Zambia reviewing tax treaty with Netherlands and Ireland

By added on 22/05/2014

Zambia is reviewing its tax treaty with the Netherlands and Ireland to allow the incorporation of anti-abuse clauses where necessary, a senior government official said, reports the Post Zambia.

The move, according to tax justice advocates, marks a turning point for Zambia, which has been a key victim to tax avoidance by multinational corporations that abuse tax treaties with these countries.

Kayula Chimfwembe, acting chief analyst for tax policy at Ministry of Finance, said the Netherlands' tax treaty with Zambia, stemming from 1977, was outdated and did not have anti-abuse clauses.

"We noticed that some of these agreements Zambia signed are over 20 years old. A lot has changed since then and we cannot afford to be using those agreements," Chimfwembe said in an interview.

"So they are being renegotiated and replaced with new ones which are of current international standards."

Tax justice groups, ActionAid Zambia and the Tax Justice Network Africa, agreed that Zambia misses out on substantial tax revenues because of its treaties with developed countries like the Netherlands.

ActionAid urged Zambia recently to crack down on corporate tax dodging by taking action on harmful tax treaties and tax incentives.

It said the Zambian government should review its existing double taxation treaties and follow the example of Rwanda and South Africa in renegotiating treaties that gave up too many taxation rights or facilitate illicit financial flows.

Multinational companies often use the global network of double taxation treaties to avoid or reduce the tax they pay. These treaties designed to prevent double taxation are now facilitating little or no taxation, and are particularly problematic when they involve a tax haven like Mauritius. Mauritius is well known for negotiating treaties that reduce or eliminate the taxes other countries can collect.

A report by Global Financial Integrity in 2012 concluded that overall, US$8.8 billion were illegally siphoned from the country between 2001 and 2010, largely ending up in offshore banks and tax havens.