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Skepticism Over Impact of UN Resolution on Taxation of Multinationals :: Uganda Radionetwork

Skepticism Over Impact of UN Resolution on Taxation of Multinationals

Sponsored by the Africa Group at the UN General Assembly, the resolution provides that multinationals will pay at least 15 percent of the profit in taxes to the countries the do business in.

Audio 4

There is skepticism over the practicability of a new United Nations resolution on international tax cooperation that promises to save billions of dollars that African and other developing countries lose annually to tax-evading multinationals.

The resolution approved by consensus at the 77th session of the UN General Assembly last week has been described as the first step towards an inclusive, democratic, and transparent process to reform global tax terrain.

Moved by Nigeria and sponsored by the Africa Group at the UN, the resolution provides that multinationals will pay a minimum of 15 percent of the profit in taxes to the countries they do business in.

It also takes away the privilege of discussing global taxation matters from the OECD (the Organization for Economic Cooperation and Development) a 38-member country "rich man's" club, to the more inclusive UN.

For long, the developing world has been grappling with the idea of taxing multinationals that do online or cyber-based businesses in the countries without having physical establishments there.

The Global Tax Justice Network called this a triumph for Africa and the developing world, which, for more than two decades, have been calling for an intergovernmental tax negotiation process at the UN, to allow all countries to participate in discussions and decision-making on an equal footing.

Jolly Mutesi, an International Tax Legal Officer at Uganda Revenue Authority said the  Convention was needed and had taken too long to come.

She said businesses and the way of doing business had long changed and the existing systems needed overhauling.

Mutesi said the multinationals and the developed countries have taken advantage of the agreements they signed with the poor countries decades ago to avoid paying taxes even where they should.

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The convention, if implemented, will also do away with tax havens, countries which have eased tax policies to attract investments, but are now used to store proceeds from illicitly acquired profits.

Speaking at a dialogue organized by SEATINI Uganda in Kampala, Economic Consultant, Dr Fred Muhumuza, was doubtful about tax havens.

He says new tax havens were being created in the form of Financial Centres around the world, especially in developing countries.

He also doubted the capacity of African countries to tax digital business operations, urging for real action to build capacity.

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Other questions being asked include whether the African countries can adequately access the information needed to ably enforce their rights under the resolution.

Gerald Namoma, a senior economist in the Tax Policy Department at the Ministry of Finance, Planning, and Economic Development, hoped the developed countries would also seek to benefit from the move, especially against tax havens.

In this way, they would set mechanisms to implement this, enabling African countries to also benefit.

Namoma said the global minimum tax policy is because the countries have also realized that they are losing business to tax havens, a situation they had ignored for a long despite advice from the developing world.

He, however, stressed the need for the country to do real capacity building including for personnel and infrastructure to be able to meet the demands of international negotiations.

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Crusaders for reforms in the global economic policies that currently benefit the developed world welcomed this unanimous decision which is expected to tackle illicit capital flight.

“This is a historic win for tax justice and the broader economic justice movement and a big step forward to combat illicit financial flows and tax abuse,” said Dereje Alemayehu, Executive Coordinator of the Global Alliance for Tax Justice (GATJ).

The Tax Justice Network Africa (TJNA) said this should build a fair and effective international tax system arising from an inclusive process at the UN.

"This resolution heralds a great opportunity for all UN Member States to move beyond words to action for the much-needed reforms of the global financial architecture,” said Chenai Mukumba, Policy Research, and Advocacy Manager at TJNA, just after the vote.

Developing countries are said to lose at least 483 billion dollars annually in corporate tax abuse, yet they are not allowed to participate in the decision-making processes on global tax matters, which have been a preserve of the OECD.

Trevor Lukanga, Senior Tax Manager at consulting firm, PricewaterhouseCoopers, said the inclusivity objective of the convention would most likely trickle down to the national tax policy system including wide consultations and research before tax-related laws and policies are made.

This is because the process will be at an international level with implications on global trade and investment.

He said while previous national treaties with other countries could have been necessary at that time, the situation has changed and it was time to move on in the way tax is administered.

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This now starts the negotiation of a UN Framework Convention on International Tax Cooperation through an inclusive process. 

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