Whether change of corporate name implies ‘foul play’

Tanzania, as is likely to be the case in many other countries, has witnessed several changes in names of some companies and institutions. These range from hotels and chains of hotels, telecommunication companies, mining companies, transport companies and even universities.

This change in name has raised some questions and debates and correctly so. Some of the debates do associate name changing – especially by multinational corporations - with tax schemes in form of tax avoidance and tax evasion.

Among the recent (November 2014) corporate name changes is the change from African Barrick Gold (ABG) to Acacia Mining Plc. As is the case in former other name changes, the change from ABG to Acacia has and will generate debates that associate this re-branding with tax schemes in form of tax avoidance and tax evasion.

To contribute to the debate, the author of this article discusses whether current changes of corporate names are among tax schemes aiming at tax avoidance and tax evasion in Tanzania.

Tax avoidance

Tax avoidance is a tax scheme that attempts to do everything possible within the law to reduce one’s tax bill. It involves careful tax planning, including making use of existing laws in favour of taxpayers to pay as little tax as possible, but within the provisions of the law.

It may include playing tax acrobatics and manoeuvres with tax and other experts with ‘good intention’ of reducing individual’s or corporate tax liabilities legally.

This is normally done as one of the profit maximisation strategies by corporate chiefs. For captains and titans of the industry, profit is the bottom line. Since tax after profit reduces profit and, therefore, disposable income, profit-maximising agents, who are homo economicus (economic beings by nature) will struggle to reduce tax liabilities.

Tax evasion

Tax evasion is about paying less tax than one is legally obliged to. Tax evasion involves various efforts by companies and individuals, who are taxpayers to evade paying tax or taxes they are supposed to pay. These efforts are done through various illegal means.

They may include, but not be limited to not declaring all or part of taxable incomes to the taxman. It may also take a form of falsely claiming tax reliefs that one is not entitled to. Contrary to tax avoidance, therefore, tax evasion is illegal.

Corporate name changing

Corporate change in names is a normal thing. This has been seen in Tanzania and elsewhere. Why Serena and Hyatt hotels and not Serena and Hyatt some years back?

In the early days of the telecommunications industry in Tanzania the name Mobitel was arguably a household name. Today’s CRDB Bank Plc used to be Cooperative and Rural Development Bank, while Iringa University used to be Tumaini University College.

The current change in name is from African Barrick Gold to Acacia Mining Plc. Corporate bodies change names for various reasons.

These may include mergers and acquisitions (M&As), branding and re-branding or any other strategic reason such as repositioning in the market for various reasons. Of interest in this article is corporate name changing in relation to tax schemes such as tax avoidance and tax evasion.

Name changing and tax

The corporate tax status is not changed by a mere change of corporate name. A company’s tax liabilities are unaffected by just a change in its name.

A change in name does not change a company as a going concern because there is no money that has changed hands. A going concern will be taxed accordingly irrespective of name changing.

What could have tax implications is a change in ownership not a change in name.

A change in ownership attracts a capital gain tax because there is money changing hands.

A capital gains tax is a tax levied on surplus accrued from the sale of assets both personal and corporate for more than was originally paid for.

Tax incentives

A mere change in name or even change in ownership does not affect a company’s tax incentive benefits. This is because tax incentives revolve around capital goods.

They are granted on eligible investor’s capital goods. If a company change hands, while in operation, it is a going concern that is not likely to pass the fiscal incentive eligibility test.

The way forward

The general belief of a wider section of the population in Tanzania is likely to be that corporate name changing is among tax avoidance and tax evasion strategies.

Based on the discussions above, this is a myth and not a reality. Powers that be, including Tanzania Revenue Authority have to provide public education on this.

In its announcement on name changing in newspapers, Acacia Mining Plc (formerly ABG) insisted that the change in name is not a tax scheme to avoid or evade tax. Doubting Thomases have to prove this by investigating the tax paid by such corporate that has changed names before and after changing their names.