A report by Oxfam dubbed The Use of Tax Havens in the Ownership of Kenyan Petroleum Rights shows that all but five companies that hold petroleum exploration rights have at least one subsidiary listed in a tax haven or low tax jurisdiction as part of their corporate structures that could lead to minimized tax returns.
The report cautions that this may result to recoverable expenses from exploration flowing to unintended beneficiaries once production starts and thus care should be taken to review existing Double Taxation Agreements in order to ensure that benefits are not flowing to conduit companies.
Among the five companies that appear not to make use of tax havens or low-tax jurisdictions as part of their corporate structures include: Adamantine Energy – Colorado, Far Ltd – Australia, First Oil Plc – United Kingdom, Qatar First Bank – Qatar and Simba Energy Inc hose jurisdiction is in Canada.
Seventeen parent companies are listed to use a subsidiary in a tax haven as part of the ownership chain leading directly to petroleum rights in Kenya as shown on the table 1 below:
There are other ways, however, in which tax havens can be used the report notes including: Ophir Energy holds petroleum rights in both Kenya and Tanzania. As part of its Tanzania operations, the company registered two subsidiaries – Ophir Ventures (Jersey) Limited and Ophir Ventures (Jersey) No. 2 Limited – in the tax haven of Jersey in order to lend itself hundreds of millions of dollars.
“This tax minimization technique, self-described by Ophir as a “cash box” arrangement, is one way in which companies structure their affairs in order to minimize tax payments,” the report cautions
Other than the tax havens and low tax jurisdictions listed in table 1 the report includes an additional list of tax havens that are used within the wider corporate family of parent companies that hold petroleum rights in Kenya in table 2 below.
In some cases the right holders provide no information on how the parent companies are related to subsidiaries. On this issue the report highlights two listed companies Anardarko Petroleum Corp and Compañía Española de Petróleos, S.A.U.
“Multinational oil companies should be required to publish financial results for each country where they have a presence (so-called country-by-country reporting). Kenyan subsidiaries should be required to publish their annual financial statements. This will greatly increase public transparency on potential profit shifting,” reads the report.
In some instances no information on the rights holders is available as they lack either websites or public annual reports eg: SwissOil Holdings International Ltd.
One company highlighted to hold multiple tax havens is Africa Oil which holds rights to Blocks 9, 10BB, 10BA,12A and 13T. Four rights are routed through the Netherlands (Africa Oil Holdings Cooperatief U.A) which hosts three other subsidiaries Africa Oil Kenya B.V (Netherlands) Block 12A, 13T and Africa Oil Turkana B.V. (Netherlands) host company for Africa Oil Turkana Limited (Kenya) Block 10BB. Rights to Block 10BA are held through the original Centric Energy corporate structure and are routed through subsidiaries in Barbados.
PTT Public Company, the state oil company of Thailand, has structured its ownership of petroleum rights to Blocks L-05, L-07, L-11A, and L-11B through multiple subsidiaries registered in the Cayman Islands. The direct ownership of the rights retains the original Cove Energy corporate structure with a subsidiary in Cyprus.
Octant Energy Corp. registered in Canada, recently bought the rights to Kenyan petroleum Blocks L1, L17 and L18 that had been held by Afren Plc retains the series of BVI subsidiaries leading to the Kenyan subsidiary named East Africa Exploration (Kenya) Limited (also know as EAX).
The lobby group recommends priority should be given to building tax administration capacity in both the Ministry of Energy and Petroleum and in the Large Taxpayer Office of the Kenyan Revenue Agency if Kenya is to reap the full benefits of oil once production starts.
“Comprehensive information on petroleum rights should also be published including the legal names of operators and their joint venture partners as well as their respective percentage stakes and the dates on which the relevant transaction were concluded. Furthermore, as Kenya has made a public commitment to joining the EITI, companies should be required to disclose full details of their corporate structures and their beneficial owners,” concludes the report.
To access the full report: Click HERE