Over-optimism about capital gains windfall from ENI-Exxon deal

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Over-optimism about capital gains windfall from ENI-Exxon deal

10:45 CAT | 15 Mar 2017

O Pais

According to the CIP, multinational ENI may refer to double taxation agreements to reduce the value of capital gains.

The Public Integrity Center (CIP) believes there is an excess of optimism about the prospective value of the capital gains tax to be had from the Rovuma gas asset deal between North American Exxon Mobil and Italy’s ENI. The institution recalls closed-door negotiation took place in 2013, when ENI only agreed to pay capital gains tax after a meeting between then-president of Mozambique Armando Guebuza and the former president of the Italian multinational, Paolo Scaroni.

“Inevitably, there will also be negotiations in this operation. This is based on the formula to be applied, since there are two: on the one hand, one that considers the sale price minus the investments made by the company and assesses that value at 32 percent rate; on the other hand, the traditional formula combining the terms of the IRPC and IRPS codes with the 32 percent to be levied on 30 percent (taking into account the tenure of the concession) of the sale value of the asset,” the CIP opinion reads.

Additionally, ENI may refer to the double taxation agreements signed between Mozambique and Italy in 1998 and in force since 2004 in an attempt to reduce the amount of capital gains to be paid.

“Double taxation agreements aim to avoid imposing payment of the same tax more than once in different tax territories. That is, if ENI is obliged to pay taxes on the capital gains obtained in Mozambique in Italy, the company can choose where to pay the tax. As capital gains are taxed at a lower rate than the 32 percent applied in Mozambique in Italy, (27.5 percent), the most likely and rational thing will be that the company will prefer Italy,” the CIP predicts.

But the CIP says that ENI cannot avoid paying tax by citing double taxation agreements, as this is not an acquisition of an Italian company or even by an Italian company, but rather a subsidiary ENI East Africa, and moreover involving an asset located in Mozambique.

Source: O País