If the global economy is to thrive, governments worldwide must work together more closely to address global concerns such as international taxation and multinational activity. Cross-border tax evasion and illegal financial flows and differences in approaches to these and other issues have thrust global tax cooperation into the spotlight in the most notoriously controversial way possible.
Given Tanzania’s position in the ever-changing global economy, this blog post analyses how the country might benefit from global tax cooperation as it addresses these concerns.
Tanzania can collaborate with other nations on regional and international tax issues through the following forums:
- the East African Community (EAC);
- the Southern African Development Community (SADC);
- the Organisation for Economic Cooperation and Development (OECD);
- the UN Committee of Experts on International Cooperation in Tax Matters;
- and the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G-24).
The regional blocs of the EAC and SADC have produced their own model tax treaties. Tanzania faces the problem of needing to coordinate regional tax matters largely through the Tanzania Revenue Authority (TRA) as a member of both blocs. This national tax authority collaborates with other African revenue authorities through the African Tax Administration Forum (ATAF), which has produced its own model tax treaty.
The model tax treaties of the EAC, SADC, and ATAF are based on the OECD and UN model tax conventions. Tanzania should take advantage of its ‘wiggle room’ within the EAC, SADC, ATAF, and the African Union to provide political support for more stringent views on global tax cooperation in a regional and global framework.
Most regional and global tax concerns and challenges require political backing, which has yet to fully embrace the full range of collaboration on these issues and challenges. On the other hand, illicit financial flows (IFFs) out of Tanzania are a special case: IFFs have become a major source of concern because of their negative influence on Tanzania’s development strategy.
The OECD, more than any other international organisation, provides excellent cooperation on international taxation among its member countries. Tanzania and other non-members are affected by the OECD’s international tax laws, despite the fact that Tanzania is not a member. Tanzania and other African countries can potentially alter these regulations to their favour if they increase coordination amongst themselves.
The OECD’s Committee on Fiscal Affairs is reaching out outside its membership with programs such as increasing tax information exchange and avoiding base erosion and profit shifting (BEPS) through its Committee on Fiscal Affairs. Indeed, Tanzania’s Tax Administration (Transfer Pricing) Regulations, 2018, are in line with the OECD transfer pricing rules adopted as part of the BEPS Action Plan to combat multinational businesses’ international tax avoidance.
Beyond these initiatives, however, developing countries do not have the right to engage in the OECD’s core global rule-making agenda directly.
Tanzania and other developing countries have another option to seek larger changes in international tax rules through the UN Committee of Experts on International Cooperation in Tax Matters (“the UN Committee of Tax Experts”). The United Nations Committee of Tax Experts views the creation of international mechanisms that benefit developing nations more favourably than the OECD.
Whatever the case may be, Tanzania’s improved cooperation with all relevant African member countries with similar interests at the EAC, SADC, and ATAF levels would be one of the simplest methods to reach more potentially beneficial agreements. These agreements may serve as the “terminus a quo” for swaying the outcome of international tax discussions.
Tanzania may consider increasing its participation in debates of the G-24, which has highlighted the need of assisting developing countries’ efforts through efficient global tax cooperation, thanks to its membership in the Group of 77 (G-77) at the United Nations.
Apart from supporting the UN Committee of Tax Experts, the G-24 is better positioned to collaborate with the OECD/G20 Inclusive Framework on BEPS to combat tax avoidance (a legal practice that exploits gaps and mismatches in countries’ tax legislation to avoid paying tax). Tanzania and other developing countries will be able to raise awareness of worldwide taxation and development policy issues by cooperating with other G-24 members through the G-77.
Finally, Tanzania’s long-standing commitment to regional and global tax cooperation necessitates adherence to the rule of law – a cornerstone of human rights protection – and an embrace of the free market and greater economic freedom and transparency.