Negotiation of Tax Treaties

Papers on Selected Topics in Papers on Selected Topics Papers on Selected Topics in Negotiation of Negotiation of Tax Treaties Negotiation Treaties of Tax Tax Treaties for Developing Countries for Developing Countries Papers on Selected Topics in Negotiation of Tax Treaties for Developing Countries asdf United Nations New York, 2014 Preface Tax treaties play a key role in the context of international cooperation in tax matters. On the one hand, they serve to encourage international investment and, consequently, global economic growth, by reducing or eliminating double taxation over cross-border income. On the other hand, they seek to enhance cooperation among tax administrations, especially in tackling international tax evasion. Developing countries, in particular the least developed ones, often lack the adequate skills and experience to efficiently interpret and negotiate tax treaties. This may result in difficult, time-consuming and, in worst-case scenarios, unsuccessful negotiation of tax treaties, which may not adequately address policy priorities of developing countries. Moreover, their capacity to be effective treaty partners may be jeopardized, especially as it relates to cooperation in combating international tax evasion. The importance of raising tax revenues for development, including through international tax cooperation, features prominently in the ongoing intergovernmental discussions on a new financing strategy, in support of the post-2015 development agenda, with poverty eradication and sustainable development at its core. The United Nations General Assembly, in its resolution 68/204 of 20 December 2013 on Financing for Development, recalled the ongoing commitment of Member States to enhance and strengthen domestic resource mobilization and fiscal space, including, where appropriate, through modernized tax systems, more efficient tax collection, the broadening of the tax base and the effective combating of tax evasion and capital flight. While each coun- try is responsible for its tax system, it is important to support national efforts in these areas by strengthening technical assistance and enhancing international cooperation and participation in addressing international tax matters. There is a clear need for capacity-building initiatives, which would strengthen the skills of the relevant officials in developing countries in the tax treaty area, as a contribution to further enhancing their iii Preface role in support of the global efforts aimed at improving the investment climate and effectively curbing international tax evasion. We hope that this collection of papers will contribute to fulfilling that need. The papers were written by experienced treaty negotiators, in consultation with numerous experts from the national tax authorities and ministries of finance of developing countries. An effort was made to keep the material basic and practical. We hope that it will serve a useful purpose in providing practical guidance to tax treaty negotiators from developing countries to advance their countries’ double tax treaty practices. Alexander Trepelkov Director, Financing for Development Office Department of Economic and Social Affairs iv Acknowledgements We would like to express our appreciation and thanks to all the people and organizations involved in producing this collection of papers on negotiations of tax treaties. Most of all, we wish to thank the authors of the papers, namely: Ms. Ariane Pickering, Former Chief Tax Treaty Negotiator, Australian Tax Office and Treasury, Australia; and Mr. Odd Hengsle, Former Director-General, Tax Treaties and International Tax Affairs, Ministry of Finance, Norway, for delivering such a valuable product that keeps in mind the needs of less-experienced treaty negotiators. We also wish to acknowledge the contribution of experts from the National Tax Authorities and Ministries of Finance of developing countries who contributed their views and provided inputs to the draft chapters, namely: Mr. Ulvi Yusifov (Azerbaijan), Mr. Syed Mohammad Abu Daud (Bangladesh), Ms. Sabina Theresa 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. 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. Laila 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 v Acknowledgements 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 (Thailand), Ms. Patience Emily Rubagumya (Uganda), Ms. Tetiana Skupova (Ukraine), Ms. Mwantumu Mshirazi Salim (United Republic of Tanzania), Mr. Alvaro Romano (Uruguay), Ms. Tran Thi Phuong Nhung (Viet Nam), Mr. Berlin Msiska (Zambia) and Mr. Max Mugari (Zimbabwe). We also acknowledge with gratitude the important role of current and former members 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 Yaffar (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 the international and regional organizations who supported this project, including: 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 Organisation for Economic Co-operation and Development (OECD) for sharing their invaluable expertise and resources. We would like to thank the German Federal Ministry for Economic Development and Cooperation (BMZ) for its financial support for the technical meetings, at which these papers were dis- cussed and revised. We would also like to thank our partner, the International Tax Compact (ITC) for their financial and technical support throughout the project and for facilitating the contacts with the experts within the national tax authorities and ministries of finance of developing countries. vi Acknowledgements Last but not least, we also wish to acknowledge the valuable assistance of other staff in the Financing for Development Office, 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 27 March 2014 vii Introduction At its eighth session (Geneva, 15–19 October 2012), the Committee of Experts on International Cooperation in Tax Matters (the Committee) requested the secretariat “to seek additional resources to advance the work to strengthen the capacity of developing countries to negotiate tax treaties.” Accordingly, the Financing for Development Office (FfDO) organized an expert group meeting on “Tax Treaty Negotiation and Capacity Development” (New York, 13-14 December 2012) with the participation of several members of the Committee, as well as current and former tax treaty negotiators representing both developed and developing countries. The purpose of the meeting was to discuss and identify the most suitable strategies and modalities for the development and implementation of tools aimed at strengthening the skills of national tax authorities in developing countries in the area of double tax treaty negotiation. The experts shared their experiences in this area, with a focus on the needs of developing countries at different levels of development and with diverse macroeconomic conditions and goals. They also ana- lysed the existing knowledge on the subject, as well as available mate- rials and capacity development tools, including those developed by the Committee. They then determined how and to what extent these resources could be effectively used and/or needed to be improved or complemented for the purposes of delivering capacity-development initiatives in the above area. They also put forward proposals on con- tent and implementation of such activities. One of the proposals was to develop a number of practical papers on selected issues in the negotiation of tax treaties and offer them to developing countries free of charge. The experts identified tentative topics

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