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Action Aid raises red flag over billions loss in revenue

February 26, 2016 By Alusine Sesay

In a new report titled ‘Mistreated’ ActionAid International has revealed that poorer countries, including Sierra Leone, may have signed to several treaties that are restricting government’s power to tax global companies, which they say unfairly limits the country’s potential to collect tax revenue.

“Developing countries are losing billions in revenue due to their tax treaties. Treaties often ensure that corporate cash flows untaxed from poorer to richer countries, worsening global inequality and poverty. In our country, it is the women and children who pay the biggest price when key public services like hospitals and schools are starved of possible funding,” the report stated.

The report drew conclusion from a research that examined more than 500 international tax treaties, revealing which  ones take away poorer countries ability to raise tax on multinational companies most.

According to the report, Sierra Leone signed tax treaties before independence with Denmark, India, Norway and the United Kingdom, but could not ascertain as to whether the said treaties are still in force.

ActionAid, in the report, raises several questions as to whether there has been much public scrutiny of treaties and how willing and ready “We are as a nation to assess and amend these treaties.”

“These are many more questions needed to be asked and answered as the nation continues to lose huge revenue, which could otherwise be put into our much needed growth and development agenda as envisaged in the Poverty Reduction Strategy Paper (PRSP) –Agenda for Prosperity,” said Foday Bassie Swarray, Acting Executive Director of ActionAid –Sierra Leone.

The report cites Bangladesh as one of the countries that have  given up the most power to tax multinational companies and has the largest number of very restrictive treaties.

“A single clause in Bangladesh’s tax treaties is costing it around $85 million every year. The clause restricts Bangladesh’s ability to tax dividends, money paid by companies to overseas shareholders,” the report reveals.

The report mentions the United Kingdom and Italy as countries that have entered into the highest number of very restrictive tax treaties with African and Asian countries since 1970s, followed by Germany, China, Tunisia and Mauritius that have rapidly growing number of very restrictive treaties with some of the world’s poorest countries.

“All national resources that can be mobilized behind the fight for development should be explored. Outdated and unfair treaties make it possible for multinational companies to potentially significantly reduce the tax they pay in lower income countries,” Mohamed Sillah, Interim Regional Director-Horn and West Africa, ActionAid International.

“The communities living in poverty that we work with are demanding adequate funds for essential public services. It is time for our government to make tax fair and urgently review any treaties that we have. Multinational companies should be paying their fair share in poorer African countries.”

The report, however, finds that many tax treaties make it possible for multinational companies operating in lower income countries to significantly reduce corporate tax by moving money out of the country through dividend, royalty or interest.

“Tax treaties that lower income countries have signed with members of the Organization for Economic Cooperation and Development (OECD) –club of rich countries take away more taxing rights than with other countries,” the report further says.

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