Tax treatment of gains on the sale of assets in the extractive sector in DRC: A much-needed mix of human rights, sustainable development and legal certaintyPosted: 23 July, 2018
Author: Eric Ntini Kasoko
Prospective Independent Tax Advisor; Researcher
The extractive industry consists of operations of exploration and/or exploitation of nonrenewable natural resources, especially gas, petroleum and mining operations. A distinction is to be made between the hydrocarbon sector (which comprises petroleum and gas activities) and the non-hydrocarbon sector (which relates to mining activities). Mineral-rich countries may choose to enact an all-encompassing piece of legislation to regulate both sectors. They may also opt for two or even three different pieces of legislation, each designed to regulate a specific sector.
There are currently over three thousand double taxation treaties (DTTs) worldwide. DTTs are agreements between two states that are designed to relieve international double taxation and prevent fiscal evasion with respect to taxes on income. Double taxation occurs when the same income is subject to two, or even more, taxing jurisdictions, which may result in an impediment to cross-border trade and investment.
When concluding a DTT, the two sovereign states involved draw inspiration mainly from the OECD Model Tax Convention on income and capital (OECD Model). However, DTTs can also be based on the so-called UN Model, which is supposed to be a suitable framework for DTTs between developing countries and developed countries. Since DTTs have been traditionally viewed as one means of increasing the movement of foreign direct investment (FDI) to the developing world, African countries would find it advantageous, at least prima facie, to multiply such agreements with a country like China.
“You can have a Lord, you can have a King, but the man to fear is the tax collector”- Sumerian proverb.
Today, fearing the tax man does not seem to hold true when it comes to the protection of taxpayers’ rights in most European countries. Indeed, for several decades now, taxpayers’ rights in Europe have been benefiting from internationalisation of human rights process. Under the impulse of case law from the European Court on Human Rights (ECHR) and the European Court of Justice (ECJ), human rights have become a fundamental part of taxation. While Africa is running the marathon of attracting and boosting private investments, it may be vital to stimulate the interaction of these two areas of law as a means to strengthen the rule of law on the continent.
In Africa, tax is primarily regarded as a civic duty. Article 29 (6) of the African Charter of Human and Peoples’ Rights (hereinafter referred to as “the Charter”) states that “the individual shall also have the duty (…) to pay taxes imposed by law in the interest of the society”. It follows in particular that the state has the right to levy taxes on its citizens, whether individual or corporate. In contrast, citizens are entitled to enjoy property rights in respect of Article 14 of the Charter or any other pertinent instrument relating to international human rights law. Since the state and its citizens have opposing interests, a balance is obviously required between the individual’s right to property and the state’s right of establishing taxes. In others words, in case of a dispute regarding taxation, the judge should be able to censure any excessively high tax burden on citizens.