In this presentation I set out to explain how MNCs use DTA provisions to avoid/evade tax.

1. Global Wealth Chains: The Kenyan Experience of
the Unwilling Tax Payer
Laila A. Latif
Graduate Student, University of Duisburg Essen
UCSIA INTERNATIONAL WORKSHOP
Taxation and Trust: Legitimising Redistributive Tax Policies
6-8 May 2015, Antwerp

2. Introduction

3. The Argument
• Individuals and companies in Kenya pay taxes.
• However, there is a mismatch between the economic activities carried out in
the country by the MNC and what is reflected in its audited books of account.

4. Reason?
• MNCs will continue to engage with African countries because of their
interest in natural resources and will strive to maximise their share of
profits.
• MNCs activities in Africa are generally profitable.
• The objective of MNCs is to maximise profits on their operating entities or
subsidiaries in Africa and minimise the tax payable to revenue authorities of
African countries.
• They are therefore, involved in creating elaborate structures to move
profits through their subsidiaries to offshore centres to avoid paying
appropriate taxes to African countries.

5. Moving Profits Through Global Wealth Chains
• Global Wealth Chains (GWC)
• Repackaging and disguising wealth in order to move it out of the spheres
of state oversight, regulation and taxation through;
• Shell companies, and
• Subsidiaries

6. GWC and the STEAL Project
• GWC is a theory that explains how wealth is;
• Created; Complexity of transactions
• Maintained, and through Regulation
• Governed. Innovation capacity among suppliers
Explained through the 5 types of global wealth chains

7. Global Wealth Chains: How it works.
• Seabrooke & Wigan, 2014

8. GWC and Information Asymmetry

9. GWC and Global
Value Chains
• The difference between GVC and GWC is
like the Yin to the Yang
• A value chain is a string of companies
working together to satisfy market
demands for a particular product.
• GVC are important in understanding
production; removing trade barriers;
information and activities are transparent
• GWC work to hide, obscure and relocate
wealth.
• GWCs are further facilitated by Double
Taxation Agreements.

10. How certain provisions of DTAs result in GWCs:
The Kenyan Experience
• Permanent Establishment
• Affiliates
• Source rules
• E-Commerce
• Management Fees and Royalties
• Accountability

11. GWCs: Legitimacy Issues
• No law/rule, no wrong: The case of Unilever Kenya Limited versus
Commissioner of Taxes: The state lost the TP case against the MNC
because of the lack of clear TP rules
• Subsidiaries
• Intellectual Property Law on royalties and Contract Law

12. Effect on Citizens Level of Trust: Different Perspectives
from Legal Officers and Farmers at the Coastal Province
• Same directors, different company names; money moving in circles
• Example: Company buying sugar cane from farmers at a different rate than what is
indicated on the invoices and the expense accounts
• Moving goods between parent company and subsidiaries through a tax haven
• Shareholders are companies registered in tax havens
• Inconsistent tax legislation
• Engaging in corruption;
• Bribery at official level;
• Campaign financing

13. Conclusion
• Is a law on access to information sufficient to address the concerns of tax
evasion practices in Kenya?
• Can the slow move towards full decentralisation in Kenya provide room for
MNCs to further evade taxes?