an introduction to tax and investment treaties françoise l.m hendy
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An Introduction to Tax and Investment Treaties Françoise L.M Hendy International Treaty Negotiator (Tax, Investment, Trade) Attorney-at-Law. Austria Belgium Botswana Canada CARICOM China Czech Republic Finland Ghana Iceland Italy Luxembourg Malta Mauritius Mexico Panama. - PowerPoint PPT PresentationTRANSCRIPT
An Introduction to Tax and Investment Treaties
Françoise L.M Hendy International Treaty Negotiator
(Tax, Investment, Trade)Attorney-at-Law
BARBADOS’ BARBADOS’ TREATY TREATY NETWORK : NETWORK : Double TaxationDouble TaxationAgreementsAgreements(DTAs)(DTAs)
Austria
Belgium
Botswana
Canada
CARICOM
China
Czech Republic
Finland
Ghana
Iceland
Italy
Luxembourg
Malta
Mauritius
Mexico
Panama
Portugal
Sweden
Switzerland
Spain
United Kingdom
United States
Venezuela
Vietnam
Awaiting signature
Initialed
BARBADOS’ BARBADOS’ TREATY TREATY NETWORK : NETWORK : Bilateral Bilateral InvestmentInvestmentTreaties (BITs)Treaties (BITs)
Belgium-Luxembourg Economic Union
Canada
China
Cuba
Ghana
Germany
Italy
Mauritius
Switzerland
United Kingdom
Venezuela
What is a TREATY ?What is a TREATY ?
o A ‘Proof’ and ‘Product’ of Diplomacy
o A Contract
concluded between Sovereign States
in written Form governed by Public International Law
whether in One or More Documents
regardless of its Description
Legal Effect of a Legal Effect of a TREATY ?TREATY ?
oContracting State Parties
DualismMonism
oThird States (Non-Contracting State Parties)
oTerritorial Application
oSuccession
What is a TAX What is a TAX TREATY ?TREATY ?
An agreement in writing between sovereign states governed by public international law which sets out the rights and responsibilities of the contracting states in respect of matters of international taxation including the exchange of tax information and the prevention of fiscal evasion.
International International Taxation: A Taxation: A Fiction!Fiction!
Under International law there does not exist an overarching body of ‘international tax law’ through which international prescriptive and enforcement powers in relation to the imposition of tax has been recognized or accepted by the community of states.
The right to impose tax and the administration of a taxation system along with the authority to impose sanction for breach of the obligation is a function of domestic law.
International Taxation therefore merely refers to the ‘foreign’ elements of a country’s domestic tax system which expose latent or patent conflicts with another country’s tax system which warrant a joint and sustained response by the countries whose national interests are affected by unilateral remedies which may not adequately or definitely resolve the problems in the application of the domestic tax law.
Goals of Goals of International International Taxation Rules (1)Taxation Rules (1)
oAvoidance of Double Taxation The juridical meaning of ‘double taxation’ describes the concept where taxation occurs in two or more jurisdictions in respect of the same object of tax and exercised with respect to the same tax subject for the same taxable period
oTypes of double taxation
Source-Source Residence-Source Source-Residence
Goals of Goals of International International Taxation Rules: (2)Taxation Rules: (2)
Fairness
o Inter-state justice (Protection of tax-base)
Transparency Exchange of Tax Information Prevention of Fiscal Evasion
o Taxpayer Treatment Non-discriminatory treatment of taxpayer liability without reference to the source of the income
Tax liability should be contingent on tax payers ability to pay.
Goals of Goals of International International Taxation Rules: Taxation Rules: (3)(3)
Competiveness
o National
o Industry
o Firm
o Individual
Goals of Goals of International International Taxation: (4)Taxation: (4)
Neutrality
o A fundamental tax policy principle.
It requires that economic processes should not be affected by external influences such as taxation. In this way it is argued
productivity will be highest when income producing factors are distributed by the market preference without public interference. Neutral equates to efficiency and tax laws that do not
interfere with factor distribution by market forces are regarded as neutral.
o Capital Import vs. Export Neutrality
The Rules of The Rules of International International Taxation: Taxation: OverviewOverview
The purpose of tax treaties can be said to be the codification of rules that will be applied to resolve the conflicts that arise as a result of juridical double taxation.
In this respect they are three types of these distributive rules: source, assignment and relief.
The Rules of The Rules of International International Taxation (1)Taxation (1)
Source
Customary international law provides that a country has the primary right to tax income that has its source in that country.
Under the rules of source the tax objects over which the State has the principal though not exclusive right to tax include
immoveable property; industrial or business profits and professional services; shipping and air transport; dividend, interest payments and directors’ fees; employment services; artistes, entertainers and sportspersons; and government salaries and pensions
The Rules of The Rules of International International Taxation (2)Taxation (2)
Assignment
Assignment rules allocate either an exclusive or limited taxing right to countries using one or more of the following distributive principles on different income sources: the exclusive right to tax is conferred on the state of source of the tax object; the source country can reserve the right to limit or share its taxation right of the object; the source country may tax fully even in the absence of an exclusive tax right; and the exclusive right to taxation is with the country where the tax subject resides.
The Rules of The Rules of International International Taxation (3)Taxation (3)
Relief
The content of these rules also provide for mechanisms to eliminate or mitigate juridical double taxation when it arises by: the exemption method whereby full exemption or exemption with progression is provided in respect of the taxes suffered in the other jurisdiction; full or ordinary credit for the tax paid is provided at the marginal or average tax rate; of limited modern-day use is the tax sparing method where a tax sparing credit is granted by the residence country for foreign taxes that for some reason were not actually paid under the country’s normal tax rules.
