How Mozambique’s tax treaties enable tax avoidance

Publication

Jasper van Teeffelen

Sidonie East

20 March 2023

Over the past 10 years Mozambique has seen a huge influx of foreign investment. The discovery of natural gas reserves has attracted billions of dollars in investment from multinational corporations from countries including China, France, India, and the USA. These investments have the potential to generate considerable revenue for the Mozambican government through taxes, royalties, and production sharing agreements. However, many foreign investors in Mozambique use letterbox companies in tax havens such as Mauritius and the United Arab Emirates to take advantage of their tax treaties with Mozambique.

These treaties were signed before Mozambique’s foreign investment boom and contain very unfavourable conditions for Mozambique. The treaties greatly limit Mozambique’s ability to tax the income generated by these foreign investments.

In this briefing paper we show how multinational companies abuse Mozambique’s tax treaties to avoid taxes, and we give an estimate of how much tax revenue could be lost as a result. We call on the Government of Mozambique to revise its tax treaties and renegotiate or terminate the most harmful treaties, particularly those with Mauritius and the United Arab Emirates. Mozambique is currently negotiating a tax treaty with the
Netherlands, a tax haven notorious for enabling treaty shopping. The Government of Mozambique should be very cautious about signing a treaty with the Netherlands, and we call on both governments to ensure that a new treaty does not deprive Mozambique of much-needed tax revenue.