MHP under scrutiny for paying low taxes

06-11-2020 | | |
MHP is physically based in the Ukraine, but resides in Cyprus for tax reasons. Photo: MHP
MHP is physically based in the Ukraine, but resides in Cyprus for tax reasons. Photo: MHP

Ukrainian poultry giant MHP allegedly uses letterbox companies in tax havens Luxembourg and Cyprus to avoid taxes to the Ukraine budget.

“By routing finances provided by investors through its mailbox companies in Luxembourg and Cyprus, MHP has aggressively sought to avoid Ukrainian taxes,” says Vincent Kiezebrink, researcher at the Centre for Research on Multinational Corporations (SOMO) which conducted the research. “This is a company that has its roots as well as most of its operations in Ukraine, yet its parent company resides in Cyprus. MHP has shown to be willing to set up elaborate tax avoidance structures to avoid paying its fair share.”

Low taxes

The company uses letterbox companies despite already being subjected to an extremely soft tax regime in Ukraine. In 2017-2019, MHP paid US$ 10.7 million to Ukraine’s budget in the form of the so-called Unified Tax. If MHP’s businesses would have been subject to regular Ukrainian income taxes for their agricultural activities – instead of the Unified Tax Payer regime – SOMO estimates the company would have owed Ukraine an additional US$ 146.3 million.

Unprecedented state aid

Between 2003 and 2019, MHP’s financial figures show that it made a total of US$ 3 billion in profits, for which the company paid a total of US$ 0 in taxes, SOMO reported. SOMO analysts question the need for the unprecedented state aid MHP gets in Ukraine. In 2007-2019, MHP received a total of US$ 1.1 billion in VAT refunds or subsidies, primarily from the Ukrainian state. During the same period, MHP made a total of US$ 1.3 billion in profits. “It seems that making a profitable company like MHP even more profitable in this way is not sound public policy to stimulate the Ukrainian economy,” SOMO said.

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Everything is legal

MHP has already been criticised in Ukraine for receiving state aid and paying relatively low taxes. In 2019, Ukrainian President Volodimir Zelensky asked the law enforcement and anti-corruption agencies to investigate the state aid MHP had received in previous years. “In 2017-2018, MHP, one of Ukraine’s biggest agricultural holdings, received state aid to the value of UAH2.5 billion (US$ 101 million). Sure enough, it doesn’t need any state aid because it gets super-profits and annually pays huge dividends to its shareholders,” Zelensky said. However, in the following months, law enforcement agencies failed to find any signs that MHP was using any anti-corruption schemes or broke the country’s law in any other way. In response to the SOMO research, the MHP press office claimed that the company used legally permitted ways to optimise taxation.

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Vladislav Vorotnikov Eastern European correspondent