Antoinette Sayeh, Deputy Managing Director at the International Monetary Fund (IMF), has stated that the global minimum corporate tax should lessen tax competition in the mining sector in Sub-Saharan African countries to help improve their resource revenues.
According to her, competition for resource investments is spurring tax competition, particularly in the form of corporate tax rate cuts, exemptions, and tax holidays. This kind of competition, she said, results in spillovers to other countries that feel compelled to compete in the same way which eventually make “all countries lose”.
“Fortunately, there is reason to be optimistic on these pressures for tax competition. With the recent Inclusive Framework announcement, our assessment is that the global minimum corporate tax should lessen pressures for tax competition. It’s a reason to be optimistic that collective action can rise to meet the challenges we face”.
Antoinette Sayeh
Speaking at a roundtable policy discussion on Tax Avoidance in sub‑Saharan Africa’s Mining Sector, Antoinette Sayeh stated that Africa is home to a large share of the world’s natural resources which are mostly extracted by multinational enterprises. While governments in sub-Saharan African countries need to attract foreign direct investment, it is also key that they capture a fair share of the mining of their resources to support their revenue mobilization efforts, she said.
Harnessing the resources for development
“How to harness the economic potential of the region’s natural resources to fund economic development and raise living standards is an issue that has been on the mind of many in sub-Saharan Africa for quite some time.
“It is even more pressing today when fiscal space to foster the recovery is lacking in many countries. At the same time, there are increasing concerns that tax competition among countries and aggressive tax optimization by multinationals result in lower revenue for SSA countries”.
Antoinette Sayeh
Antoinette Sayeh underscored that international corporate taxation is a worldwide concern which has led to significant changes recently. The Inclusive Framework member countries announced reforms to restore some balance to global taxing rights including a move to a global minimum effective corporate tax rate of 15 percent for large multinationals with turnover exceeding 750 million Euros, she stated.
“A minimum tax is something the Fund has long supported. That agreement is part of the backdrop to our discussion on mining today. As far as sub-Saharan Africa is concerned, many—including African Union leaders themselves—have noted the paradox that the region’s mineral wealth exists side-by-side with pervasive poverty”.
Antoinette Sayeh
The current trend is that “we are seeing a pattern of international profit shifting by multinationals, driven by differentials in corporate tax rates in producing countries relative to tax rates abroad”.
Loss of corporate tax revenues
Antoinette Sayeh pointed out that a recently published IMF departmental paper estimated that mining profits in sub-Saharan Africa are notably more vulnerable to profit shifting relative to other sectors of the economy. The paper, according to her, estimated a sizeable fiscal cost to the region of tax avoidance in mining of between $450 and $730 million per year in lost corporate tax revenue.
The Deputy Managing Director of the IMF stated that many Sub-Saharan African countries have tax legislation that is not sufficiently equipped to deal with these practices as they have evolved over time.
Antoinette Sayeh iterated the recommended strategies to address these risks and close loopholes, including through strengthening and simplifying transfer pricing regulations that apply to intra-company transactions in the mining sector, and introducing effective rules to limit interest deductions. IMF researchers observed that for those countries with interest limitation rules, the magnitude of international profit shifting is halved.
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