advisory services to a number of firms.

The range of advisory services offered includes structuring of a company’s business to enhance its tax efficiency – the technical term used in reference to minimising tax liability, and secretarial services that are essentially meant to ensure legal and statutory compliance.

The treasure trove of about 200,000 documents detailing the services the law firm had offered some 200 companies is now in the public domain, including the complex dealings of DAC Aviation. In a 2012 email, Conyers said it had been hired as the Mauritian counsel in relation to “an aircraft finance transaction”.

A description of the required services indicated that DAC Aviation needed to engage a Mauritian firm, Trident Enterprises, with a view to crafting a “sale and leaseback arrangement with MG Kenya Leasing Ltd” - an Irish company.

In early 2013, Trident Enterprises sold the planes to Ireland-registered MG Kenya Leasing Ltd for an estimated Sh940 million ($9.3 million), according to company accounts of MG Kenya Leasing.

It would then enter another “subsequent sub-lease” of the same planes from Trident to DAC Aviation (EA) Limited, a Kenyan company.

Leaked internal documents indicate that the contract between the related firms specified that “Trident Enterprises would lease the planes back for four years at Sh7.9 million ($78,175) per month plus interest costs related to an Investec loan to purchase the jets.”

In essence, DAC Aviation EA, which is registered in Kenya was helping service loans procured by its sister company thereby increasing its costs and depressing profits.

Efforts to get clarification from DAC Aviation on the complex tax planning system and whether its owners felt obligated to pay taxes where the most profits are made, only attracted a response from the company’s lawyers threatening to sue for defamation.

Ownership records at the registrar of companies have Mr Anassis as the owner of a single share in the Kenyan outfit while Canada-based DAC Aviation International, of 9371 Wanklyn, Québec City, has 999 shares. Alain Desrochers of the same address in Québec City is also listed as a director but with zero shares.

Nairobi-based WFP regional office had promised to provide an account of its dealings with DAC Aviation EA but had not done so by the time of going to press.

Global headquarters of the agency in Rome Italy has, however, told Financial Standard that all contractors are required to adhere to strict guidelines in the way they carry out their business.

“The United Nations World Food Programme (WFP) follows strict guidelines in all procurement processes and this includes conducting appropriate due diligence assessments.

“Service providers are bound by the UN Code of Conduct for Suppliers and are expected to adhere to the highest standards of moral and ethical conduct, including respecting local laws,” wrote WFP Communications Officer Isheeta Sumra.

The Executive Director of Tax Justice Network-Africa Alvin Mosioma reckons that aggressive tax planning does not amount to an illegality but is purely an ethical issue, especially for multi-national companies doing business and making millions of dollars from poor African countries.

Health services

He describes it as amounting to rich corporations using legal loopholes to rob poor countries such as Kenya that are struggling to provide their citizens with the most basic of needs, including food and health services.

“What Mauritius is providing is not a gateway but a getaway car for unscrupulous corporations dodging their tax obligations,” Mr Mosioma said.

Dominic Kiarie, who is associated with Umati Capital, another Kenyan company listed in the Mauritius Leaks, told Financial Standard that investors are driven by the need to make the highest profits possible and should, therefore, not be vilified for using legal means to achieve that goal.

“For us, Mauritius offers the tax efficiency we need in doing our business. There is nothing illegal in investing through that jurisdiction,” he said.

A repeat request to DAC Aviation for responses after the prior ultimatum by its lawyers was ignored.  

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