21 March 2013, Maputo – Italian energy group, Eni, has been accused of evading Mozambican capital gains tax on its sale of part of its natural gas holdings to the China National Petroleum Corporation, CNPC.
Under the deal, signed on March 13, CNPC will pay Eni 4.21 billion US dollars for 28.57 per cent of its stake in offshore Area 4, where it is the operator. As Eni holds 70 per cent of the rights to Area 4, this equates to 20 per cent of the total stake.
When Cove Energy sold its 8.5 per cent stake in the gas field in offshore
Area 1 to the Thai state oil company PTT, the Mozambican government imposed capital gains tax at a rate of 12.8 per cent. If the same rate was applied to the Eni sale, the Mozambican Treasury would gain about 539 million dollars.
But, according to the Paris-based “Africa Energy Intelligence” magazine, Eni is exploiting an apparent tax loophole, and intends to pay no capital gains tax at all.
The trick, the publication said, is that CNPC is not buying its stake in
Rovuma Basin Area Four directly from Eni. Instead its has acquired a 28.57% holding in the subsidiary Eni East Africa, whose sole asset is the block in the Rovuma Basin.
The magazine claims that this transaction “will enable Eni to skirt around paying tax while putting the full 4.2 billion dollars on its books”.
But, this assumes that the Mozambican government will allow Eni to pay no tax. As the Eni release announcing the deal stated, “the completion of the transaction is subject to the fulfillment of certain standard conditions including obtaining all necessary authorizations from Mozambique’s authorities”.
Such authorisation is unlikely to be forthcoming if Eni really is using a subsidiary as a manoeuvre to avoid paying tax. The government could simply say “no tax, no authorisation”, and Eni would then see none of the Chinese billions.