The US$13,4 million tax evasion dispute between Switzerland-headquartered power and automation technology company, ABB, and the Zimbabwe Revenue Authority (Zimra) has been settled, three years after it spilled into the courts.
High Court judge Justice Vernanda Ziyambi on August 20 slashed the tax avoidance amount to US$6,3 million — from US$13,4 million — and also slapped ABB with a 10% fine, bringing the total final bill to US$7 million.
The High Court judge upheld ABB’s appeal in part and dismissed it in part, after consent by Zimra and ABB.
It could not be established why Zimra — which had first imposed a 100% penalty — backed down to just 10%.
“It is ordered by consent that the appeal is allowed in part and dismissed in part,” Ziyambi’s judgement reads in part.
“The assessments for income tax issued by respondent be amended to reflect the following amounts due for each year of assessment: (a) $381 736,68 in 2009; (b) $982 253,58 in 2010; (c) $4 297 273,19 in 2011; (d) $733 907,20 in 2012.
“The appellant shall pay an additional 10 percent fine on all additional assessments,” reads Ziyambi’s settlement.
Authorities at the High Court’s Special Tax Appeals Court, where the case was gathering dust and got almost forgotten since 2017, were jolted by an investigative collaboration between The Standard and the International Consortium of Investigative Journalists (ICIJ), which queried progress on the matter that first went to court in 2017.
No explanations were given by Judicial Service Commission spokesperson Rumbidzai Takawira for the delays in handling the case.
But sources at the court said the case had no set-down date and was postponed numerous times.
Zimra in 2017 alleged ABB had dodged tax amounting to US$13,4 million, but the latter appealed at the courts.
Details of ABB’s alleged tax evasion were shared with ICIJ by a former ABB employee in Zimbabwe.
The documents include court records as well as confidential advice to ABB from tax experts, contracts with the Zimbabwe Electricity Supply Authority (Zesa), and bank statements.
In 2010, ABB Zimbabwe Private Ltd, the Swiss multinational’s local arm, won government tenders to provide power generators to one of the country’s largest power stations.
In one contract signed on March 21, 2011 seen by standardbusiness, the state-owned Zimbabwe Power Company promised to pay ABB Zimbabwe $4,1 million for four switch gears at Hwange Power Station.
A second contract between ABB and the power company, signed the same day, saw the government-owned utility buy 30 power boards for $5.1 million.
ABB declined to provide the total value of contracts signed in Zimbabwe.
Zimra later audited ABB to verify compliance with income tax, value-added-tax (VAT), withholding tax and PAYE obligations, according to court filings obtained.
Zimra estimated that ABB Zimbabwe avoided paying US$13,5 million between 2009 and 2012 by falsely claiming that the Zimbabwe contracts had been cancelled and no taxes were owed to Harare.
Zimra said ABB’s offence was serious and added a fine of $4,7 million fine.
ABB’s total bill, including the value of taxes avoided and the fine, was $18.2 million — more than Zimbabwe receives from international donors for the water and sanitation sector.
In its appeal, ABB told the Special Court for Income Tax Appeals that it originally thought it could deliver the contracts from Zimbabwe, according to the court documents, which are not public.
ABB Zimbabwe abandoned the contracts and the state’s electric businesses received equipment directly from South Africa, the company argued.
In court filings, the company said that consumption taxes were appropriately paid and that Zimbabwe waived customs duties.
The tax office didn’t buy it. ABB’s actions did not constitute fraud, Zimra acknowledged, but the company had nonetheless tried “to run away from its tax obligations”.
Customs duty was never waived, Zimra told the tax court. ABB declined to comment.
In early 2014, ABB South Africa asked Deloitte to advise on the “potential tax liability” of the Zimbabwe company, according to documents obtained. It is unclear why ABB requested Deloitte’s advice.
Deloitte’s tax chief in South Africa, Musa Manyathi, examined ABB’s trail of documents and work in Zimbabwe. Manyathi concluded that Zimra could argue that ABB “avoided tax in Zimbabwe by moving… profit” to South Africa.
Zimra could impose further taxes and penalties, Manyathi warned.
“We think that this poses a problem,” Manyathi wrote.
ABB Zimbabwe never intended to perform the contract, Deloitte’s Manyathi wrote.
The Deloitte analysis found that ABB Zimbabwe subcontracted work to a South African company under a verbal agreement.
The South African company delegated work to third parties in Zimbabwe, according to Deloitte’s review.
ABB declined to respond to 10 questions sent by ICIJ and The Standard.
“ABB cannot comment on these topics in Zimbabwe in detail but would like to underline that it acts as a responsible global corporate tax citizen in compliance with applicable tax law and regulations in all countries where it operates,” the company’s senior media relations manager, Eike Christian Meuter, said from Zurich.
Sources at the Reserve Bank of Zimbabwe (RBZ) said the apex bank had also got wind of the case and its Financial Intelligence Unit had “developed a keen interest in it” and was in the process of closing in on ABB over money laundering.
But RBZ spokesperson Kumbulani Shirichena said the case was beyond the RBZ’s purview.
“Tax compliance issues are handled by Zimra and not the Reserve Bank of Zimbabwe,” Shirichena said.
ABB, which operates in about 105 countries, provides electronics, power generators and robotics. In 2019, it reported $28 billion in global revenue and was recently named by business magazine Forbes as a leading company that helps “the planet and tackle[s] society’s unmet needs”.
Zimbabwe loses tens of millions each year from illicit financial flows (IFFs) through financial heamorrhaging by multinational companies, individuals and cartels. The capital flight is attributed to mis-invoicing, smuggling and tax evasion, according to the Global Financial Integrity, a world tax compliance monitoring organisation.
Zimra commissioner general Faith Mazani, in her summary report at the organisation’s AGM on July 25 this year, said the tax collector investigated 601 cases of tax-related corruption and identified $153,78 million for recovery from revenue leakages last year.
According to the United Nations Economic Commission for Africa, IFFs from the continent could be as much as US$50 billion per annum.
l Contributors to this story: Will Fitzgibbon