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Tax treaties stopping taxing multinational companies

Tax treaties stopping taxing multinational companies. A new report from ActionAid has revealed that Bangladesh has 18very restrictive tax treaties that dramatically restrict the government’s power to tax global companies doing business on our soil and therefore unfairly limit our country’s potential to collect tax revenue.

The report also found that around the world, poorer countries are losing billions in revenue thanks to treaties that stop them taxing multinational companies.

The ‘Mistreated’ report is based on ground breaking research that has for the first time examined more than 500 international tax treaties, revealing which ones most take away poorer countries’ ability to raise taxes on multinational companies.

Treaties often ensure that corporate cash flows untaxed from poorer to richer countries, worsening global inequality and poverty. Women and children pay the price when key public services like hospitals and schools are starved of possible funding.

Bangladesh is the country which has given up the most power to tax multinational companies – it has the largest number of very restrictive treaties. A single clause in Bangladesh’s tax treaties is costing it around US$85 million every year. The clause restricts Bangladesh’s ability to tax dividends, money paid by companies to overseas shareholders. This is a country where 66 million people live in extreme poverty – less than US$1.90 a day.

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

Farah Kabir is the Country Director of ActionAid Bangladesh said,“All national resources that can be mobilised 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 Outdated and unfair treaties make it possible for multinational companies to potentially significantly reduce the tax they pay in [insert your country OR lower income countries]. Women and children in poverty pay the price when crumbling public services like schools and hospitals are starved of possible funding.

“The communities living in poverty that we work with are demanding adequate funds for essential public services. It’s time for our government to make tax fair and urgently revise very restrictive treaties that we have. Multinational companies should be paying their fair share in Bangladesh.”

Overall the report found that many tax treaties make it possible for multinational companies operating in lower income countries to significantly reduced corporate tax by moving money out of the country through dividend, royalty or interest payments which are subject to low tax rates capped in tax treaties. Tax treaties that lower income countries have signed with members of the OECD club of rich countries take away more taxing rights than those with non-OECD countries. Worryingly, the deals struck with OECD countries are getting worse.

For many lower income countries, raising more revenue from taxing multinational companies could help fund lasting change by improving chronically underfunded schools and hospitals.

ActionAid is calling on Governments to reconsider very restrictive treaties first to ensure multinational companies pay their fair share of tax in poorer countries. The charity is also calling for companies to increase transparency and publish details of lobbying activities relating to tax treaties.

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