Administration of double taxation agreements: case study of Uganda-Denmark DTA

Abstract

The globalization of trade and investment has increased the need for tax cooperation through Double Taxation Agreements (DTAs). Globally, DTAs are crucial for eliminating double taxation, curbing fiscal evasion, and encouraging cross-border investment (OECD, 2024; IMF, 2021). Yet their administration is difficult in developing countries where weak enforcement and limited institutional capacity heighten risks of treaty abuse, base erosion, and profit shifting (Avi-Yonah, 2019). In East Africa, DTAs facilitate integration under the EAC and AfCFTA, but little empirical research addresses their administration in bilateral settings marked by asymmetries, such as the Uganda–Denmark treaty (Kimenyi, 2019). Signed in 2000 to offer relief through credits, information exchange, and dispute resolution, this DTA has raised concerns of exploitation by multinationals especially on dividends, interest, and royalties, causing substantial revenue leakages (Tax Justice Network, 2022). This study examines the administration of the Uganda–Denmark DTA, focusing on enforcement mechanisms, institutional capacity, and revenue outcomes. Guided by Institutional Theory and Tax Compliance Theory, the study investigates how Uganda Revenue Authority’s institutional arrangements and enforcement practices shape treaty effectiveness, and how these interact with taxpayer behaviour to influence compliance and revenue collection. A quantitative design was adopted, with data collected through structured questionnaires administered to URA officials and practitioners directly engaged in administering the DTA. The findings indicate that although the Uganda–Denmark DTA has reduced instances of juridical double taxation and encouraged some investment flows, its administration is constrained by ambiguities in treaty provisions on Permanent Establishment and withholding tax rates, limited technical expertise within URA, weak exchange of information utilization, and insufficient anti-abuse safeguards. Taxpayers often face procedural complexities in accessing treaty benefits, while the government experiences persistent revenue leakages linked to treaty shopping and profit shifting. The study concludes that Uganda’s current administrative capacity is inadequate to fully safeguard its taxing rights under the DTA. Strengthening the treaty unit at URA, adopting digitalized and transparent procedures, enhancing staff expertise, and renegotiating the treaty to incorporate robust anti-abuse provisions (e.g., Principal Purpose Test and limitation-onbenefits clauses) are critical steps to improving administration. By bridging global theory and local practice, this research provides timely insights into how Uganda can reform DTA administration to strike a balance between investment promotion and revenue protection

Subject Keywords: dDouble taxation agreements; Tax administration; Uganda, Denmark; DTA