Einde inhoudsopgave
Treaty Application for Companies in a Group (FM nr. 178) 2022/6.2.4
6.2.4 Implementation: multilateral tax treaty
L.C. van Hulten, datum 06-07-2022
- Datum
06-07-2022
- Auteur
L.C. van Hulten
- JCDI
JCDI:ADS659369:1
- Vakgebied(en)
Omzetbelasting / Plaats van levering en dienst
Voetnoten
Voetnoten
It has already been suggested to implement a multilateral tax treaty as a response to the shortcomings in the current bilateral tax treaty system multiple times. E.g., attempts have been made to design an EU multilateral convention (Doc.11.414/XIV/68-F of 1 July 1968). The preliminary draft was inspired upon the 1963 version of the OECD MTC. As a result of the large discrepancies between the tax systems at that time, the project ‘had to be abandoned’ (Workshop of Experts, EC Law and Tax Treaties, TAXUD E1/FR DOC (05) 2306, Brussels 2005, p. 13). Also, in the tax literature a multilateral tax treaty for EU countries has been drafted (M. Lang et al., ‘Chapter 11: Draft for a Multilateral Tax Treaty’, in M. Lang et al., (eds.), Multilateral Tax Treaties: New Developments in International Tax Law, London: Kluwer Law International 1998). Pistone suggested to introduce an EU Model Tax Convention, shaped as a Directive that binds all Member States to implement the provisions into their tax treaties. This model may evolve over time in a multilateral tax treaty for all EU Member States (P. Pistone, The Impact of Community Law on Tax Treaties: Issues and Solutions, Den Haag: Kluwer Law International 2002, p. 8-9). See N. Bravo, A Multilateral Instrument for Updating the Tax Treaty Network, Amsterdam: IBFD 2020, par. 1.5.2 for a more extensive overview of proposals of scholars to modify tax treaties within a multilateral framework. For the inspiration the Nordic Convention on Income and Capital 1996 can give in this regard, see M. Helminen, ‘The Problem of Double Non-Taxation in the European Union – To What Extent Could This Be Resolved through a Multilateral EU Tax Treaty Based on the Nordic Convention?’, European Taxation 2013, vol. 53, no. 7.
M. Kobetsky, ‘The Case for Unitary Taxation of International Enterprises’, Bulletin for International Taxation 2008, vol. 62, no. 5.
For a comprehensive overview of the advantages and disadvantages of a multilateral tax treaty see N. Bravo, A Multilateral Instrument for Updating the Tax Treaty Network, Amsterdam: IBFD 2020, par. 1.4.6.
In this regard uniformity of interpretation and application is essential (M. Pires, International Juridical Double Taxation of Income, Deventer: Kluwer Law and Taxation Publishers 1989, par. 2.1.12.2).
P. Baker, ‘Multilateral Tax Treaties’, Bulletin for International Taxation 2021, vol. 75, no. 11/12, par. 4.2.
P. Baker, ‘Multilateral Tax Treaties’, Bulletin for International Taxation 2021, vol. 75, no. 11/12, par. 4.2.
Y. Brauner, ‘The True Nature of Tax Treaties’, Bulletin for International Taxation 2020, vol. 74, no. 1, par. 5.
J.C. Wheeler, ‘Tax Treaties: What Are We Going to Do with Them?’, Bulletin for International Taxation 2021, vol. 75, no. 11/12, par. 5.
See in this regard, e.g., Q. Wright, ‘The Interpretation of Multilateral Treaties’, The American Journal of International Law 1929, vol. 23, no. 1, p. 99.
Extending the scope of the OECD MTC from bilateral to multilateral situations it textually not so complicated. For example, in art. 1, par. 1, OECD MTC it would be required that the person needs to be a resident of one or more of the Contracting States. In other articles ‘the other Contracting State’ could be replaced by ‘another Contracting State’. Please note that the use of another is inspired by the draft multilateral tax treaty as designed by M. Lang et al. (M. Lang et al., ‘Chapter 11: Draft for a Multilateral Tax Treaty’, in M. Lang et al., (eds.), Multilateral Tax Treaties: New Developments in International Tax Law, London: Kluwer Law International 1998).
Art. 39 VC provides that ‘a treaty may be amended by agreement between the parties’. See also N. Bravo, A Multilateral Instrument for Updating the Tax Treaty Network, Amsterdam: IBFD 2020, par. 1.5.1.
Art. 9 VC.
The question arises how the changes in the international tax treaty network could be implemented. The only viable solution seems a multilateral tax treaty.1 Kobetsky advocates the introduction of a multilateral tax treaty that implies the move to a system based on unitary taxation and subsequent formulary apportionment.2
A multilateral convention has many advantages over bilateral tax treaties.3 First, it will lead to a more uniform and neutral international tax system,4 as it will remove opportunities for tax competition through bilateral agreements.5 Second, a multilateral tax treaty can include a solution for various situations that cannot be resolved via bilateral tax treaties (such as triangular situations). It can also be beneficial for investors, tax administrations and tax courts as it increases legal certainty. Moreover, the cooperation between tax administrations can be improved. Besides, a multilateral treaty would be a more flexible instrument: it would be easier and – if consensus is reached between the involved parties – less time-consuming to update the provisions of the treaty. Additionally, for countries that do not currently have many tax treaties in force, a multilateral tax treaty would give the possibility to enter into international fiscal relations with many countries.6 A switch to a full unitary business approach from a domestic perspective would mean that some of the abovementioned reasons to conduct a multilateral tax treaty are no longer viable or less viable (e.g., triangular cases would already no longer be an issue within the unitary business under a full unitary business approach).
A clear disadvantage of a multilateral tax treaty is that it would provide a unified solution, not tailored to the economic interests and tax policies of a specific state. To counteract this issue, Brauner has proposed to implement a multilateral tax treaty that contains the basic elements of international tax law, using bilateral tax treaties with tailormade rules for specific situations.7 Another disadvantage of a multilateral tax treaty is that it can lead to interpretational issues. As interpretation would be done by national courts, this can lead to more conflicting decisions than with bilateral treaties.8
Via a multilateral tax treaty, states can essentially agree to all apply a unitary taxation system. Even though it requires primarily a change in the domestic law of the various countries, only political agreement about a change does not seem sufficient. In that case, it will not be possible to enforce the new approach. The treaty would in essence have to be a ‘law-making’ treaty, rather than a contractual treaty.9
The process for designing a multilateral tax treaty should be initiated by the OECD as it already plays a leading role in international taxation.10 Modifying existing tax treaties through a worldwide multilateral tax treaty should follow the rules as provided for in the ‘treaty on treaties’, the VC. These rules are relatively flexible with respect to the methods parties can use for amending their tax treaties.11 A multilateral tax treaty would logically require the consent of all participating states.12 In practice, it seem impossible to reach international agreement in this regard: not everyone will accept the new approach. Furthermore, rules on transitional issues would be required.
As a multilateral tax treaty seems unachievable, it could be considered to implement the system via bilateral tax treaties. The risk is however, that this could lead to double taxation and could provide opportunities for tax avoidance.