The_Open_Door_deel1

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Despite the substantial interest payments (see Annex 15) which
in 1964 and 1965 amounted to over $ 9 million, the company's
total indebtedness did not decrease as it should have done. This
was due to a continued policy of attracting long-term loans to
finance its share in the capital needed by the Joint Venture,
such as a $ 51,4 million investment in a new washing and
pelletizing plant (1965 - 1967). LAMCO even relied to an
increasing extent on periodic short-term loans in order to meet
some of its most urgent financial obligations such as the payment
of its declared annual dividends and royalties (to L.1.0. and the
Liberian Government respectively) (48).
In spite of its tacit approval of these financial policies and
methods the Government felt increasingly uncomfortable at the
undercapitalization which resulted from the use of these loans
and which so adversely affected its share in the Company's
profits. In the 1970's the Government sought means to change this
situation. With the acceptance of the 1974 Amendment of the i960
Mining Concession Agreement, the Government and its partner in
LAMCO, L.1.0., agreed to convert the Company's subordinated
Debentures of $ 53 million held by the private investors in
LAMCO (which in fact had been disguised equity capital) into
Preferred Stock and to let the Government share in the dividends
paid by LAMCO to the owners of this Preferred Stock. The greater
part of this stock was issued to the Swedish LAMGO Syndicate in
substitution for about $ 42 million which the Company then owed
the Syndicate.
The basis of this arrangement is a Liberian-Swedish Double
Taxation Treaty which had been concluded in 1968. The Swedish
investors had been subject to full Swedish taxes on all income
derived directly from Liberia (management fees, sales ,
commissions, financial services fees, income from shipping as
well as interest income). By the 1968 Tax Treaty the Swedish
investors agreed to enter into sharing agreements with the
Liberian Government thereby transferring to the Liberian
Treasury the benefits of the Treaty, at the expense of the
Swedish Treasury (49)• The Liberian Government and the Swedish
investors in 1969 signed an agreement under which the Liberians
received a portion of the savings in Swedish Tax which resulted
from the Tax Treaty, an amount of about $ 400,000 a year. But
the Tax Treaty provided for even greater Swedish tax savings in
the case of the payment of dividends by a Liberian corporation
to a Swedish national ore company. In 1974 the Syndicate's debt
was converted for this reason into Preferred Stock. In the
following years the Liberian Government consequently received
practically all the Swedish tax savings on the dividends, or
some $ 800,000 a year (50). One only wonders why it took six
years to accomplish this.
Also converted into Preferred Stock was an amount of about $ 11
million of Subordinated Debentures which were held by L.1.0.
As no Tax Treaty between Canada and Liberia existed at the time