Critical Analysis of the Regulatory Framework Governing Corporate Income Tax Planning in Ethiopia

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The integrity of international taxation has been seriously marred due to tax planning techniques employed by multinational companies (MNCs) resulting in profit shifting from where they have real economic activities to no or low tax jurisdictions. Generally, this paper has tried to examine the depth and breadth of this corporate income tax planning by MNCs, across the globe, in Africa, and Ethiopia. It explored the prototypes of such techniques, how it works, and how it has been/could be/countered. As such, despite the incongruity among the figures reported, this paper has uncovered that a huge amount of revenue is being sheltered from tax authorities. Within this widespread nature of the problem, this paper has also tried to evaluate the existing rules set under the Ethiopian income tax regime to counter corporate income tax planning in light of international standards. The author concludes that although there is an attempt to align these rules with OECD and UN Model Tax Conventions, they did not benefit from the subsequent amendments made by these institutions to their original instruments. The paper also found that the Avoidance of Double Taxation Treaties (DTTs) Ethiopia has signed with different countries as well as fiscal investment incentives granted to investors under investment regime are serving as tools for profit shifting. The paper found that lack of capacity, resources, know-how and information technology to implement the existing rules on corporate tax avoidance have exacerbated the already existing loopholes. Finally, tax planning by MNCs being an international problem, Ethiopia’s failure to be part of critical international and continental initiatives and tax instruments have denied it any cooperation and mutual assistance which could have been of paramount importance to tackle tax planning by MNCs.



Tax Planning in Ethiopia