African countries that signed tax treaties with Mauritius and other nations considered to be “investment hubs” did not see an increase in foreign direct investment and also suffered reduced tax revenue, an IMF working paper released October 24 concludes.
The paper, co-authored by Sebastian Beer and Jan Loeprick, analyzed the results of an investigation into 41 African economies from 1985–2015.
The authors conclude that there was no increase in investment if a Sub-Saharan Africa nation signed a tax treaty with investment hubs of Mauritius, Malta, Cyprus, Hong Kong, Luxembourg, Singapore, Ireland, Switzerland, the Netherlands, Barbados or the Seychelles. The authors defined investment hubs as countries where the sum of inward and outward FDI stocks exceeds two times domestic GDP.
At the same time, tax treaty-signing African nations suffered reduced rates of income caused by both the reduced income tax rates provided for in the treaty and tax treaty shopping by multinational firms, the paper said.
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