The_Open_Door_deel1

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During the 1960 - 1975 period the financial transfers from the
Salala Rubber Corporation to the Liberian Government virtually
|i consisted only of the payment of the (minimum) annual rental of
I $ 1,200 as the company was exempt from all taxes etc. In 1975,
|| after the expiration of the contractual period of income tax
|| exemption, the financial losses reported by the company resulted
|i in zero income taxes due to the Government but a closer
|| investigation of the financial performance of Salala reveals that
these (negative) financial results were caused partly by (1) an
exchange loss, written off in that year (1975), (2) high amounts
of interest payments paid to RCM-Amsterdam and NRC-Hamburg, which
companies had lent large amounts to their Liberian subsidiary,
and (3) the depreciation rate which was used.
Officially, the plantation costs are amortised at a rate per unit
of production which is estimated to be sufficient to write them
off completely by the time the area planted ceases to yield further
production, thereby estimating the productive life of the
trees at 20 years (32). In reality, however, in the case of
Salala it takes the trees five years to start producing, and the
trees are tapped for 25 years. The company thus arrives at a much
longer period during which depreciation is deducted from gross
income, viz. 30 years. Taking the rate of amortization as 5? per
annum, as based on a 20-year life of the plantation, 150? of the
initial plantation costs will thus in a period of 30 years have
been recovered from gross income, one third of which represents
no costs whatsoever. It seems therefore to be more justified to
use a yearly rate of amortization of 3.33? instead of the 5? now
used.
The owners of Salala signed a series of seven loan agreements,
supplements, and additions to loan agreements with their
subsidiary, starting with a $ 3 million loan on July 31, 1963
which by the end of 1977 resulted in an overall-lending of
approximately $ 6,250,000 at interest rates varying between 6-8
per cent. With only a paid-in capital of $ 480,000 the debtequity
ratio was about 13 : 1 at the end of the period under
consideration, 1960 - 1977.
As a result, interest payments of over I 300,000 and repayments
on the amounts borrowed affected the net income in such a way
that, though the company started to show a (very small) net profit
in 1976, no income taxes were paid to the Liberian Government
after the expiration of the income tax holiday. Furthermore,
as these loans had to be repaid in a currency at the option of
the lenders and as the U.S. dollar had become less attractive
after its devaluations and depreciation, repayments were made in
Dutch guilders and in Deutsch Mark, resulting in an exchange loss
which Salala started to write off in 1974.
As the Liberian Government had approved these loan agreements,
these arrangements just described were perfectly legal, but it
should be observed that the absence of a certain debt-equity
ratio in the concession agreement, in combination with the
provisions of these loan agreements, particularly the one that
states that "(e,») it is agreed that payments of interest shall
be suspended until Salala Rubber Corporation is able to make