Tax Treaties Research Articles

The Quiet Evolution in International Tax: Domestic Law and Double Taxation

This article describes the respective roles of international tax law (predominantly tax treaties) and domestic tax law and their relationship with each other. This is a complex and interdependent relationship, with treaties, as special law, generally overriding domestic law. The article discusses the founding principle of tax treaties preventing double taxation, reflecting the original purpose of tax treaties. Subsequent developments over time have vigorously established the second principle of treaties: that the purpose of tax conventions is also to prevent tax avoidance and evasion. Such an increasingly important principle heralds the rise of anti-avoidance rules, prevention of abuse and the preservation of domestic taxing rights. The thesis in this article is that domestic law has prevailed against the more specialized law of treaties and at an increasing rate. This evolution has occurred in situations where the special law of treaties is “watered down” by the principle that treaties should not be allowed to be abused or in situations where they facilitate tax avoidance. What are the implications of this trend on the development of international tax policy? The article reflects on the respective roles of international and domestic law and guides us to suggestions on how to preserve important international tax principles in good faith and limit expedient domestic tax law changes when they are not driven by taxpayers’ abusive actions.

The Subject-to-Tax Rule in East Africa: Is it Worth it?

The two-pillar approach focusses on BEPS issues in developing countries to a greater extent than preceding OECD agreements. In particular, the Subject-to-Tax Rule (STTR) is intended to address BEPS risks in low-income countries’ tax treaties. BEPS is undoubtedly a critical issue in East Africa since corporate income tax is an unusually important source of tax revenue in Africa. This article analyses the STTR alongside treaties and domestic law to understand the likely impact of the rule in the region. It also considers the diverse domestic policy landscapes to explore whether the STTR is an attractive measure for countries in East Africa. The author believes that implementation of the rule will be complex, challenging already stretched tax administrations. Furthermore, some low-income countries may prefer not to engage with reforms that increase source taxation. The analysis concludes that any hopes that the STTR will mark a major step in addressing BEPS in this part of the world are likely to be disappointed, but it could form part of a portfolio of measures for some specific countries.

The Subject-to-Tax Rule in East Africa: Is It Worth It?

The two-pillar approach focusses on BEPS issues in developing countries to a greater extent than preceding OECD agreements. In particular, the Subject-to-Tax Rule (STTR) is intended to address BEPS risks in low-income countries’ tax treaties. BEPS is undoubtedly a critical issue in East Africa since corporate income tax is an unusually important source of tax revenue in Africa. This article analyses the STTR alongside treaties and domestic law to understand the likely impact of the rule in the region. It also considers the diverse domestic policy landscapes to explore whether the STTR is an attractive measure for countries in East Africa. The author believes that implementation of the rule will be complex, challenging already stretched tax administrations. Furthermore, some low-income countries may prefer not to engage with reforms that increase source taxation. The analysis concludes that any hopes that the STTR will mark a major step in addressing BEPS in this part of the world are likely to be disappointed, but it could form part of a portfolio of measures for some specific countries.

Impact of the Implementation of Multilateral Convention on Tax Treaty by the Adoption of Organization for Economic Co-operation and Development (OECD) in collaboration with the G02 countries on Base Erosion and Profit Shifting (BEPS)

Impact of the Implementation of Multilateral Convention on Tax Treaty by the Adoption of Organization for Economic Co-operation and Development (OECD) in collaboration with the G02 countries on Base Erosion and Profit Shifting (BEPS)

Interpretation and Application of General Anti-Avoidance Rules after BEPS and ATAD: Nordic Perspectives

This paper compares general measures against tax avoidance and the design of general anti-avoidance rules (GAARs) in Denmark, Finland, Norway, and Sweden. It focuses on aspects such as tax benefits, tax purposes, economic substance, and breaches of legislative purpose. The paper also examines potential compliance issues between national GAARs, tax treaties, and the European Union’s Anti-Tax Avoidance Directive (ATAD). The analysis highlights variations in how the national GAARs apply economic substance considerations and the level of pragmatism allowed when assessing conflicts with the purpose of the circumvented legislation. Additionally, it shows that differences in the wording of the GAARs, such as requirements related to tax purposes, do not necessarily result in practical differences due to other GAAR elements reducing or nullifying them. For similar reasons, the authors conclude that compliance issues between the national GAARs and the ATAD GAAR’s requirements are unlikely, despite some differences in wording. Whilst focusing on the Nordic region, the paper offers insights relevant to broader international contexts, as the diverse approaches, distinctions, and issues identified mirror tax developments worldwide.

