Question Tag: International trade

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  • 5 Marks

TF – May 2018 – L3 – Q3c – Business income – Corporate income tax

Discuss five benefits of the Double Taxation Agreement between Ghana and Mauritius.

The Government of Ghana recently signed a Double Taxation Avoidance agreement (DTA) with the government of Mauritius at Port Louis, Mauritius.

Speaking at a joint press conference after the signing ceremony, Ghana’s Vice President, Alhaji Dr. Bawumia, said:
“We have seen the manifestation of the first fruits of this Joint Permanent Commission with the signing of the historic double taxation agreement between Ghana and Mauritius, …, and we believe this is just the beginning of our cooperation.”

Required:
Discuss FIVE benefits likely to result from the Double Taxation Agreement.
(5 marks)

The benefits of the Double Taxation Agreement (DTA) are as follows:

  • Encourages Trade and Investment: A DTA creates an environment of fiscal certainty, which encourages trade and investments between the contracting states.
  • Prevents Double Taxation: It ensures that businesses and individuals are not taxed twice on the same income, reducing the overall tax burden.
  • Administrative Cooperation: It provides mechanisms for cooperation between the tax authorities of both countries, improving tax enforcement and compliance.
  • Prevents Tax Evasion: The agreement facilitates the exchange of information between the two countries, helping to prevent tax evasion and avoidance.
  • Non-Discriminatory Treatment: It helps prevent discriminatory taxation of foreign nationals and enterprises, fostering equal treatment under tax laws.

(5 marks)

  • 2 Marks

AT – March 2023 – L3 – Q3e – International taxation

Assess the reasons for countries entering into tax treaties and their importance in reducing tax barriers.

Countries have enjoyed tax treaties while others have criticised the whole idea of tax treaty arrangements. Treaties may be bilateral or multilateral. Many countries weigh the benefits of treaties before they enter into them in order not to lose out.

Required:
Assess the rationale for tax treaties. (2 marks)

The rationale for countries entering into tax treaties includes the following:

  1. Avoidance of Double Taxation:
    • One of the primary purposes of tax treaties is to prevent double taxation. Without a treaty, income earned by individuals or businesses in one country may be subject to tax in both the country of residence and the source country. Tax treaties establish which country has the taxing rights and provide relief from double taxation, either through exemptions or tax credits.
  2. Promotion of International Trade and Investment:
    • Tax treaties facilitate cross-border trade and investment by providing certainty and reducing the tax barriers faced by investors. The treaties set clear guidelines on the allocation of taxing rights between countries and may reduce withholding taxes on dividends, interest, and royalties. This creates a more favorable environment for international business and economic cooperation.

In summary, tax treaties are designed to avoid double taxation and promote international trade and investment by providing clear tax rules and reducing tax barriers for cross-border activities.

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