This is an unofficial translation by The Wire of the full text of the article, ‘Comment la France a effacé la dette fiscale d’un industriel indien associé de Dassault’, published by the authors in Le Monde on April 13, 2019.
The man at the heart of “l’affaire Rafale” that has been hitting the headlines in India for months is a powerful industrialist whose fortune is estimated at $1.9 billion (1.68 billion euros) according to Forbes magazine.
Anil Ambani, one of the principal beneficiaries of the sale of 36 French combat aircraft by Dassault Aviation to India, is also very close to Prime Minister Narendra Modi. Not a day goes by without the opposition in India accusing Modi of having profited from the 7.9-billion-Euro contract negotiated in 2015, by favouring his friend Ambani.
In France, SHERPA, the anti-corruption NGO, lodged a complaint on 26 October 2018, with the National Financial Prosecutor’s office demanding an enquiry into the suspected corruption and influence peddling surrounding the deal.
According to information obtained by Le Monde, France waived taxes worth 143.7 million Euros owed by a French-registered company belonging to Anil Ambani. The dispute was settled in October 2015 at the very time when India and France were negotiating the sale of the 36 combat jets.
What happened that year?
The French company owned by Anil Ambani, Reliance Flag Atlantic France, faced severe financial difficulties. Its solvency was threatened by a major tax demand. The company supplies telecommunications services by exploiting an underwater cable for transatlantic communications between Europe and the United States, especially with other companies of the Reliance Group. In the fiscal year ending March 31, 2014, the company registered a turnover of 60.6 million euros.
Two tax adjustment claims
According to the January 30, 2015 report by the French external auditor responsible for certifying the company’s accounts, and to which Le Monde has had access, Reliance Flag Atlantic France faced two tax adjustment claims. The tax authorities notably contested the manner in which the company had accounted for certain purchases from other companies of the Reliance Group, because of a lack of “documentation”, which effectively amounted to questioning the method employed by Reliance Flag Atlantic France to calculate its “transfer price”. This technique, well known to tax regulators, is commonly used by companies to reduce their tax burden and involves sending profits to a fiscal paradise where they are not taxed. The parent company of Anil Ambani, Reliance Globalcom Limited is registered in Bermuda, a territory that was placed on the European Union’s black list of tax havens in March this year.
The first tax adjustment claim, made following a tax inspection pertaining to the period April 1, 2007 to March 31, 2010, amounted to 60 million Euros including interest and late payment penalties. The company contested the claim and in 2013, proposed resolving the dispute through a payment of 7.6 million Euros, which the tax administration rejected outright.
The company then mounted a legal appeal. Its problems worsened as a second tax inspection was undertaken by the administration for the period April 1, 2010 to March 31, 2012. At the end of that process, the authorities asked Reliance Atlantic Flag France to pay a new and heftier sum of 91 million Euros in taxes, including interest and penalties for payment delays.
The company contested the claims again, leading the external auditor, Jean-François Baloteaud from accounting firm AEG Finances, to worryingly note at the time that “the company’s reserves are significantly inferior to the pending adjustment claims”. He refused to certify the accounts of Reliance Flag Atlantic France.
“We are not in a position to ascertain if the annual accounts are in keeping with French rules and accounting principles and give a faithful picture of the results of the operations undertaken during the exercise in question and the financial situation and assets of the company at the end of this fiscal exercise,” his report of January 2015 states.
The company’s total tax dues amounted to 151 million Euros. It was in the red, having lost over half of its share capital and plagued by insufficient equity funds.
Very good news
But a few months later, there was unexpected good news for the company. The new external auditor, Fabrice Abtan, from the Aurealys accounting firm, came to a different conclusion. He noted with relief in his report of September 29, 2015, that Reliance Flag Atlantic France was “on the verge of reaching an agreement with the fiscal administration thanks to a global repayment proposal for a total sum of between 7.5 and 8 million Euros”.
This was exactly the sum that the tax authorities had flatly refused to accept from Reliance Atlantic Flag France a few years earlier to put an end to the dispute. Back then it involved a far smaller amount of outstanding taxes. An agreement was signed quickly, on October 22, 2015.
All the adjustment notices for unpaid corporate taxes, VAT contributions (CVAE in French) and the taxes deducted at source for the fiscal periods from 2008 to 2014 were included in the 7.3 million Euros. This was a significant win for Anil Ambani, who saved 143.7 million Euros in back taxes.
What happened in the interim?
Early in 2015, Anil Ambani became a major player in the Rafale contract. He became a frequent visitor to France. On Monday, 23 March 2015, the Indian businessman was at the Ministry of Defence. He met several advisors of defence minister Jean-Yves Le Drian, according to an internal Airbus email, which was leaked to the Indian press. Among them was Christophe Salomon, advisor on industrial matters, Jean-Claude Mallet and even Geoffrey Bouquot. “A confidential visit set up at very short notice as you can imagine”, read an email by Nicolas Chamussy addressed to his boss, Tom Enders, CEO of Airbus.
“Defence minister Jean-Yves Le Drian met several times with Anil Ambani who was seeking to develop industrial partnerships with French defence companies,” the press advisor of Le Drian told Le Monde. She did not wish to comment on whether the two men discussed the Rafale contract, if these meetings took place during the tax redressal of Reliance Flag Atlantic France or even the dates of the meetings. “The choice of Anil Ambani as the industrial partner of Dassault belongs to Dassault alone”, she added. However, that was contradicted by former President Francois Hollande at the end of 2018, who said that France “had taken the partner that had been given her” by India.