Global Mobility and Double Taxation. Proposals for Improving the Efficiency and Effectiveness of Tax Treaties

Global Mobility and Double Taxation. Proposals for Improving the Efficiency and Effectiveness of Tax Treaties

Editorial: A Fast-Track Instrument to Update Developing Countries’ Tax Treaties

Editorial: A Fast-Track Instrument to Update Developing Countries’ Tax Treaties

Building the Gateway: Why the Two Pillars Need Each Other

There is a reason the OECD proposed two pillars for its gateway to a better tax future. A gateway requires both pillars, and neither can stand without the other. Pillar 2 is a fait accompli, but it needs countries to implement Pillar 1 as well because in the absence of a clear sourcing rule there is no limit to countries implementing the Qualified Domestic Minimum Top-Up Tax (QDMTT), which would turn off the other parts of Pillar 2 and potentially result in double taxation. Pillar 1 is not going forward in the absence of a Multilateral Tax Convention (MLC), but it can be implemented unilaterally, although that would require overriding existing tax treaties.

"Context as a Reason for Exclusion of the Application of Domestic Tax Laws Under the Tax Treaty"

"Context as a Reason for Exclusion of the Application of Domestic Tax Laws Under the Tax Treaty"

A New Model Tax Convention for a World of Increasing Remote Work and Mobility of Individuals

Model Tax Conventions have been the subject of eternal and very heated discussions regarding corporate income taxation, particularly in the recent times as a result of the BEPS Project and its epilogue (the Pillars). However, very little attention has been paid to the challenges and risks posed to tax treaties by the generalization of remote work (a phenomenon that is on the rise, most notably after the 2020 pandemic) and the consequent increased opportunities for individuals to move across jurisdictions, temporarily or permanently relocate in new jurisdictions or even embark on a nomadic life. In the present paper, the author will attempt to provide an in-depth reflection on the impact that these phenomena may trigger in the application of tax treaties on the taxation of income of both individuals and linked entities. They will subsequently propose adjustments to the Model Tax Conventions such as reviewing the tie-breaker rules for resolving dual residency issues (article 4), reinterpreting or modifying the permanent establishment concept for the taxation of business profits (article 5), assessing the elimination of the independent personal services clause (article 14) and revising the rules on the taxation of employment income (article 15). In all cases, specific and near final proposals will be provided for the redrafting of the relevant articles.

Factors Militating against the Efficacy of the Mutual Agreement Procedure: A Comparison between South Africa, Kenya, Uganda and Ghana

The effective resolution of transfer pricing disputes has been identified as one of the primary challenges to eliminate double taxation and/or double non-taxation as well as to enhance the free flow of trade and investment. This article investigates the unique challenges faced by selected African countries, including South Africa, Kenya, Uganda and Ghana, which militate against the use of the mutual agreement procedure (MAP) as a preferred Organisation for Economic Co-operation and Development (OECD) transfer pricing dispute resolution mechanism. The research used a qualitative legal review of existing literature in the selected regimes by comparing the domestic tax law framework in these countries. Transfer pricing manipulation is a significant source of illicit financial flows of capital as identified in the research by Global Financial Integrity on Africa, which drew from Ghana, Kenya and Uganda as case studies. South Africa and Kenya are considered as the gateways to Africa with many multinational enterprises (MNEs) taking residence in them before expanding to the rest of Africa. The article focuses specifically on a number of guidelines that should be in place for the effective use of the MAP in the resolution of tax treaty disputes. It also demonstrates how the absence of guidelines, or the lack of clarity thereof, discourages both taxpayers and revenue authorities from effectively using the MAP to resolve transfer pricing disputes. The absence of guidelines has resulted in many aggrieved taxpayers opting to approach the courts as opposed to using the MAP as a mechanism to resolve tax treaty disputes. Furthermore, it highlights the importance of how resolved transfer pricing disputes eliminates double taxation. The article recommends that the same benefits enjoyed under the domestic dispute resolution process be incorporated into the MAP. It also makes recommendations on how jurisdictions with a low tax treaty network can address this challenge to enable them to effectively use the MAP as a tax treaty dispute resolution.

