In search of a new balance: the impact of Belgian tax treaties on developing countries
In the globalized economy, a widespread network of thousands of international treaties decides how and how much governments can tax the incomes of multinationals. Institutions such as the IMF and the United Nations, among others, are increasingly questioning whether these treaties support sustainable development. Belgium has also signed tax treaties with ninety-two countries, almost half of which are with developing countries.
In a bilateral tax treaty, countries make agreements about which country may levy taxes on income streams between these countries, including labour income, as well as interest earnings, dividends or capital gains. On the face of it, there is of course nothing wrong with this. A treaty creates a legal basis for cooperation between tax administrations, which is an important prerequisite in the fight against tax evasion and capital flight. At the same time, such treaties prevent income from being taxed twice by different countries, and provide legal certainty for investors.
In practice, however, such tax treaties open the door to tax evasion. Furthermore, the evidence that they have a positive effect on investment and economic growth is rather limited. Tax treaties create new structural imbalances between the parties concerned, especially when it comes to 'asymmetric' treaties between developed countries and developing countries, in which the latter often get the short end of the stick. This results in a loss of tax revenues. Inequalities in the investment positions, bargaining power and technical expertise, can lead to an uneven distribution of the rights to levy taxes on cross-border income. In this way, developing countries lose much-needed resources for pursuing their own sustainable development. This situation is a clear contradiction of international development consensus, which emphasises enabling countries to mobilise domestic resources for development. The OECD has also taken note of the problem, and has made recommendations to improve treaty policy within the context of its plan to combat tax evasion and avoidance (BEPS).
In this study, we will analyse the impact of Belgian bilateral tax treaties with developing countries. We will both scrutinize Belgian policy and attempt to quantify the impact of these treaties on the public finances of partner countries. Finally, we will make a detailed examination of the specific treaties that Belgium has negotiated with a number of African partner countries in the context of its development cooperation, namely, those with the DRC, Rwanda, Uganda, Morocco and Senegal.