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GLOBAL OUTLOOK NEWS


Sri Lanka’s $15bn SEZ


Speaking at the Sri Lanka Investment Forumon June 8, prime minister Mahinda Rajapaksa said that his government is taking measures to attract $15bn to the Colombo Port City project over the next five years. This follows Sri Lanka’s


parliament passing the Colombo Port City economic commission bill on May 20, in a move to kickstart the country’s billion-dollar Chinese- backed special economic zone. The bill, which aims to establish


a commission to grant registrations, licenses and other approvals for businesses to operate, passed with amendments by a majority vote. Part of China’s Belt and Road


Initiative, the project, which is a collaboration between the government of Sri Lanka and China Communications Construction Company, had an initial investment of $1.4bn and is expected to grow to $15bn by the time of completion. Spanning 269 hectares, it is to be


built on reclaimed land connected to the capital’s business district and will be the largest private sector development on the island.■ SETHO’FARRELL


Nigeriaturns fourairports intoSEZs


President Muhammadu Buhari has approved four Nigerian airports as special economic zones (SEZs), the minister of aviation Hadi Sirika revealed last month via his Twitter account. “I am very glad to announce that


[the president] has approved our four international airports as SEZs,” he tweeted. The approved airports are


Murtala Muhammed International Airport, Lagos; Mallam Aminu Kano International Airport, Kano; Nnamdi Azikiwe International Airport, Abuja; and Port Harcourt International Airport, Rivers state.■ SETHO’FARRELL


June/July 2021 www.fDiIntelligence.com A


ninitiative by the OECDto tackle base


erosionandprofit shifting (BEPS) bymultinational corporations (MNCs) has


promptedcountries aroundthe world toamendthe preferential tax regimes offered by their special eco- nomic zones (SEZs),particularly thoseelements that couldbe labelledas harmful tax competition. Withinthesamecontextofthe


BEPSinitiative,theOECD-G20also cameupwiththeGlobalAnti-Base Erosion(Globe) framework,callingfor theintroductionofaglobalminimum taxforMNCs—aproposalthatcan alsoaffectSEZs.Theproposalis currentlybeingdiscussedbythe139 countriesparticipatingintheBEPS initiative.Morerecently,JoeBiden’s administrationintheUShassubmitted itsownproposalforaminimumtax. UnliketheBEPSprojectthat


addressesharmfultaxcompetition,the GlobeandtheUSproposalsaddressall typesoftaxcompetition.Bothwould mandateallcountriestoeffectively levyaminimumtaxrate,withpropos- alsvaryingfrom12.5%to28%. Oneof theconcerns is towhat


extent theminimumtax will result in less investment indevelopingcoun- tries, sincecompaniescarryingout investment in thesecountriesmay nothaveareturnoninvestmentthat allows thepaymentof this tax. This is thecaseof investmentscarriedoutin anSEZthatbenefits fromareduced tax rate incomparisonto thecoun- try’sdomestic tax rate. The use of SEZs has been


promoted by countries not only to support the development of exports, foreign direct investment (FDI) and local employment, but also to promote investment and competi- tiveness in specific (or underdevel- oped) geographical areas. Since there are no exceptions to the appli- cation of the minimumtax rate, it could be reasonably expected that all business carried out overseas will have to comply. Butwhatwill investorsdoif the


reducedrate in theSEZis belowthe minimumtax rate—for exampleif theSEZwas5%andminimumtax ratewas25%?Would they leavethe country, orpay the differenceto the countrywherethe investor is head- quartered?Andif so,would the reve- nueforegonebythedeveloping coun- try thenbetransferredto thedevel- opedcountry? At the time of writing, these


proposals are still being discussed; however, it is clear that there is a need formore clarity on howthese proposals will be shaped. It is unknownhowto mitigate the impact of a minimumtax on FDI, and how countries, including those that have modified their SEZ regimes in the past, can benefit fromthese changes. Whether this couldmean the end of SEZs everywhere also remains to be seen.■


IrmaMosqueraisassociateprofessorof taxlawatLeidenUniversity,the Netherlands,andleadresearcherat GlobTaxGov,anERC-fundedprojectthat investigatesglobaltaxgovernance.


9 FREE ZONE FOCUS


CanSEZssurvivea globalminimumtax?


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