A Case for the Need to Improve the Unilateral Double Taxation Relief for Estate Duty in South Africa

This article aims to address a specific problem statement, namely how the unilateral relief under the Estate Duty Act can be enhanced to alleviate the potential hardship of double estate taxation on cross-border estates. Double taxation is a common occurrence when a person owns properties in more than one country, which become part of their estate at the time of death and liable for estate tax. The limited estate tax treaty network causes countries to reconsider their unilateral relief provisions under their domestic legislation. South Africa faces the same challenge under the Estate Duty Act. This article highlights the areas where clarity is needed in relation to the type of foreign death duty that may qualify for tax relief, such as the scope of qualifying foreign property, the exchange rate applicable and the date on which the conversion should be done, as well as the limitations and conditions of the unilateral relief available under the Estate Duty Act. Insights are provided that could be considered for possible amendments to the Estate Duty Act to provide greater clarity and certainty in calculating the estate duty liability payable in South Africa.

Preventing Tax Base Erosion from Tax Treaty Abuse For SDGS in Vietnam

Objective: Tax treaties represent an important aspect of the international tax rules of many countries, especially in globalizing era. The taxing rights of the states is one of the biggest issues in cross border transactions because it decides the budget revenue deriving from tax. Tax base, tax base erosion and tax base erosion prevention are topics that have received a lot of attention recently in Vietnam in order to protect government’s revenue for sustainable development goals (SDGs). Method: By analyzing the current status of Vietnam's double taxation agreements (DTAs), the authors assessed the current situation and identifying risks of tax base erosion from abusing Vietnam's DTAs. The study focuses on analyzing the indicators to assess the content of DTAs such as the Source Index (SI), Permanent Establishment Index (PEI) and Withholding Tax Index (WHT) of Vietnam’s DTAs with the ones of groups of countries. Results: The authors found that there are loopholes in DTAs creating conditions for abuses of the terms of the agreements and causing tax base erosion in Vietnam. Comparing to the average level of developing countries, the DTA system of Vietnam is higher, however, the biggest limitation and the biggest risk from the system of DTAs are these agreements are agreements signed by Vietnam with the countries/territories that have the lowest scores and are in the group of countries/territories with the largest amount of investment capital in Vietnam. Contribution: The study makes some recommendations for Vietnam to prevent tax base erosion from tax treaty abuse by reviewing and considering negotiating to update the content of the bilateral tax agreements, promoting participation in multilateral tax agreement and improving efficiency of tax audit.

The Interaction between Directives and Tax Treaties: Three Case Studies

This article applies the findings of the author’s doctoral thesis, The Effect of Directives in the Area of Direct Taxation on the Interpretation and Application of Tax Treaties, which was awarded the International Fiscal Association’s 2024 Mitchell B. Carroll Prize, to three case studies of conflicts between directives and tax treaties.

