The Expert Explains: Will the UN have a greater role in future tax treaties?
Tax treaties, or double taxation avoidance agreements (DTAAs), have been a focus of great attention over the past few months Tax treaties tend to be based on one of two models, emanating from either the OECD or the UN, and some current treaties in force use both of them in part. Will the UN have a greater role in future tax treaties? For those who wish to dig deeper, here’s the explanation, straight from the desk of our expert guest contributor, Samantha Seewoosurrun, a reputed professional consultant in the financial services sector:
Tax treaties, or double taxation avoidance agreements (DTAAs), have been a focus of great attention over the past few months, with Mauritius concluding new treaties with Botswana and South Africa, and on the verge of signing a new Treaty with India.
Tax treaties tend to be based on one of two models, emanating from either the OECD or the UN, and some current treaties in force use both of them in part.
For example, if we look at the tax treaty between Mauritius and Uganda, we would find that some provisions on capital gains tax follow the OECD Model Treaty and others follow the UN Model.
Why does it matter? There is a well advanced campaign underway, instigated by the international NGO community, which is based on the premise that developing countries are losing massive tax revenues because too many tax treaties are based on the OECD Model Treaty which only takes care of the ‘club’ of developed Western nations.
They are calling for the UN to take a much stronger role in international tax policy in the future which, if successful, would have an impact on future tax treaties.
How much success has the NGO campaign had so far? There has been rather limited progress in the past few weeks, in the context of a major opportunity for change in the form of the UN’s Third International Conference on Financing for Development, held in Addis Ababa on 13-16 July 2015.
The ‘Action Agenda’ of the meeting calls for improvements in the fairness, transparency, efficiency and effectiveness of tax systems, and it states that “we will also reduce opportunities for tax avoidance and consider inserting anti-abuse clauses in all tax treaties”. Besides noting the work of the OECD on tax policy, the meeting welcomed the work of the UN’s Committee of Experts on International Cooperation in Tax Matters and stated that it would enhance its resources and increase its meetings to two sessions per year.
How did NGOs react? A host of organisations reacted with outrage and the Global Alliance for Tax Justice claimed that the United States and the UK were among the developed countries applying pressure to ensure that “the rich countries club” of the OECD remains the only intergovernmental body that sets global tax standards for all.
ActionAid said the decision was “an appalling failure”, while Oxfam International claimed that developing countries were “returning home with a weak compromise meaning rigged rules and tax avoidance will continue to rob the world’s poorest people”, in the view of Executive Director Winnie Byanyima.
So what are the prospects for the future? The OECD’s tax department will continue to focus on its work on Base Erosion and Profit Shifting (BEPS) and will probably seek to discount any moves from the UN to ‘move on to its turf’ in setting the agenda of international tax policy.
Coming back to the tax treaties, it may be difficult for the OECD to argue against the insertion of “anti-abuse clauses” in future tax treaties, as the UN suggests, so there could yet be some future changes reflected in future tax treaties.
Overall, the NGO community has invested a huge amount of energy and resource in fighting the UN’s corner on international tax policy in the name of developing countries, and it will not give up without a fight.