Oil, Gas Cos. To Avoid $2B In Mozambique Taxes, Report Says

European oil and gas companies are expected to avoid up to $2.1 billion in withholding taxes in Mozambique by routing the largest foreign investments in the country's history through shell companies in the United Arab Emirates, research groups said Monday.

TotalEnergies and Eni will enjoy 0% withholding tax on cross-country interest payments for their multi-billion dollar investments under the Mozambique-UAE tax treaty, the Netherlands-based Centre for Research on Multinational Corporations and Mozambique-based Centro para Democracia e Direitos Humanos said Monday in a news release. Mozambique has a 20% withholding tax on most relevant interest payments that would have otherwise generated $1.3 billion to $2.1 billion from the French and Italian fossil fuel companies, according to the statement, which cited a report released Friday by the two groups.

"Mozambique should free itself from these outdated tax treaties, which cost the country dearly while providing little benefit," Nelsa Langa, research assistant at CDD, said in the release. Senegal, Kenya, Lesotho and Rwanda all successfully renegotiated or canceled tax treaties with Mauritius, according to Langa. "The Mozambican government has the tools to stop this widespread tax avoidance," the release said.

TotalEnergies financed $14.9 billion of its $20 billion project in Cabo Delgado province with loans from export credit agencies, development banks and commercial banks, the report said. The African Development Bank estimates that TotalEnergies and its consortium of investors will pay out $4 billion in interest on loans over the project's lifespan, most of which will flow from Mozambique LNG1 Financing Co. in Abu Dhabi, UAE.

Investors in Eni's project in the gas fields of Rovuma Basin have already taken on $4.7 billion in debt, with costs expected to reach between $7 billion and $10 billion and profits to hit $40 billion, according to the report. The debt was paid to a special-purpose entity in the UAE that rerouted the funds to Mozambique — and because the UAE has no withholding taxes, any interest payments sourced in Mozambique and directed to another country through the UAE will be exempt, the report said.

Both projects are still in a development stage, the report said.

--Editing by Roy LeBlanc.

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