System of sources and principles of international tax law

In international cooperation on taxation, countries strive to achieve equality in international taxation and, thus, create the basis for a fair international tax system. Justice exists in an international system of taxation only when states allocate taxing powers among themselves in a manner consistent with dominant views of justice internationally. A fair international tax system will not exist until there is some international consensus on how countries should allocate taxing powers among themselves. International cooperation allows countries to improve the coordination of tax policy at the international level. We can talk about several types of coordination. For example, one type aims to make a country’s tax system more similar to others - in other words, to harmonize taxes. Other types aim to establish minimum or maximum tax rates to avoid double taxation of cross-border income streams, prevent transfer pricing, coordinate arrangements with competent authorities and limit harmful tax competition. The current official agreements mean business activities through a permanent establishment and give the source country the primary right to tax profits from this operation. The country of residence is obliged to exempt these profits from tax, at least to the extent that they were taxed by the country of source. A tax treaty also often provides for an exemption from taxation of the employee’s income from personal services provided the employee is in the country for no more than a specified period of time and the compensation is received by a non-resident employer without a permanent establishment. The treaty usually reduces or eliminates withholding tax on at least some items of investment-type income, such as interest, dividends, rents and royalties, that are not attributable to business carried on through a permanent establishment. The tax treaty also provides that the country of residence can tax capital gains.

Anti-abuse Rules In Tax Treaty Under BEPS Action 6------Based on China

Anti-abuse Rules In Tax Treaty Under BEPS Action 6------Based on China

Bilateral tax treaties network and global value chain position

This study investigates the effect of bilateral tax treaty (BTT) network centrality on countries’ global value chain (GVC) positions using a panel dataset of 62 economies from 2007 to 2021. Employing an instrumental variable approach, we find that higher BTT network centrality reduces a country's overall GVC position, with heterogeneous effects across sectors and participation types (forward and backward). The results suggest that increased BTT network centrality may facilitate production fragmentation and enable tax planning strategies (treaty shopping), leading to a distortion in the distribution of value-added across countries in GVCs.

Multilateral Tax Treaty Revision to Combat Tax Avoidance: On the Merits and Limits of BEPS’s Multilateral Instrument

Abstract Since 2015, more than 140 countries have cooperated in the OECD’s “Base Erosion and Profit Shifting” (BEPS) project to combat multinational tax avoidance. Several of the key actions, most importantly measures against tax-treaty shopping, require changes to double taxation treaties. The OECD designed a special instrument—the ‘multilateral instrument’ (MLI) - to allow for a swift implementation of BEPS-related tax treaty changes. In this paper, we show that MLI take-up is incomplete, we present (partly surprising) correlates of the take-up decision and develop a simple theoretical model to rationalize the observed take-up behavior. A key insight is that conduit countries, which are the beneficiaries of tax treaty shopping, can benefit from anti-treaty shopping laws as firms have incentives to scale-up real activity in conduit nations in order to be exempted from the new anti-treaty shopping rules. Empirical findings are consistent with these considerations: MLI adoption rates of conduit countries are high. Treaty shopping has, to date, not significantly dropped. And there is indeed indication that firms have scaled up their real economic activity in conduit nations. Overall, our findings reject that treaty shopping has been “killed” as envisaged by the OECD. JEL classification: F21, F23, F53, H25, H26, H32, H87, K34

Conflicts Between Directives and Tax Treaties: Which Obligation Takes Precedence? Three Perspectives

Conflicts Between Directives and Tax Treaties: Which Obligation Takes Precedence? Three Perspectives

The Tax Landscape of Split Contracts in Engineering, Procurement, and Construction (EPC) Investments: An In-Depth Study

The study examines tax complexities in Engineering, Procurement, and Construction (EPC) contracts, focusing on Indonesia's regulations. It stresses the importance of segregating contracts to simplify taxation, with Final Income Tax applying mainly to construction services. Challenges arise from offshore and onshore components, like equipment supplies and services, leading to disputes over Permanent Establishment (PE) presence and income attribution. Case studies from Indonesia and India demonstrate different tax interpretations. Indonesia typically taxes EPC contracts as unified, while India focuses on profit attribution within its jurisdiction. The paper highlights the role of Tax Treaties, like the Indonesia-Germany protocol, in determining tax treatment based on activities within each country. It underscores the need for consistent tax treatment through contract segregation, considering jurisdictional activities and relevant Tax Treaties.