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requires the approval of Government. Where agreements provide for licensees, care must be taken to ensure that Government has adequate control over them (including immigration control) as well as over the company with which the agreement is made; and moreover that the licensees cannot prevent future amendment of the agreement.
9. One way of ensuring that Government acquires a fair share of the profits of a project might be by taking up a share in the equity. But participation in a particular scheme could well prove an embarrassment in relation to Government's overall land policy or its dealings with other developers. An alternative course would be the formation of a Development Corporation which would participate in various local projects. However, a Development Corporation should be formed only if there is likely to be a sufficient volume of development activities to justify the funds and manpower which will need to be committed and where governments themselves are able to provide or obtain managerial expertise.
Financial
10. The bona fides of prospective developers or promoters of projects should be thoroughly investigated to ensure that their financial backing is sound and that they have or can definitely obtain the resources needed to finance the proposed development. The Foreign and Commonwealth Office will assist in this investigation if needed. If possible, a financial institution should be associated with projects as a balancing partner.
Taxation
11. Governments are advised to exercise great caution in granting tax concessions. Proposals for such concessions can take a variety of forms and it is suggested that in the first instance governments should offer no more than the concessions contained in such pioneer tax legislation as exists in the territory. Where it is considered necessary to go beyond these concessions in order to attract a particularly desirable development, any tax holiday offered should normally be limited to a relatively short period, preferably five and not more than ten years. Similarly in territories where no direct taxation now exists governments should not in general bind themselves to guarantees of future freedom from direct taxes for periods longer than ten years. In considering requests for tax concessions, governments should do their best to satisfy themselves that the development would not take place if the concessions were not given. While it may be considered necessary to give concessions to developers who come in at an early stage, as competition develops the need to offer concessions should diminish.
12. Developers sometimes suggest that a particular part of a territory should be designated as a tax-free area so that not only the developer himself but also his licensees will enjoy exemption from tax. Proposals of this type are undesirable, both from the political and revenue viewpoints. From the political point of view, the creation of a tax-free area within a territory which leads to the inhabitants of the area benefitting from tax exemption whilst the rest of the inhabitants of the territory do not, can casily lead to local political controversy. From the revenue point of view, unless special precautions are taken, it might prove possible for existing taxpayers in the territory granting the concession to route their income through the tax-free area with a consequent loss of tax to the local revenue, which would need to take steps to protect itself against this type of avoidance. If the territory concerned has a Double Taxation Agreement with the United Kingdom or any other country, the effect of the creation of a tax-free area on this Agreement would also need to be examined. Double Taxation Agreements exist in order to reduce the burden on taxpayers who are taxed on the same income in two countries. Most countries would regard it as wrong that an agreement which exists for the avoidance of double
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