A leaked audit report for the Botswana Unified Revenue Services (BURS) accuses De Beers of being “dishonest and misleading”.
This follows speculation that all may not be well between the government of Botswana and De Beers, evidenced by the failure of the two parties to reach a new long term sales agreement since the last one expired in 2020. Since the expiration of the landmark agreement, the two parties have been operating on yearly contracts.
The report alleges that De Beers management knowingly presented “unreasonable, unrealistic, dishonest, baseless and misleading” forecasts to the government of Botswana and the Botswana Unified Revenue Services (BURS) to justify its extraction of two percent of total rough diamond sales. It further claims that between 2013 and 2020, De Beers made gross profits of as much as US$1.35 billion through royalty and marketing fees charged by De Beers UK (DBUK).
The numbers don’t add up
The report suggests that in 2011 the De Beers Group, realising the possible impact of relocating the company’s international diamond sales division from London to Gaborone resorted to the use of amongst other tactics creative ‘licensing and marketing fees’ to keep the newly established De Beers Global Sightholders Sales (DBGSS) profitable.
The report adds that in order for the migration to have minimal impact on DBUK operations, the subsidiary would have to continue earning an average operating profit of one percent of rough diamond sales made in Botswana.
According to the audit’s findings, DBUK made a profit of as much as 415 percent from DBGSS on Research and Development (R&D) activities from 2014 to 2020 giving rise to the possibilities of base erosion and profit shifting.
The report claims that the De Beers Group assured the government of Botswana and BURS that DBGSS’s operating profits between 2014 and 2018 would be US$ 253 million but in reality, the subsidiary only achieved an average of US$ 54 million per annum.
“It cannot be overemphasized that the forecasts of operating profit by DBGSS were unrealistic, misleading and without sound basis”, reads part of the report summary.
BURS remain mum
Asked to confirm or deny the existence of the report and its contents, BURS spokesperson, Gofaone Baleseng could only say that in the execution of its mandate, BURS is required to undertake examinations of different kinds to verify the correctness of its clients’ declarations. “The process and outcomes of these examinations are bound by various confidentiality provisions in the various Acts and BURS is not at liberty to engage in any discussion with unauthorized persons on the same,” Baleseng said.
Jonas Makwakwa of Africa Tax Academy declined to answer questions regarding the report. “We cannot comment, please refer questions to BURS,” he said.
De Beers responds
Responding to questions from this publication on the contents of the report, Kesego Okie, De Beers Group External Communications Manager said, “Far greater tax contributions have also been delivered by the Debswana Diamond Mining joint venture, from which Botswana receives 80 percent of returns, while De Beers receives just 20 percent. In addition, during the most challenging economic periods, De Beers has continued to purchase rough diamonds in Botswana, supporting Debswana and the economy even when such activity is unprofitable, and continued to invest in consumer marketing to support the long-term value of the industry. We are committed to ensuring we pay the right amount of tax at the right time, and we engage with BURS in an open, transparent and constructive manner to ensure this is the case.”