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Tax avoidance: Developing countries take on multinationals

By - | May 28th 2013

By Standard Reporter

Nairobi,Kenya:Developing countries are taking action to try to combat tax avoidance by multinational companies.
Zambia and Mongolia have told the BBC they want to stop mining companies shifting profits out of their countries before they can be taxed.
Both are major producers of minerals and say they lose billions of dollars a year in much-needed tax revenue. However, the Organisation for Economic Co-operation and Development (OECD) has warned this could be dangerous.
The Paris-based developed nations’ club thinks unilateral action by individual countries could lead to a confused, fragmented set of rules with no clear standards.The speaker of the Mongolian Parliament, Mr Z. Enkhbold, told the BBC that Mongolia is cancelling international tax treaties which mining companies had intended to use to take profits from their Mongolian operations tax free. “Tax must be paid where the real business is located,” Mr Enkhbold told the BBC, “not in offshore countries”.
A new law in Zambia, which comes into force this month, requires mining companies to bring the proceeds of export sales back to Zambia. Once in Zambia, the country’s tax authorities will scrutinise dividends and other payments to see if they are justified before they leave the country. Guy Scott, Zambia’s Vice-President, told the BBC that his government is losing roughly $2bn a year through corporate tax avoidance.  “We are talking a staggering amount of money,” he said. That is more than Zambia spends every year on health and education combined. “You’re talking about pregnant women who haven’t got a clinic they can go to for antenatal care or child health education,” Mr Scott said.
“You’re looking at people who won’t be educated beyond primary school level.” Zambia’s new law is designed to increase the transparency of mine companies’ finances. “We don’t even know where the accounts are,” Mr Scott explained. “It’ll at least criminalise a certain amount of avoidance. It obliges people to be transparent. At the moment they’re only transparent if they volunteer to be transparent.”
Mongolian officials say they are acting in an attempt to stem large future tax losses in their rapidly growing mining sector.  The former director of Mongolia’s Ministry of Finance, Mr B Batjargal, said Mongolia stands to lose around $5.5bn in tax revenue over the lifetime of the country’s single biggest project, the giant Oyu Tolgoi copper mine.          —BBC

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