CABINET has approved the termination of the Avoidance of Double Taxation Agreement between the governments of Zambia and Mauritius and to commence negotiations of a new Agreement, which will introduce shared taxing rights and anti-abuse clauses.
And Cabinet has also confirmed the services of Lazard Frères, the French financial advisors, alongside a US-based entity, for the provision of advisory services in relation to Zambia’s debt management.
According to a statement released by chief government spokesperson Dora Siliya following the 16th Cabinet meeting held at Mulungushi International Conference Centre in Lusaka, Monday, Cabinet approved the termination of the Avoidance of Double Taxation Agreement between Zambia and Mauritius, and to commence negotiations for a new Agreement.
Double taxation is the levying of taxes on the same income (or capital) of the same taxpayer in the same period.
Double Taxation Agreements (DTAs) are designed primarily to prevent juridical double taxation.
Generally, the division is between economic double taxation (same income taxed twice e.g. profits then dividends, wages then VAT), and juridical double taxation (same income taxed in two different countries e.g. profits taxed in country of source and residence).
Currently, the Zambian government has in effect 22 Double Taxation Agreements with various countries, including Mauritius, which was signed on January 26, 2011, but took effect in 2012.
“Cabinet also approved the termination of the Avoidance of Double Taxation Agreement between the Government of the Republic of Zambia and the Government of the Republic of Mauritius and initiate negotiations of a new Agreement which will introduce shared taxing rights and anti-abuse clauses. Cabinet resolved to terminate the Agreement, which came into force on 15th June, 2012, as the Agreement deals with income from a number of specific sources, such as business income, dividends, interest and royalties. It gives exclusive taxation in the country of residence of the receipt of the income. As such, Zambia does not retain taxing rights to tax dividends, interest and royalties arising in Zambia and payable to residents of Mauritius,” Siliya l stated.
The Zambia Revenue Authority had indicated in recent years on the need to renegotiate several “outdated” tax treaties to “make source and residence more balanced,” according to a Centre for Trade Policy and Development (CTPD) policy brief on DTAs.
In a case study cited in a policy brief, Associated British Foods – the UK parent company of Zambia Sugar Plc – has used Ireland and the Netherlands to route income in order to take advantage of the Ireland-Zambia and Zambia-Netherlands tax treaties, avoiding source taxation in Zambia.
The company used three main tactics to do this, which included cross-border payments equivalent to over US $13.8million a year – redirected via sister companies in Ireland, Mauritius and the Netherlands.
As a result, the CTPD say, it is estimated that Zambia lost withholding tax revenues of some US $17.7 million since 2007, when ABF took over the Illovo Sugar Group.
And Siliya added that Cabinet approved the appointment of Lazard to act as financial advisors on behalf of the Zambian government to restructure the country’s huge debt portfolio.
“Cabinet also deliberated on the engagement of Lazard Frères of France as financial advisors and Messrs White and Case of the United States of America as legal advisors to the Republic of Zambia in relation to the liability management of its debt portfolio. Cabinet, has as one of its priorities, implementation of measures to restore debt sustainability in order to effectively implement the measures and that in order to do this, government needed the services of experts to engage creditors,” explained Siliya.
“The engagement of creditors that are owed money by government is an essential strategy to address the country’s prevailing debt sustainability and fiscal challenges, especially in view of the negative impacts of the COVID-19 pandemic, which has further constrained the Treasury’s resources envelope. Cabinet is of the view that, to ensure successful negotiations with creditors, it is necessary that government engages the services of reputable financial and legal advisory firms with experience in providing advisory services in relation to the liability management of debt portfolios, including options for debt cancellation, refinancing, re-scoping and postponement of some of the projects. Lazard has also provided advisory services to some countries in Europe, Latin America and a number of African countries and private sector entities.”