Lonmin: Profit-shifting report is false

2014-10-16 12:08

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A report claiming that Lonmin is engaging in two transfer pricing arrangements is misleading and false, the company has said.

It was responding to a report titled The Bermuda connection: Profit shifting and unaffordability at Lonmin 1999-2012, which was released by the Alternative Information and Development Centre this morning.

The report claimed that Lonmin transferred more than R2.3 billion in fees to two of its subsidiaries, one called Western Metals Sales Limited in Bermuda.

"Lonmin pays tax fully and properly in all jurisdictions in which it operates. Our financial statements and structures are audited by KPMG and the South African Revenue Service," it said in a statement.

"The report is misleading and false and Lonmin reserves all its rights with regard to legal recourse."

An economist for the centre, Dick Forslund, told the Cape Town Press Club today that between 2008 and 2012, $162 million (about R1.2 billion) in "commissions" was paid to Western Metals Sales.

He said the primary purpose of the report was to work out whether Lonmin could have met the R12 500 wage demand put forward by Marikana rock drillers in 2012.

The report, described as a case study, concluded that a wage agreement could have been reached that year had the one alleged profit-shifting arrangement been collapsed and the other drastically reformed.

"If you were to divide the average payment, the sales commission, to Bermuda over each individual rock drill operator at Lonmin in 2012, you would get an average wage increase of R3 800 a month," Forslund said.

He said all the data used to compile the report was based on materials made public in the proceedings of the Farlam Commission of Inquiry up until September 29.

The commission is investigating the deaths of 44 people during a violent wage-related strike at Lonmin's mining operations at Marikana, near Rustenburg in North West in August 2012.

Asked whether Lonmin planned to take the centre to court, Forslund said he would be very surprised if they did.

The company's legal team had apparently told him the report was defamatory.

Lonmin said that to sustain operations and save jobs, it had to raise about R8 billion from its shareholders in the four years to 2012.

In 2013, it again raised around R9 billion from its shareholders to keep the mine operational.

"The idea that Lonmin hid profits from shareholders while asking them for a total of R17 billion is not credible," the company said.

Forslund conceded during his address that he was not an expert on taxation.

He also said it was up to the South African Revenue Service to investigate the claims made in the report.

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