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Graeme S. Cooper1.4 General effectsIt is worth noting that if the OECD work on this portion of the BEPSagenda is fruitful, it is likely to be valuable to developing countries.One of the principal effects of a tax treaty is to limit the ability of sourcecountries to retain tax claimed under domestic law. This can comeabout explicitly through the allocation rules in a treaty (for example,the requirement of a permanent establishment (PE) before the sourcecountry can tax business profits), through the rate limitation provisions(for dividends, interest and royalties), and less obviously throughincome classification rules. 11As developing countries are predominantly source countries,and less prominent capital exporting countries, limits on the abilityof source countries to insist on domestic law tax claims are particularlyimportant for them. When developing countries negotiate atreaty, therefore, they are making a decision to surrender tax claimedunder domestic law in exchange for the benefits that the treaty promises.Because this item in the OECD Action Plan on BEPS is directedat curtailing the circumstances where treaties can be invoked — andsource-country tax claims reduced — it should be especially valuablefor developing countries. The OECD notes that the impact of work onthis action item should be to reinforce source-country tax claims:Tight treaty anti-abuse clauses coupled with the exercise oftaxing rights under domestic laws will contribute to restoresource taxation in a number of cases. 1211Limits on the taxing rights claimed by source countries can come aboutthrough the income classification rules that treaties employ. For example,income which a source country might classify and tax under domestic law asa royalty (and thus amenable to tax at source under Article 12 of the UnitedNations Model Convention) might, where the treaty supplants domestic lawdefinitions, be classified for the purposes of a treaty as business profits (andthus taxable at source only if a permanent establishment (PE) exists). Oneobvious example of this kind of outcome arose from the reclassification inthe OECD Model Convention of income from the leasing of cargo containersin the mid-1990s.12See OECD, Part 1 of a Report to G20 Development Working Group onthe Impact of BEPS in Low Income Countries, supra note 2, at 18.280