Glencore rocked by Zambia tax complaint
Swiss commodities giant Glencore has strenuously denied an accusation that it evaded taxes in one of the poorest nations on earth, days before it launches a £7bn float that will make multimillionaires of its top executives.
Under fire: Glencore accused of 'accounting manipulations' at a copper mining subsidiary
A group of five non-governmental organisations lodged a complaint with the Organisation for Economic Co-operation and Development (OECD), citing 'financial and accounting manipulations' by Glencore's Zambian subsidiary Mopani Copper Mines (MCM).
The complaint alleges that MCM failed to explain a £234m increase in its operating costs during 2007 and reported 'stunningly low' volumes of cobalt extraction compared to similar mines in the region.
It is also accused of selling copper at artificially low prices to Glencore, in a practice known as 'transfer pricing' that violates the OECD's 'arm's length' principle that a subsidiary must trade with its parent as if they were unrelated.
The NGOs said: 'The result of those various processes was to lower by several hundreds of million dollars MCM's net income for the 2003-2008 period, herby substantially lightening the company's tax burden.'
They called on the company - and ownership partner First Quantum Minerals - to refund taxes owed to the Zambian authorities and abide by OECD regulations in future. No criminal investigation is believed to have been launched.
The complaint is based on a leaked report by accounting firm Grant Thornton, one of the world's largest accountancy firms, performed for the Zambian Revenue Authority and shown to the Daily Mail by an anonymous source.
The report warns that the 'Mopani cost structure cannot be trusted to represent the true nature of the costs of the Mopani mining operation'.
It also complains that the Glencore subsidiary 'has resisted the pilot audit at every stage, and has cooperated most unwillingly with the audit or not cooperated at all'.
Glencore denied any wrongdoing saying the report was 'based on broad and flawed statistical analysis and assumptions' and insisting that 'no transfer pricing has taken place'.
It said the report did not take into account that Mopani produces copper on behalf of third parties, although it did not explain how this would counter the NGOs' claims.
The dispute comes as Glencore prepares to announce its intention to list in London and Hong Kong, in a float valuing the company at around £37bn.
Some senior partners will see the value of their shares hit more than £150m, in sharp contrast to the fortunes of Zambia, one of the most impoverished nations in the world.
• Auditor's report reveals unexplained cost increase
• Unusually low levels of cobalt extraction reported
• Accused of manipulating copper prices to avoid tax
• Five NGOs call for end to 'deplorable' behaviour
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