New report 11.11.11: Belgian tax treaties cost developing countries millions every year

Added 25 Feb 2016
Guest post by Jan Van De Poel, Policy Officer at 11.11.11.

As a consequence of dozens of unbalanced tax treaties, negotiated by the Belgian government, developing countries miss out on at least 35 million euro on tax revenue each year. A new 11.11.11-report looks at the impact of these treaties on developing countries and finds that treaties have a negative impact on developing countries, dependent of their negotiating powers. While the stated objective of these treaties is to prevent double taxation, they often undermine developing countries capacity to invest in sustainable development. 11.11.11 urges Belgian authorities to review these treaties.

Worldwide, Belgium has signed over ninety tax treaties, 41 of which with developing countries. Their stated objective is to make sure Belgian companies are only taxed once when they shift income between the countries in which they operate. 11.11.11’s research looked at 41 tax treaties with developing countries and found that 28 treaties include reduced withholding tax rates for income from dividends and interests Belgian companies receive from subsidiaries overseas.

35 million every year
Developing countries miss out on 35 million euro each year as a consequence of reduced withholding tax rates while their investment needs in essential services such as schooling and health care are soaring. This amount is only the tip of the iceberg as double tax treaties are known to facilitate other forms of tax avoidance and evasion. Belgian tax treaties do often not contain effective anti-abuse measures allowing multinationals to use these treaties to shift profits to tax havens. This is only one reason why the OECD and European Commission have recommended to include such anti-abuse measures in developed countries’ model treaties.

Less power, less taxes
The research finds that the reduction of withholding tax rates on passive income differs strongly between different treaty partners. This difference is largely explained by the relative power differentials between jurisdictions. A country such as Morocco managed to get a much better deal than a relatively small economy such as DRC in their negotiations with Belgium. DRC loses out on 7.8 million euro which is equivalent to roughly 8% of Belgian ODA to the country. This is only one reason why the IMF has called these treaties as ‘inherently discriminatory’.

Based on these findings, 11.11.11 urges the Belgian government to review its treaty policy vis-à-vis developing countries. This review needs to be guided by a comprehensive and independent impact assessment of the existing treaties with developing countries. Belgium needs to stop using an OECD-based model for its negotations with developing countries as it is systematically harmful to developing countries’ tax base. Moreover, Belgium should stop signing such full-fledged tax treaties with tax havens as they open the door for tax abuse.

Read the full report.