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United Nations Handbook on Selected Issues in
Administration of Double Tax Treaties
for Developing CountriesUnited Nations Handbook on Selected Issues in
Administration of
Double Tax Treaties
for Developing Countries
United Nations Handbook
on Selected Issues in
Administration of
Double Tax Treaties
for Developing Countries
Edited by
Alexander Trepelkov, Harry Tonino and Dominika Halka asdf
United Nations
New York, 2013
Copyright © June 2013
United Nations
All rights reserved
e views, opinion and interpreta- tions expressed in this publication are those of the authors and are not necessarily those of the United
Nations or any of the organizations
that sponsored and/or contributed to its development. For further information, please contact:
United Nations
Department of Economic and Social Aairs
Financing for Development Oce,
United Nations Secretariat,
Two UN Plaza, Room DC2-2170
New York, N.Y. 10017, USA
e-mail: TaxdCapDev@un.org iii
Preface
Over the past decade, the relationship between the mobilization of nancial resources for development and international tax coopera- tion featured prominently in the outcome documents of major United Nations conferences and summits on economic and social mat- ters. ese include the 2002 Monterrey Consensus, the 2008 Doha Declaration on Financing for Development, as well as the outcomes of the 2009 Financial Crisis Conference and the 2010 MDG Summit. In the Doha Declaration, for instance, Member States recognized multi- lateral, regional and national eorts aimed at improving developing countries" abilities to negotiate mutually benecial investment agree- ments" and to promote good tax practices." 1 Tax treaties play a key role in the context of international coop- eration in tax matters. On the one hand, they encourage international investment and, consequently, global economic growth, by reducing or eliminating international double taxation over cross-border income. On the other hand, they enhance cooperation among tax administra- tions, especially in tackling international tax evasion. Developing countries, especially the least developed ones, oen lack the necessary expertise and experience to eciently interpret and administer tax treaties. is may result in dicult, time-consuming and, in a worst case scenario, ineective application of tax treaties. Moreover, skills gaps in the interpretation and administration of existing tax treaties may jeopardize developing countries" capacity to be eective treaty partners, especially as it relates to cooperation in combating international tax evasion. ere is a clear need for capacity- building initiatives, which would strengthen the skills of the relevant ocials in developing countries in the tax area and, thus, contribute to further developing their role in supporting the global eorts aimed at improving the investment climate and eectively curbing interna- tional tax evasion. Tax treaties, and model conventions, generally do not include any guidance on how the provisions of treaties should be applied, 1
A/RES/63/239, annex, paras. 16 and 25.
ivP leaving this matter to the domestic law of the contracting States. Although there is a vast and growing body of literature, and ample supply of training materials dealing with the substantive provisions of tax treaties and the relationship between them and the provisions of a country"s domestic law, relatively little assistance is available regard- ing the practical application of tax treaties. is Handbook, resulting from a joint project of the Financing for Development Oce of the Untied Nations Department of Economic and Social Aairs and the International Tax Compact, is intended to contribute to lling this gap. How do tax treaty provisions apply in practice? is question is addressed by the ten chapters comprising this Handbook. ey were written by international tax experts, beneting from extensive con- sultations with numerous experts from the National Tax Authorities and Ministries of Finance of developing countries. e Handbook describes best practices of countries in administering their tax trea- ties and identies common denominators to the extent possible. e emphasis is on the practices of the tax authorities of developing coun- tries. eir experts may be in a better position to assist other develop- ing countries with less experience in this area, because they followed a similar path, oen not so long ago. An eort is made to keep the material basic and practical and to focus on the procedural aspects of applying the treaty rather than on its substantive rules. is publication was conceived, written, discussed, revised and published during a seven-month period, thanks to the enthusiasm and commitment of all involved. We hope that it serves to stimulate fur- ther discussions on the topic of the administration of tax treaties, including at capacity-development events organized by international organizations active in the area of international tax cooperation.
