Egypt's OCI reiterates denials of govt charges of tax evasion

Arab World Materials 5 March 2013 09:14 (UTC +04:00)
Egypt's OCI reiterates denials of govt charges of tax evasion
Egypt's OCI reiterates denials of govt charges of tax evasion

Egypt's largest listed company, Orascom Construction Industries (OCI), expressed confidence on Monday about its tax position, reiterating denials that it had evaded government taxes on the sale of one of its subsidiaries to French cement giant Lafarge in 2007 Al Ahramonline reported.

On Sunday, Egypt's prosecutor-general barred OCI's current chairman and CEO, Nassef Sawiris, along with former company chairman Onsi Sawiris, from leaving the county. The move followed charges that OCI had failed to pay taxes worth some LE14 billion (roughly $2 billion) on its sale to Lafarge.

In 2007, OCI sold its Orascom Building Materials Holding (OBMH) to the French firm in a transaction worth $12 billion.

In its Monday statement, OCI asserted that the ETA had sent the company a request to pay LE4.7 billion (roughly $0.7 billion) related to the aforementioned sale, but had not received any additional requests.

The government and OCI are now trading accusations over the 2007 transaction, with the latter charging the government with attempting to tax it illegally.

On Monday, official state news agency MENA reported that the Egyptian Tax Authority (ETA) had "exhausted all means of negotiating with OCI" over the dispute.

The Egyptian government's claims of tax evasion, meanwhile, do not appear to be legally substantiated, according to analysts who spoke to Ahram Online.

"OCI did not evade taxes; it simply sidestepped them by listing OBMH - technically an OCI subsidiary - on the Egyptian Stock Exchange in 2007, all the shares of which it sold to Lafarge," said one analyst familiar with the matter who requested anonymity.

"The transaction was untaxed, since Egypt did not tax deals made on the stock exchange," he added. "Had OCI sold the company without listing it first, it would have been subject to taxes."

In November of last year, Egyptian Prime Minister Hisham Qandil approved implementation of a new capital gains tax to be imposed on all initial public offerings (IPOs) subsequently made on the Egyptian stock market.

Strapped for cash - and following recent hints by President Mohamed Morsi that companies who have evaded taxes in the past would be held to account - the government is now retroactively demanding taxes from OCI's deal with Lafarge.

OCI initially offered to settle the dispute by paying LE2 billion, but the government rejected the offer.

Analysts, meanwhile, fear the dispute will take a toll on Egypt's investment environment.

"I think the government made a huge mistake by issuing the travel ban on the OCI officials, as this is likely to spook investors in Egypt," said Hassan Hegazi, head of the tax and customs committee at the American Chamber of Commerce in Egypt.

Hegazi went on to point out that some Egyptian investors were already seeking to leave the country to avoid similar financial confrontations with the government, "especially since OCI is being targeted when it didn't do anything illegal."

"The government, which should be encouraging investment, shouldn't make trouble that might have the effect of driving investors away from the Egyptian market," Hegazi told Ahram Online.

OCI shares ended trading on Monday down by 2.7 percent, as a result of the company's dispute with the government, to alight at LE252 each.

In January, OCI ended its Global Depository Receipts (GDRs) programme on the London Stock Exchange after the company relocated from Cairo to Amsterdam under the auspices of OCI NV.

In a related development, a group of US investors led by Bill Gates announced plans in January to acquire a $1 billion stake in OCI NV.