Last Tuesday the Washington-based International Monetary Fund (IMF) called on governments across the globe to consider levying higher taxes on the income or wealth of the rich to help pay for the enormous cost of tackling the Covid-19 pandemic. “Governments should consider higher taxes on property, capital gains and inheritance,” said Paolo Mauro, a deputy director of the IMF’s fiscal affairs department.
He added that although the pandemic had led to a sharp drop in average incomes, some individuals and companies had done “very well” out of the crisis. The IMF urged high earners and companies that prospered in the coronavirus crisis to pay additional tax to show solidarity with those hardest hit by the pandemic.
Hours later, on a different continent, Prosus’ chief financial officer Basil Sgourdos confirmed that some companies had indeed thrived during the pandemic – as it happens they were technology-based companies.
“Covid had a really transformational impact across our businesses,” an upbeat Basil told journalists at a media conference called to answer questions about the sale of $15 billion worth of Tencent shares. As Basil saw it, now is a good time to have a load of cash to buy more of these businesses.
There was no mention of the IMF or its call for solidarity with those whose lives had been transformed – but not in a good way – during the pandemic. And certainly no mention of any tax liability due on the transaction, despite the fact that 99.9999999% of the $15 billion represented a capital gain on Naspers’ legendary initial investment back in 2001.
It could be that the Prosus’ executives believe they’re already doing enough for humanity.
A footnote attached to all of the group’s media releases makes the rather bizarre claim that, “Today, Prosus companies and associates help improve the lives of around a fifth of the world’s population.” This claim is perhaps based on the presumption that everything a consumer buys, improves their lives; although perhaps not as much as what we get for free, such as oxygen.
That presumption, if widely shared, could put a damper on prospects for a voluntary contribution to a solidarity tax from any corporation across the globe; they may all feel they’re already doing enough for humanity by selling them ‘life-enhancing stuff’.
Anyway, the thing about Prosus’ latest $15-billion windfall is that not one cent of tax will be paid on it; just like not one cent of tax was paid on the $9.8 billion generated by the sale of Tencent shares back in 2018.
Three years ago, before Prosus was created, it was all about Naspers and South African tax law; that law only required Naspers to pay capital gains on the Tencent shares sold to South African investors. In terms of South African tax law, a South African company that owns more than 10% of a foreign company does not have to pay tax on any profit made selling that foreign company’s shares as long as the purchaser is a foreign entity. This exemption was introduced in the early part of the 21st century to ensure consistent treatment of dividend income and profit from share sales. At the time, dividends from offshore operations were exempt from tax and it was argued that capital gains on share sales should also be exempt as the capital gain was equivalent to the value of future dividends.
Fortunately for Prosus it is headquartered in one of Europe’s tax havens and, apparently, won’t have to make a contribution to the Dutch fiscus either.
The issue many Naspers/Prosus shareholders will be keeping a beady eye on is the extent to which CEO Bob van Dijk, Sgourdos and their executive colleagues will score from the transaction. Not at all? Or will the metrics used to determine how many millions to pay them this year be enhanced by the sale? If so, it could be that Naspers/Prosus’ executives end up scoring more from the transaction than either the South African or Dutch fiscus. Of course many shareholders might prefer to see anyone other than a government benefiting.
Van Dijk did sound a little weary on last week’s media conference. Fatigued perhaps by the refusal of so many journalists, analysts and shareholders to appreciate just how well their non-Tencent investments are doing. Fatigued by the persistent calls for their cash cow Tencent to be unbundled.
Meanwhile the market waits with baited breath to see if Prosus will be tempted to spend its’ windfall on one big audacious deal or just continue to buy back shares.