Alexander Trepelkov
Director, Financing for Development Oce
Department of Economic and Social Aairs
v
Acknowledgements
We would like to thank the German Federal Ministry for Economic Development and Cooperation (BMZ) for its generous nancial sup- port, which has made the implementation of this project and the publication of the
UN Handbook on Selected Issues in Administration
of Double Tax Treaties for Developing Countries possible. We would also like to thank our partner, the International Tax Compact (ITC) for their nancial and technical support throughout this project and for facilitating the contacts with the experts within the National Tax Authorities and Ministries of Finance of developing countries. We would like to express our deepest appreciation and thanks to all the people and organizations involved in implementing the joint UN-ITC project and in producing this Handbook during a seven- month period. We wish to thank the authors of the chapters, which comprise this Handbook, for delivering such a superb product despite the extreme time pressure. Most of all, we are grateful to Professor Brian J. Arnold and Professor Hugh J. Ault, who, in addition to delivering their respective chapters, wholeheartedly supported this project from its inception and assisted us in securing commitments from the other authors, as well as with invaluable advice and inspiration. We also wish to acknowledge the contribution of experts from the National Tax Authorities and Ministries of Finance of develop- ing countries who contributed their views and provided inputs to the dra chapters, namely: Mr. Ulvi Yusifov (Azerbaijan), Mr. Syed Mohammad Abu Daud (Bangladesh), Ms. Sabina eresa Walcott- Denny (Barbados), Ms. Pen Sopakphea (Cambodia), Mr. Adrien Terence Tocke (Cameroon), Ms. Natalia Aristizábal (Colombia), Mr. Mario Ricardo Osorio Hernandez (Colombia), Ms. Ana Yesenia Rodríguez (Costa Rica), Ms. Evelyn Maria Molina (Costa Rica), Mr. Edgar Octavio Morales (Dominican Republic), Mr. Galo Antonio Maldonado (Ecuador), Mr. Mamdouh Sayed Omar (Egypt), Mr. Hesham Ismail Abdelmonem Khodair (Egypt), Mr. Ruslan Akhalaia (Georgia), Ms. Marine Khurtsidze (Georgia), Mr. Samuel McLord Chekpeche (Ghana), Mr. Eric NII Yarboi Mensah (Ghana), Mr. viA Gunawan Pribadi (Indonesia), Ms. Nurgul Akshabayeva (Kazakhstan), Mr. Saythong Ouiphilavong (Lao People"s Democratic Republic), Mr. Pusetso Seth Macheli (Lesotho), Mr. Setsoto Ranthocha (Lesotho), Mr. Crispin Clemence Kulemeka (Malawi), Ms. Laïla Benchekroun (Morocco), Ms. Najia Bargui (Morocco), Ms. Mya Mya Oo (Myanmar), Ms. Naydine Sharida du Preez (Namibia), Mr. Tanka Mani Sharma (Nepal), Mr. Adesoji Bodunde Omoyele (Nigeria), Ms. Laura Cristina Barrios Altafulla (Panama), Ms. Leka Nama Nablu (Papua New Guinea), Ms. Irving Ojeda Alvarez (Peru), Ms. Kim S. Jacinto-Henares (Philippines), Ms. Anastasia Certan (Republic of Moldova), Mr. Kayigi Habiyambere Aimable (Rwanda), Mr. Baye Moussa Ndoye (Senegal), Ms. Phensuk Sangasubana (ailand), Ms. Patience Emily Rubagumya (Uganda), Ms. Tetiana Skupova (Ukraine), Ms. Mwantumu Mshirazi Salim (United Republic of Tanzania), Mr. Alvaro Romano (Uruguay), Ms. Tran i Phuong Nhung (Viet Nam), Mr. Berlin Msiska (Zambia) and Mr. Max Mugari (Zimbabwe). We also acknowledge with gratitude the important role of mem- bers of the United Nations Committee of Experts on International Cooperation in Tax Matters, namely: Ms. Lise-Lott Kana (Chile), Mr. Wolfgang Lasars (Germany), Mr. Enrico Martino (Italy), Mr. Mansor Hassan (Malaysia), Mr. Armando Lara Yaar (Mexico), Mr. Stig Sollund (Norway) and Mr. Ronald van der Merwe (South Africa), who contributed their expertise to this project on a pro-bono basis. We are also grateful to the heads and representatives of interna- tional and regional organizations who supported this project, includ- ing: Mr. Logan Wort, Mr. Lincoln Marais and Ms. Elizabeth Storbeck of the African Tax Administration Forum (ATAF); Mr. Márcio Verdi, Mr. Socorro Velazquez and Mr. Miguel Pecho of the Inter-American Center of Tax Administrations (CIAT); Mr. Robert Maate of the East African Community (EAC); and Mr. Paolo Ciocca of the International Fund for Agricultural Development (IFAD). In particular, we would like to thank Mr. Pascal Saint-Amans, Ms. Marlies de Ruiter, Mr. Jacques Sasseville and Mr. David Partington of the Organization for Economic Co-operation and Development (OECD) for sharing their invaluable expertise and resources. We would also like to thank the International Tax Compact (ITC) team, Mr. Roland von Frankenhorst and Ms. Yanina Oleksiyenko, viiA for their involvement and support in all activities of this project. We are grateful to Mr. Matthias Witt, Mr. Harald Kueppers and Ms. Katharina Gunselmann of the Deutsche Gesellscha für Internationale Zusammenarbeit (GIZ) GmbH, for participating in the project and for sharing their experiences. We also thank Mr. Wolfgang Lasars and Mr. Klaus Klotz for representing the German Government in this project. Last but not least, we also wish to acknowledge the valuable assis- tance of other sta in the Financing for Development Oce, namely: Mr. Michael Lennard, Ms. Irving Ojeda Alvarez, Ms. Leah McDavid, Ms. Victoria Panghulan and Ms. Mary Nolan, who provided support within their respective roles.
