handbook-tb

Preventing tax treaty abuseFinally, it is worth thinking about the relationship between thework being undertaken at the OECD and the work being conductedunder the auspices of the United Nations. The OECD project on BEPSwill likely lead to changes to the text of the OECD Model Conventionand Commentary and recommendations for changes to domestic taxlaws. The United Nations response to this work may lead to parallelchanges to the United Nations Model Double Taxation Conventionbetween Developed and Developing Countries (United Nations ModelConvention) 13 and its Commentary, as well as recommended changesto domestic laws. But it is worth noting that the items on the OECDAction Plan on BEPS are not necessarily exhaustive of the range ofissues that may concern developing countries, nor are the solutionsproposed necessarily ideal for developing countries. The UnitedNations may wish to explore other options for protecting the tax baseof developing countries. Some other possibilities not currently beingconsidered are mentioned below.2. Theme 1 — Inappropriately accessing treaty benefitsArrangements by which taxpayers from a third country can gainaccess to a State’s treaty network may pose a serious threat to the taxsystem of that State. Tax treaties are individually negotiated bargainsbetween sovereign States, and one significant effect for a source countryfrom concluding a treaty is that its ability to retain tax claimedunder domestic law will be constrained. Presumably source countrieshave taken this decision and entered into a treaty in the expectationthat this reduction in tax will be enjoyed only by the residents of theother contracting State. Where residents of third States are able to enjoythose benefits, governments cannot be sure that they have appropriatelyquantified the amount of revenue loss that the treaty will produce.Similarly, source countries may find that other benefits they hoped tosecure from the treaty — access to information held offshore, a formalsystem for resolving tax disputes, the promise of non-discrimination,assistance in collecting taxes, and so on — cannot be fully provided by13United Nations, Department of Economic and Social Affairs, UnitedNations Model Double Taxation Convention between Developed and DevelopingCountries (New York: United Nations, 2011).281