handbook-tb

Chapter VIPreventing tax treaty abuseGraeme S. Cooper*1. IntroductionMany developing countries have already negotiated a number of taxtreaties with their neighbours and with capital exporting countries.Others are keen to expand their existing tax treaty network. An extensivetreaty network is typically considered to be an important indicatorthat a developing country can use to signal that it is keen to attractforeign direct investment (FDI) and that it is willing to impose taxon foreign investors according to internationally accepted taxationnorms. Bilateral income tax treaties are a manifestation of a country’sdesire for economic development and greater integration in theglobal economy.While income tax treaties are thus important indicators to theinternational community, the experience of developing countries,like developed countries, is that treaties can be misused as part ofsophisticated tax planning to frustrate the tax claims of developingcountries. Tax treaty abuse is a matter which has caught the attentionof the revenue authorities of some developing countries already. Forexample, in response to the questionnaire circulated in 2014 by theUnited Nations Committee of Experts on International Cooperationin Tax Matters — Subcommittee on Base Erosion and Profit ShiftingIssues for Developing Countries, Mexico noted that, “our priorities areAction 6 and the Actions related to Transfer Pricing (Actions 8, 9 and13).” 1 Similarly, part 1 of the report of the Organisation for Economic*Professor of Taxation Law, University of Sydney, Australia.1Government of Mexico, “Mexico’s Experiences Regarding Base Erosionand Profit Shifting Issues,” available at http://www.un.org/esa/ffd/wp-content/uploads/2014/10/ta-BEPS-CommentsMexico.pdf.The responses fromChile, India, Thailand and Zambia also emphasised the importance of treatyabuse: see http://www.un.org/esa/ffd/tax-committee/tc-beps.html.275