Alex Trepelkov, Harry Tonino and Dominika Halka
28 June 2013
ix
Introduction
is book is a result of a project, undertaken jointly by the Financing for Development Oce (FfDO) of the United Nations Department of Economic and Social Aairs and the International Tax Compact (ITC), aimed at strengthening the capacity of National Tax Authorities and Ministries of Finance in developing countries to eectively iden- tify and assess their needs in the area of tax treaty negotiation and administration. e nancial contribution for the project was pro- vided by the German Federal Ministry for Economic Development and Cooperation (BMZ). Within the FfDO, the project was implemented, by a small team led by the Director, Mr. Alexander Trepelkov, and com- prising Ms. Dominika Halka and Mr. Harry Tonino, Economic Aairs Ocers, with the administrative support of Ms. Victoria Panghulan. e ultimate goal of this project was to support the development of a comprehensive set of capacity-building tools to be used in develop- ing countries, which would be demand driven, reect adequately the needs of these countries, and complement the existing capacity tools. e project was launched in December 2012. As the rst step, two simultaneous technical meetings were held in Rome, Italy, on
28-29 January 2013, with the participation of 25 representatives of the
National Tax Authorities and Ministries of Finance from developing countries, representing all the regions of the world. e discussion on the administration of tax treaties, held within several thematic ses- sions, was facilitated by selected members of the Committee of Experts on International Cooperation in Tax Matters (the Committee) and representatives of several international and regional organizations. National experts were frank in sharing their countries" experiences and concerns. e discussion contributed to: (i) identifying the needs of developing countries in the area of tax treaty administration and taking stock of the available capacity development tools at their dis- posal; and (ii) determining the actual skills gaps and challenges faced by developing countries in administering their tax treaties. A report of the meeting, which summarizes the main ndings and details priority areas for the purposes of developing relevant capacity-building activi- ties and tools to address these issues, is available at http://www.un.org/ esa/d/tax/2013CBTTNA/Summary.pdf. xI One practical outcome of the Rome meeting were the terms of reference" for a series of technical papers, which would address the specic issues in the administration of tax treaties of interest and concern to developing countries. ese terms of reference were iden- tied and agreed upon by the national participants in the meeting. Accordingly, the dra papers were prepared by several international tax experts and underwent a peer review ese papers were then presented by the authors for discus- sion during the technical meeting, held in New York, on 30-31 May
2013, with the participation of 32 representatives of the National Tax
Authorities and Ministries of Finance of developing countries. Each paper was discussed in a separate session, which was chaired by a member of the Committee or by a representative of the relevant inter- national or regional organization. Following a presentation by the author, a designated lead discussant representing a developing country was invited to comment on the paper, focusing on the specic experi- ence of their country. is was followed by an open exchange of views among all the participants. During the discussion, there were many practical suggestions on how the papers would better meet the realities of developing countries" tax administrations. e South-South sharing aspect emerged very prominently. e participants from the develop- ing countries engaged in an intense discussion among themselves, oering advice and sharing best practices to countries with less experi- ence in negotiating and administering double tax treaties. A view was expressed that experts from developing countries were oen in a better position to assist other developing countries than experts from devel- oped countries, as they followed a similar path, oen not so long ago. Following the meeting, the authors revised their papers taking into account feedback received from other experts. e papers were then nalized and edited to comprise this
UN Handbook on Selected Issues
in Administration of Double Tax Treaties for Developing Countries. e UN Handbook will be launched and distributed at the OECD Meeting with non-OECD Economies and International Organizations preceding the 18th Annual Tax Treaty Meeting, which will be held in
Paris, on 25 September 2013.
xiI e e-version of this UN Handbook will be available free of charge at http://www.un.org/esa/d/documents/UN_Handbook_DTT _Admin.pdf. As next steps, FfDO is envisioning organizing, together with partners, an annual Forum on Administration of Tax Treaties and other capacity-development events, based on the
UN Handbook, with
a view to promoting South-South sharing in the area of current issues in the administration of double tax treaties. xiii
Contents
Preface ................................................... iii Acknowledgements......................................... v Introduction .............................................. ix
Chapter I
An overview of the issues involved in the
application of double tax treaties............................. 1 1. Introduction......................................... 1 2.
Background: the general relationship between tax
treaties and domestic law .............................. 3 3. Rules of application in bilateral tax treaties............... 6 3.1 e United Nations and OECD Model Conventions .. 6 3.2 Rules of application in actual bilateral tax treaties .... 11 .... 12 .................................... 12
ĕ ................ 13
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