Foreign firms under watch as URA joins global tax forum
They have big money and experienced staff, and operate with effortless sophistication.
These are some of the features of multinational companies that use complex instruments to avoid paying taxes especially in developing countries. Mindful of this, Uganda Revenue Authority is keeping on guard.
The tax body has joined a global forum that would allow it to receive tax information on multinational companies, with a view to detecting possible tax evasion and avoidance. URA Commissioner General Allen Kagina told a stakeholders’ meeting at Serena hotel last week that as the oil and gas industry attracts bigger companies, Uganda stood to benefit from the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Uganda became number 115 of the forum’s 122 members countries in Africa, Europe, Asia, and the Americas, among others. Uganda can now share tax information and order for a simultaneous audit of any company suspected of tax malpractices.
“With the digital economy today, with the means that require no physical presence, multinational organizations can shift their profits to tax havens where they don’t pay or pay ‘little’ taxes,” Kagina said. “The oil and gas industry is entirely dominated by multinationals. It’s critical to get information from where they are residents.”
It is not clear how much Uganda loses in tax evasion and avoidance but the country is part of a continent that loses $50bn annually in illicit outflows. In East African, it is only Kenya and Uganda that have joined the forum.
URA is already fighting a case where it says Zain Telecom should have paid tax when it sold its Uganda operations to India’s Bharti Airtel telecom. URA says it should have received a capital gains tax worth $85m (about Shs 218bn).
There was also a case of Heritage Oil, which sold its assets to Tullow Oil: URA demanded $434m in capital gains tax, which Heritage declined to pay. Heritage claimed that the deal was not taxable, and in any case it was registered in Mauritius, a country that has a double taxation treaty with Uganda.
The charity Oxfam recently warned that African nations were losing almost two per cent of national income in taxes avoided or evaded by multinationals. According to Kagina, Uganda’s top 100 taxpayers – contributing 80 per cent of the revenues – are multinationals; having cross-border sharing of information would help the authority to have a bigger picture of what is happening.
“Most of these companies are registered here either as branches or subsidiaries of the bigger multinational companies,” Kagina said.
Simon Knott, from the global forum secretariat, said: “The amount that goes out exceeds development aid that developing countries are getting.”
ActionAid International’s 2013 survey showed tax dodging happens in many different ways. Some companies channel the profits obtained in a particular country through a tax haven and then re-invest in that country, pretending this was new investment, often rewarded with tax relief.
Others use complex chains of transactions to turn treaties into tax avoidance instruments. International banks and oil and gas companies were pointed out as the biggest culprits of using subsidiaries and agent companies to dodge taxes.
In July, Uganda’s legal framework, including the Company Act 2012, BOU Act 2004, Capital Markets Authority Acts 1996 will be peer-reviewed to align them to international standards, with technical support from the forum.