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Tax treaties could unravel black money hidden in tax havens

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By Steve Umidha

A keen re-look into bilateral tax treaties with foreign countries could help Kenya repatriate some of the black money believed to be stashed abroad, experts have cautioned.

The country’s leadership should also consider entering into Double Taxation Avoidance Agreements (DTAA) with tax havens in order to crack down on tax evaders, prevent money laundering as well as other tax-related offences.

“In order to adjust the level of taxation, there has to be a basis or reference to national law and treaties are about relieving, not imposing tax,” said Maarten Hietland, a researcher and lecturer on corporate tax avoidance by multinational corporations.

He was speaking during the ongoing virtual forum for tax justice advocates in Africa, themed, Tax Justice Advocacy: Increasing Participation of Civil Society Organizations (CSOs) and Journalists through Capacity Building whose aim is to empower the target groups with skills to identify, track, and report illicit outflows from the continent.

The training has been organized by Tax Justice Network (TJN)

A Double Tax Avoidance Agreement (DTAA) is a tax treaty signed between two or more countries to help taxpayers avoid paying double taxes on the same income. A DTAA becomes applicable in cases where an individual is a resident of one nation, but earns income in another.

Over the years, tax cheats and high level individuals with Government protection involved in illegal trade have used this means to launder money in countries such as Mauritius, Netherlands, Luxembourg and Switzerland among other tax havens that have ‘soft’ tax policies and do not levy withholding taxes on some passive income, based on domestic law or tax treaties.

Tax treaties with tax havens like Mauritius often allow multinational corporations to strip profits artificially out of victim countries in this case Kenya, but these treaties are used to insert a secrecy turntable into transactions and help Kenyan citizens dodge taxes by what is commonly known as “round-tripping” investments illicitly through shell companies in such countries.

A shell corporation is one that exists only on paper and has no office and no employees, but may have a bank account or may hold passive investments or be the registered owner of assets, such as intellectual property.

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