ANALYSIS OF DOUBLE TAXATION ON FOREIGN INVESTMENT IN UGANDA

Table of contents

Declaration.................. . ..................................................................................... ii

Approval ............................................................................................................. iii

Dedication .......................................................................................................... iv

Acknowledgement ............................................................................................... v

Table of contents ................................................................................................ vi

Abstract ............................................................................................................ viii

CHAPTER ONE ..................................................................................................... 1

INTRODUCTION TO THE STUDY ........................................................................... 1

1.0 Introduction ................................................................................................... 1

1.1 Background of the study ................................................................................. 1

1.2 Statement of the Problem ............................................................................... 5

1.3 Purpose of the Study ...................................................................................... 5

1.4 Objectives of the Study .................................................................................. 6

1.5 Research Questions ........................................................................................ 6

1.6 Scope of the Study ......................................................................................... 6

1. 7 Significance of the study ................................................................................. 7

1.8 Literature Review ........................................................................................... 7

CHAPTER TWO . . . . . . . . . . . . . ................................................................................... 12

UNDERSTANDING OF DOUBLE TAXATION IN UGANDA'S TAX TREATY NETWORK. 12

2.0 Introduction ................................................................................................. 12

2.1 Investment promotion and 'tax sparing' ......................................................... 12

2.2 Relieving double taxation .............................................................................. 14

2.3 Treaties as tax incentives ............................................................................. 15

2.4 Fiscal cooperation ........................................................................................ 19

CHAPTER THREE ............................................................................................... 22

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CHALLENGES IN IMPLEMENTING DOUBLE TAXATION TREATIES .......................... 22

3.0 Introduction ................................................................................................. 22

3.1 Uganda's treaty network is much less favourable than the UN model treaty ..... 22

3.1.1 Withholding tax rates ................................................................................ 23

3.1.2 The definition of permanent establishment ................................................. 25

3.1.3 Capital gains ............................................................................................. 26

3.2 There is evidence of significant revenue loss due to preventable treaty shopping

........................................................................................................................ 26

CHAPTER FOUR ................................................................................................. 30

BENEFITS AND PROBLEMS OF DOUBLE TAXATION MODEL TREATIES .................. 30

4.0 Introduction ................................................................................................. 30

4.1 Uganda and the Uf\' oodel ............................................................................ 30

4.2 Uganda and the OECD model ........................................................................ 31

4.3 Uganda and the EAC model .......................................................................... 32

4.4 Uganda and the COMESA model ................................................................... 34

4.5 Uganda needs an ambitious new model treaty ............................................... 35

CHAPTER FIVE .................................................................................................. 36

CONCLUSION AND RECOMMENDATIONS ..... : ...................................................... 36

5.0 Introduction ................................................................................................. 36

5.1 Conclusion ................................................................................................... 36

5.2 Recommendations ........................................................................................ 37

References ........................................................................................................ 39

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Abstract

To increase inward foreign direct investment (FDI), policy-makers increasingly resort to the ratification of double taxation treaties (DlTs). However, the effectiveness of DlTs in inducing higher FDI is still open to debate, as the empirical evidence of existing studies is anything but conclusive. In contrast to earlier approaches, we use a largely unpublished '· Jtaset on bilateral FDI stocks, covering a much larger and more representative sample of host and source countries. Controlling for standard determinants of FDI and employing various econometric specifications, our results indicate that DlTs do lead to higher FDI stocks and that the effects are substantively important as well.

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