The Guyana Revenue Authority (GRA) is currently preparing recommendations for the Ministry of Finance to have certain aspects of signed tax agreements with other territories renegotiated and updated, according to Commissioner-General Godfrey Statia, who says this country ought to be cautious when entering tax agreements.
“I have seen too many past agreements negotiated without inputs from tax technicians, which has led to the transfer of wealth from small developing countries to the developed ones,” Statia said.
Speaking yesterday at a one-day workshop on the CARICOM Double Taxation Agreement (DTA) convened by the law firm of Ram and McRae at the Georgetown Club, Statia pointed out that the country’s economy has changed tremendously since the present treaties were signed. It is against this background that GRA is making the recommendations to the Finance Ministry.
Every agreement allows for termination after a specific period of time with notice.
Statia noted that in addition to the DTA with CARICOM, Guyana also has active agreements with Canada and the UK and a Tax Information Exchange Agreement (TIEA) with the United States. There are also ongoing negotiations with at least four countries, an agreement with Kuwait which is yet to be signed and a Memorandum of Understanding (MOU) with the United Arab Emirates regarding a DTA, which has been approved by Cabinet but is yet to be sent to the National Assembly for approval.
Statia revealed that since the country’s oil discovery, there has been a “flurry of activity in this area, which have now forced the authority to consider setting up a special international tax section that will deal exclusively with such matters.”
He added, “Many countries, all of them more developed than Guyana, have approached the Guyana Government with a view to negotiating such agreements. For someone actively involved in negotiations of these Double Taxation agreements, and the fact that this a virtually new area to my legal team, I am sure you will understand how cautious we are when dealing with our counterparts, and for very good reasons.”
Statia said that “extreme caution” is exercised for a variety of reasons and he said it is his opinion that tax treaty negotiations should ensure multinationals are taxed where economic activities take place and where value is created. He explained that a key aim of DTAs is to prevent the same income from getting taxed twice. However, he noted that as a negotiator he has found that it has led to a world of widespread double non-taxation where “income effectively gets taxed nowhere, and allows for tax evasion and avoidance.”
And another reason to be cautious, according to Statia, relates to the taxing jurisdiction and whether it should be the jurisdiction that is the source of the income (the one that hosts the inward investment) or the jurisdiction where the investor is resident. He pointed out that tax treaties restrict the right of states to tax foreign investors and foreign-owned companies. While the idea is to encourage international investment between the countries concerned, Statia said developing countries like Guyana are generally only importers of capital, thereby leading to an unequal relationship.
As to whether Guyana should follow the Organisation for Economic Cooperation and Development (OECD) or the United Nations (UN) model, Statia opined that the former favours rich countries where most multinationals are resident, while the latter gives somewhat greater taxing rights to source countries, which are typically developing countries that receive inward investment. He recommended that Guyana adopt a mixture of both that suits the peculiarity of its situation.
Statia also recommended that in certain instances Guyana should only sign TIEAs and not DTAs with tax haven countries as if that is not done the country will see its tax dollars leak offshore through abuses of DTAs by multinational investors. This is because treaties do not provide an adequate basis for adequate tax information exchange between developing and developed countries, and in particular with secrecy jurisdictions.
“Multinationals usually channel investments through intermediary companies formed in convenient jurisdictions so they can take advantage of treaty-shopping,” Statia said. He said treaty-shopping allows for low or zero tax pathways through the international tax system with some countries deliberately facilitating these pathways by setting themselves up as conduit countries. This is done by the signing of treaties that favour multinationals and the passage of legislation that encourages the formation of ‘holding companies’ or ‘international business corporations.”
The workshop was held for accountants, tax specialists, regional companies doing business in Guyana and Guyanese companies or individuals considering the CARICOM market.
Ram, in his opening comments, expressed disappointment at the CARICOM Secretariat, which he described as the custodian of the treaty, for not taking up the invitation, despite several calls, to be a part of the workshop. He was also disappointed at companies such as DDL and Banks DIH for also not accepting the invitation to participate.
