ActionAid Zambia has welcomed the government’s move to cancel the Double Tax Agreement with Mauritius.
Action Aid Zambia Country Director Nalucha Ziba said her Organisation has for a long time been campaigning for cancellation and re-negotiation of problematic DTAs Zambia has with different countries.
She said a Double Tax Agreement or tax treaty is a legally binding agreement between states, which governs the taxation of cross- border activities; namely investments by a resident of one state in the other state, and vice versa.
Mrs Ziba said Zambia has signed DTAs with different countries such as Germany, Ireland, Norway, Sweden, Mauritius (now cancelled) to mention but a few which spell out how companies investing in a country that Zambia has signed a DTA with their country of origin should be taxed.
She has explained that if for instance, if Zambia has a tax treaty with Mauritius, therefore a Multinational Company originating from Mauritius and operating in Zambia will utilize the tax provisions in the DTA between Zambia and Mauritius.
Mrs Ziba however said that in the recent times, Tax Treaties have not only been found to be unbalanced but also a source of tax evasion by most multinational companies, denying the host countries the much-needed revenue.
“For example, some DTAs provides for as low as 0-7 percent tax rate while others have no or weaker anti-abuse provisions”, she added adding that for some time now ActionAid has been calling for revision and/or cancellation of regressive DTAs like the now cancelled Zambia and Mauritius DTA.
She said the DTA between Zambia and Mauritius provided for 0 Percent Withholding Tax on technical fees paid for technical services.
Mrs Ziba said with this provision a Mauritius based Multinational Company, would take advantage of such provisions and not pay any WHT on technical services which is currently capped at 15 percent.
“For example, if this company engaged a sister company from Mauritius to provide technical services at a cost of USD100 million. This company when making this payment (USD100 million) to a sister company will not deduct any WHT. This implies that the entire USD100 million is untaxed. On the Contrarily, if the DTA provided for 15 Percent WHT on technical fees then USD 15 million would be deducted as Withholding Tax and remitted to Zambia Revenue Authority (ZRA)”, Mrs Ziba said.
She said Action Aid conducted a study titled “Sweet Nothings” which showed how Associated British Foods operating in Zambia as Zambia Sugar Company took advantage of the international tax agreement between Zambia and Ireland to avoid large tax payments.
Mrs Ziba said Zambia Sugar Company paid over US$47.6 million equivalent to about K209 billion, for management services and purchases to a fellow subsidiary called “Illovo Sugar Ireland” between 2007 to 2012.
She however said that the international tax agreement between Zambia and Ireland (before negotiation) exempted payment of Withholding Tax (WHT) for management
or consultancy services.
She said by channelling this money (USD 47.6million) through their Irish subsidiary, Zambia Sugar avoided paying an equivalent of US$7.4 million between 2007 to 2012.
“It is against this background that we commend the government for the position taken and we wish to encourage government to take a similar position over other unbalanced DTAs”, she added.
She has urged the government to ensure that an impact assessment/cost benefit analysis is done before they are signed and every five years thereafter.
Mrs Ziba said they should not follow the OECD model treaty but develop their own model adding that the government should negotiate for favorable and/or fair DTA’s Withholding Tax rates (10%-15%) which will not only promote foreign direct investment but also ensure that government collects adequate tax revenue.
Shd said all treaties should be negotiated transparently, and draft versions made available to the public prior to signature.