Mozambique’s tax treaty network is depriving the country of hundreds of millions of US dollars in tax revenue each year, particularly through its treaties with Mauritius and the United Arab Emirates (UAE). Seventy percent of all foreign investment in Mozambique is channeled through these tax havens. Research by SOMO in cooperation with the Mozambican Centre for Democracy and Development (CDD) shows that in 2021 alone, the African country lost over 300 million US dollars in 2021 due to tax arrangements with Mauritius and UAE.
How Mozambique’s tax treaties enable tax avoidance
While Mozambique is one of the poorest countries in Africa, it is rich in natural resources. Massive gas deposits were discovered in the war-torn northern province of Cabo Delgado in 2010, attracting billions of US dollars in investment from oil majors like Total Energies and ENI.
By channelling their investments in Mozambique through tax havens Mauritius and UAE, TotalEnergies, ENI and other multinationals take advantage of two highly damaging tax treaties.
Jasper van Teeffelen, Researcher at SOMO: “We estimate the loss in tax revenue due to these two treaties to 315 million US dollars in 2021 alone. This is more than 7% of the country’s total tax revenue, which could have been spent on hospitals, schools, and other public infrastructure.”
Mozambique is currently negotiating a tax treaty with the Netherlands, a tax haven notorious for enabling treaty shopping and aggressively negotiating low withholding tax rates. There is a great risk this treaty will further erode Mozambique’s taxing rights and deprive the country of much-needed tax revenue.
“Together with CDD we call on the government of Mozambique to terminate or renegotiate its tax treaties with Mauritius and the UAE, as well as to review its other tax treaties. Mozambique should be very cautious in signing a treaty with the Netherlands and should ensure such treaty does not erode its taxing rights”, says Jasper van Teeffelen.
Mauritius and the UAE should agree to renegotiate their treaties with Mozambique and allow for provisions that are more beneficial for Mozambique. The Netherlands should not negotiate heavily reduced withholding tax rates with Mozambique and should use the UN Model tax treaty as the basis for negotiations.