An unexpected windfall
In the days preceding Mr Modi’s announcement on April 10, 2015, of his intention to acquire 36 Rafale jets, a spectacular turn of events was brewing in the negotiations which would eventually benefit Anil Ambani. The purchase of 36 Rafales in “flyaway condition”, that is to say, just off the assembly line, was both good and bad news for France.
The planes were all to be produced and assembled in France. This was a major departure from the “contract of the century” won by Dassault in 2012 which provided for the supply of 126 aircraft, of which 108 were to be assembled on Indian soil. Anil Ambani was absent from the picture at that time.
Dassault was in negotiations for three years with the Indian aeronautics constructor, Hindustan Aeronautics Limited, to build an assembly line in India. In April 2015, everything was cancelled. The Request for Proposal was replaced by an intergovernmental agreement between India and France. And the public enterprise Hindustan Aeronautics had to cede its place to a private player, Anil Ambani. Even officials from the Indian defence ministry were taken aback.
For Anil Ambani, this was an unexpected windfall. That’s because in this intergovernmental agreement signed between the two countries, the offsets, or the part of the value of the contract which is to be reinvested in India as industrial compensation, were particularly high. Offsets account for about 4 billion Euros, half the price of the aircraft sales. Other companies partnering Dassault, like Thales, will sign other joint ventures with Anil Ambani. Even if the amount for the offsets were to be shared with other Indian companies, the Indian tycoon still stands to make a substantial amount.
At the end of April, or just days after Modi’s announcement of his intention to acquire 36 Rafales, Anil Ambani registered the company Reliance Aerostructure Limited and formed a joint venture with Dassault. Did he already know that the offsets would revert to him, even though the contract had not even been signed? The contract was signed a year later. Anil Ambani thus became the new partner of Dassault at the very moment when between February and October 2015, the fiscal administration accepted a tax amount of 7.3 million Euros from his company instead of the 151 million Euros initially claimed by them.
Theory and practice
Could politics have played a role in this tax waiver? The fiscal administration, bound by secrecy, refused to comment. But several well-informed sources explained to Le Monde the difference between theory and practice. The rule says that every taxpayer who contests a tax adjustment has the right to a review of his financial situation. The matter has to be referred to the ministers of finance and budget or their chief secretaries.
Once apprised of the matter, the state administration has to verify whether the tax claim is legally sound or can be challenged before a judge. In either case, the administration either takes a decision without informing the minister who has referred the matter or, in sensitive cases, writes a note detailing its decision to the concerned minister. The latter is expected to defer to the decision, and sign a document.
But in reality, the system allows for some tweaks. In the past, a ministry has intervened and instructed the public finances department to take action on a matter which does not fall directly under its purview. Or it has gone through the Elysee presidential palace to get it done.
“Certain ministers or heads of state are more interventionist than others,” a high ranking official told Le Monde. “The central administration, scrupulous and fiercely independent, whose every decision can be challenged and therefore must be accountable, follows the law. In 95% of the cases, the minister accepts the administration’s decision. But it can also happen that a minister goes against that advice…
Asked about the Ambani case, an expert on fiscal control said: “It can happen that fiscal cases stuck in legal limbo find sudden resolution in favour of the tax payer”. But he added, “the political context can certainly have a bearing on the way a file is handled, and eventual outcome of the matter, especially if the case is legally weak”. This was corroborated by another senior official: “If the economy and finance ministry intervenes following a nudge from a defence minister, the tax administration, which prides itself on its independence, is clearly placed under pressure”.
Towards the end of 2018, a close collaborator of Anil Ambani boasted to Le Monde that he had met “Emmanuel Macron in his office at Bercy where the tax problem was sorted out with a phone call to the tax administration.” Anil Ambani’s Reliance Communications, contacted several times by Le Monde, refused to comment on the matter.
The ministry of economy and finance in Paris explained that there was no trace of such a meeting in the official ministerial diaries. Even if the meeting did not feature there, did it take place? The press department of the Elysee presidential palace told Le Monde that “no cabinet advisor has any recollection (when Macron was economy minister) of such a meeting between Macron and Anil Ambani”. It added: “Such a meeting could not have occurred since tax matters do not fall under the economy portfolio”.
Francois Hollande, president of the republic at the time, let it be known through his press advisor that he “was not at all aware”, adding that “tax investigations never come up to the level of the president”.
For their part, the then finance minister, Michel Sapin and the budget state secretary, Christian Eckert told Le Monde that they have no memory of such a tax matter and denied intervening in a dispute concerning Reliance Flag Atlantic France.
Note: This article in Le Monde was accompanied by two other articles detailing the links between Anil Ambani and Prime Minister Narendra Modi, and the timeline of the Rafale contract signed between India and France.
Unofficial translation from the French original by The Wire
Reliance Communications responds:
On April 13, 2019, a Reliance Communications Limited spokesperson said in response to Le Monde’s article and news reports about it in the Indian media:
- Reliance FLAG Atlantic France SAS is a subsidiary of Reliance Communications, India.
- FLAG France owns a terrestrial cable network and other telecom infrastructure in France.
- During the period under consideration by the French Tax Authorities—2008-2012—i.e. nearly 10 years ago, Flag France had an operating loss of Rs 20 crore (i.e. Euro 2.7 million). French tax authorities had raised a tax demand of over Rs 1,100 crore for the same period. As per the French tax settlement process as per law, a mutual settlement agreement was signed to pay Rs 56 crore as a final settlement.