Gold Magazine September - October 2013, Issue 30 | Page 56

taxation

C

(FDI) flows to African countries increased
by 5% to US$50 billion in 2012 even as
global FDI fell by 18%. In East Africa, energy
resources such as recently-discovered gas
reserves in Tanzania and oilfields in Uganda
have drawn increased FDI to the region with
inflows increasing from $4.5 billion in 2011
to $6.3 billion in 2012.
Kenya was among the five top destinations
for FDI projects in Africa with 50 recorded
for last year. Britain’s Financial Times reports
that the surge in foreign investment in Africa
“has triggered a race among offshore financial
centres to sign deals to reduce the tax bills
of overseas companies and protect their
investment on the continent, with Mauritius,
Singapore and Luxembourg rushing to secure
agreements. Offshore centres that typically
channel FDI flows are seeking negotiations
with host African nations to sign investor protection and promotion agreements, which can
minimise the risk of nationalisation by forcing
fair compensation and arbitration, as well as
double taxation avoidance agreements, which
reduce the tax bill that companies face.”
FDI levels in Sub-Saharan Africa are now
more than double the levels of ten years ago.
While it is apparent that natural resources
are still the mainstay of FDI flows to Africa,
the UNCTAD report notes that FDI in
consumer-oriented manufacturing and services
are beginning to climb, reflecting the growing
purchasing power of the continent’s emerging
middle class. But the FT says that the rush
“could prove controversial as poverty
reduction campaigners
and others

blame these kinds of deals for a loss of revenues
for governments.”
It adds that Mauritius, which boasts one
of Africa’s largest offshore financial centres, is
leading the way having already signed 19 tax
deals with African countries and it is negotiating another three. But some countries, notably

WE
SHOULD BE
RIGOROUS IN
EXPANDING AND
CONTINUOUSLY
IMPROVING
THE DTA
NETWORK
the Netherlands, are reviewing their DTAs
with Uganda, Zambia and Ghana in the
light of criticism that such agreements allow
companies to pay taxes in the country of legal
residence – usually a low-tax jurisdiction such
as Luxembourg – rather than in the country
where the physical operations are based. But
the FT notes that international offshore centres

DOUBLE
EW NTS
N ME
R EE
OR
FG

EA

X

TIM
TA

yprus’ list of Double
Taxation Agreements
(DTAs) constitutes one
of the country’s main
competitive advantages
as it pursues success as an
international financial and business centre. At
present the country maintains 45 DTAs while
10 more are under negotiation. The list may
appear impressively long but other competitive
jurisdictions have many more and, in some
cases, are ahead of Cyprus in concluding new
treaties. It has been the professionals’ view for
some time that Cyprus should strengthen and
expand its network of bilateral agreements
for the avoidance of double taxation to cover
more countries, especially those with emerging
economies. Also, specific double tax treaties
need to be renegotiated so as to apply to new
financial instruments and the trends in international trade.
“We should be rigorous in expanding and
continuously improving the DTA network,”
says Angelos Gregoriades, Chairman and Head
of Tax of KPMG Cyprus and a member of the
Board of the Cyprus Investment Promotion
Agency (CIPA). “DTAs are an important tool
in the carrying out of cross-border investment since double taxation in international
investment is neither efficient nor desirable,”
he adds. “The longer the list, the better the
tax efficiency of Cyprus as an attractive and
respectable financial centre.”
Recently the international media has
reported on the intense worldwide interest in
concluding not only DTAs but also investor
promotion and protection agreements (IPPAs)
with Sub-Saharan countries. This was triggered by a surge in foreign investment in Africa. According to the 2013 report from
the United Nations Conference
on Trade and Development
(UNCTAD), Foreign
Direct Investment

CYPRUS SHOULD EXPAND ITS NETWORK OF
BILATERAL AGREEMENTS FOR THE AVOIDANCE
OF DOUBLE TAXATION TO COVER MORE
COUNTRIES, ESPECIALLY THOSE IN AFRICA
By Kyproula Papachristodoulou