Irish officials overrode concerns from the Department of Foreign Affairs in striking a trade deal with Ghana that pushes down the levels of tax that the African country can impose on Irish investors.
The double taxation agreement, which was the subject of prolonged negotiation, allows Irish companies investing in Ghana to benefit from lower rates of tax on royalty and other income.
Figures from Ghana depict Ireland as, by a considerable margin, the largest single source of foreign direct investment into the African country in 2016, with investment having risen from a negligible amount in 2011 to $2 billion in 2014 to around $4.5 billion (€4.2 billion) just two years later.
The signing of the deal was delayed by Ghana's refusal to agree certain final elements of the document. These are understood to relate to withholding tax of royalties and dividend and interest income.
Prior to the agreement, Ghana levied 15 per cent taxation on royalty payments and 20 per cent on technical service fees.
In the end, Ghana agreed a “compromise” rate of 8 per cent on royalties – equal to the lowest rate offered in tax deals with any developed country – and 10 per cent on technical fees.
But, to get the agreement over the line, it is understood it was also required to include a “most favoured nation clause” which mandates that Ireland’s reduced rate on withholding taxes would be reduced to match any lower tax rate subsequently agreed by the Ghanaians in subsequent tax deals.
Christian Aid , which has lobbied against what it considers unjust tax policies, highlighted the Ghana accord in a report alleging $416 billion is lost annually by poorer countries due to what it calls "tax abuses". It was timed to coincide with this week's UN General Assembly which is looking at measures to address world poverty.
“It is difficult to justify pursuing this damaging treaty when all the evidence suggests it will not in itself promote investment in Ghana but will certainly hurt Ghanaian efforts to raise badly needed taxes,” said Sorley McCaughey, Christian Aid head of policy and advocacy.
The Ghanaian negotiators were placed under a measure of pressure by officials in Ireland to agree the terms of the deal in time for it to be signed during an Irish trade mission to the African state in late 2015, according to a series of emails released under Freedom of Information.
In the event, the deal was not ready in time and was signed later. It was ratified by the Oireachtas last year but awaits approval form the Ghanaian side.
Minimise Tax
Officials in the Africa Section of the Department of Foreign Affairs noted in 2012 that the model Ireland follows in negotiating double taxation agreements "generally favours residence-based rather than source-based taxation".
This, it said, meant that “the effect of many double taxation agreements, is that capital flows from developing to developed”economies.
“Countries with these treaties can be sued to channel money between jurisdictions to minimise tax payable, particularly if withholding taxes are minimised to encourage investment – a practice which would clearly not be encouraged in relation to developing nations.”
Junior minister Michael D’Arcy was forced last November to correct the Dáil record, after asserting on a number of occasions that Ghana had approached Ireland seeking the treaty.
In fact, as the Minister conceded, the negotiations were initially proposed by the Irish side. As far back as 2012, Ireland had targeted Ghana, along with Botswana, as countries of strategic importance in relation to the establishment of double taxation agreements. Nigeria and Mozambique were two also targeted for tax deals.
