The_Open_Door_deel1

LAC/UNIROYAL
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In September 1965 UNIROYAL bought for about $ 8 million the
Liberian Agricultural Company from the original Italian
investors. An examination of the financial performance during the
1965 - 1977. period seems to be dominated by three aspects: (1)
the use of Liberia as a tax-haven through the inter-company sales
of rubber; (2) the debt-equity ratio which is surprisingly high
for an agricultural company; and (3) the financial results of the
plantation, notably against the background of the expiration of
the income tax free period in August 1975.
Article VII of the concession agreement between LAC and the
Liberian Government grants LAC an income tax free period of
fifteen years for the purpose of amortizing its development
costs, but the same article also states that any income arising
from sources outside the Republic of Liberia is excluded from the
computation of net income for the purpose of establishing tax
liability. Accordingly, in October 1965, one month after UNIROYAL
took over, the Deputy Commissioner of Internal Revenues within
the Ministry of Finance, A.L. Thompson, informed the new owners
that in conformity with this article their income derived from
the inter-company sales of rubber was excluded from Liberian
taxation (24), He thus gave the green light for a series of
transactions which consisted of the purchase of rubber by LAC
from an Indonesian sister-company, a subsidiary of UNIROYAL, that
had produced the rubber, for the subsequent resale in the United
States of America to Uniroyal Incorporated. The involvement of
the Liberian based company was only nominal as no services
regarding these operations were carried out in Liberia and the
rubber was shipped directly from Indonesia to the U.S.A.
As the Indonesian subsidiary was not exempt from income taxes the
rubber was bought at its cost price and sold at a profit in the
U.S.A. whereby LAC's profits from the transactions were exempted
from taxation. Though information on the amounts involved in this
evasion of (Indonesian) taxes is limited and, prior to 1969, nonexistent,
available information for the six-year period 1969
through 1974 shows a total of profits thus realized of $ 4.1
million (25), and the grand total of non-taxable profits in the
10-year period 1965 - 1975 may have amounted to $ 6.5.million.
In 1975 the inter-company sales of rubber through LAC ceased.
In August 1975, at the expiration of its income tax free period,
the company sent a letter to the Minister of Finance, explaining
its large losses, amounting to more than $ 4 million during the
period 1966 - 1975, and asked permission to carry forward its
losses to the taxable period commencing September 1, 1975. The
company's management further gave as reason for its request the
losses incurred on LAC's food and agricultural development projects.
The continuous losses over the years had been greatly influenced
by an accelerated depreciation and amortisation policy,
large amounts had been deducted for interest payments on sizeable
inter-company borrowings and for a rubber trading profit commis-