ActionAid Zambia has called on the Zambian government to consider cancelling or overhaul of unbalanced Double Tax Agreements – DTA or tax treaties with other countries saying Tax Treaties have recently 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.
Zambia currently has DTA’s with Germany, Ireland, Norway, Sweden among other countries with no annual reviews or cost benefit analyses done and made public to check whether the country benefits or is on a net basis losing out. The DTA’s have been abused as a conduit for transfer pricing and “management fees” profit repatriation.
The Zambian Government recently cancelled its Double Tax Agreement with Mauritius and ActionAid has welcomed the saying it has for a long time been campaigning for cancellation and re-negotiation of problematic DTAs Zambia has with different countries and has been calling for revision and/or cancellation of regressive DTAs like the now cancelled Zambia and Mauritius DTA.
ActionAid Country Director Nalucha Ziba has told the Zambian Business Times – ZBT in an exclusive interview that the DTA between Zambia and Mauritius provided for 0 Percent Withholding Tax (WHT) on technical fees paid for technical services adding that 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),” She said.
Nalucha added that there is need for an impact assessment/cost benefit analysis to be done before signing is done and that the Zambian government should not follow the OECD model treaty but develop its own model.
She said government should also 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.
ActionAid has further suggested that all treaties should be re-negotiated transparently, and draft versions made available to the public prior to sign offs to ensure that the country benefits and remove opportunity for corrupt practices.
Nalucha has further disclosed that Zambia has signed DTAs with different countries such as Germany, Ireland, Norway, Sweden, Mauritius (now cancelled) to mention but a few and that a tax treaty will spell out how companies investing in a country that Zambia has signed a DTA with their country of origin should be taxed.