Key Elements of Key Elements of a Tax Treaty: (1)a Tax Treaty: (1)
Scope and Coverage
o Persons Covered
Individual Company Other body of person
o Taxes Covered
Income ( Corporate , premium, petroleum
winnings)Capital Gains
Key Elements of Key Elements of a Tax Treaty: (2)a Tax Treaty: (2)
Residency
oNot citizenship
oNot nationality
o‘Liable to tax’
Residence Incorporation Central Management
and Control
Domicile Intention + Stay +
Notification Place of management
Permanent Establishment Any other similar criterion
o
Key Elements of Key Elements of a Tax Treaty: (3)a Tax Treaty: (3)
Apportionment of Taxing Rights
o Business Incomeo Shipping and International Transporto Associated enterpriseso Professionals o Investment Income
DividendsInterestRoyalties
o Capital gainso Income from immoveable propertyo Income from employmento Pensions and other remunerationo Professors and teacherso Students and traineeso Treatment of Entertainers and sportspersonso Other income
Key Elements of Key Elements of a Tax Treaty: (4)a Tax Treaty: (4)
Methods of Avoiding Double Taxation
o Tax Sparing
o Credit Method
o Exemption
Key Elements of Key Elements of a Tax Treaty: (5)a Tax Treaty: (5)
Prevention of Fiscal Evasion
Avoidance and evasion distinguished
Denial of treaty benefitsApplication of domestic
GAARLimitation of Benefits
provisionsAdministrative co-operation
Competent Authority Procedure
Exchange of tax information
Non-discrimination
What is a What is a Bilateral Bilateral Investment Investment Treaty?Treaty?
An agreement in writing between sovereign states governed by public international law which sets out the rights and responsibilities of the contracting states in respect of matters related to the reciprocal protection and promotion of investment including the resolution of investment-related disputes.
Goals of Foreign Goals of Foreign Direct Direct Investment Rules Investment Rules (Overview)(Overview)
OVERVIEW
to protect investment abroad in countries where investor rights are not already protected through existing agreements (such as modern treaties of friendship, commerce, and navigation, or free trade agreements);
to encourage the adoption of market oriented domestic policies that treat private investment in an open, transparent, and non-discriminatory way;
and to support the development of international law standards consistent with these objectives
Goals of Foreign Goals of Foreign Direct Direct Investment Rules Investment Rules (1) (1)
Protection of Private Investment Abroad
o Certainty and predictability of treatment of private Foreign Direct Investment (FDI)
o Transparency in government activities in relation to private FDI.
Performance CriteriaCompensationExpropriationDispute Settlement
o Non-discriminatory treatment of investors in relation to their investments
o Application of most-favoured nation treatment in relation to the investment of investors
Goals of Foreign Goals of Foreign Direct Direct Investment Rules Investment Rules (2) (2)
Promotion of Inbound and Outbound Private Investment
o Creation of mechanisms including Joint Commissions to actively promote and encourage private investment in both countries.
The Rules of The Rules of Foreign Direct Foreign Direct Investment: Investment: (OVERVIEW)(OVERVIEW)
The purpose bilateral investment treaties can be said to be the codification of rules that will be applied to resolve the conflicts that arise as a result of the existence of private investment in a foreign jurisdiction while instituting means of directly facilitating the creation and retention of such investment.
In this respect they are three types of these rules: standards of treatment; investment protection; and dispute resolution.
The Rules of The Rules of Foreign Direct Foreign Direct Investment (1)Investment (1)
In relation to his investment the investor is entitled to the following minimum standards of treatment:
oFair and Equitable treatment
oFull, Protection and Security
oNational treatment
oMost-Favoured Nation treatment
The Rules of The Rules of Foreign Direct Foreign Direct Investment (2)Investment (2)
In relation to the protection of his investment the investor is entitled to the certain minimum standards concerning:
o Free Transfers
oExpropriation
oCompensation
oDispute Settlement
Key Elements of Key Elements of a BIT (1)a BIT (1)
Preamble and Definition
oIntention of the Parties
oMeaning of key terms
Investment
National
Company
Key Elements of Key Elements of a BIT (2)a BIT (2)
Promotion and Protection
“Each Contracting Party shall encourage and create favourable conditions for national or companies of the other Contracting Party to invest capital in its territory, and, subject to its right to exercise powers conferred by its laws, shall admit such capital. Investments of nationals or companies of each Contracting party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting Party.
Neither Contracting Party shall in any way impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments in its territory of nationals or companies of the other Contracting Party. Each Contracting Party shall observe any obligation it may have entered into with regard to investments of nationals or companies of the other Contracting Party.”
Key Elements of Key Elements of a BIT (3)a BIT (3)
National Treatment
Most-Favoured-Nation Treatment
Key Elements of Key Elements of a BIT (4)a BIT (4)
Compensation for Losses
“Nationals or companies of one Contracting Party whose investments in the territory of the other Contracting Party suffer losses owing to war or other armed conflict, revolution, a state of national emergency, revolt, insurrection or riot in the territory of the latter Contracting Party shall be accorded by the latter Contracting Party treatment, as regards restitution, indemnification, compensation or other settlement, no less favourable than that which the latter Contracting Party accords to its own nationals or companies or to nationals or companies of an third State.
Resulting payments shall be freely transferable.”
Key Elements of Key Elements of a BIT (5)a BIT (5)
Expropriation
“Investments of nationals or companies of either Contracting Party shall not be nationalised, expropriated or subjected to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as “expropriation”) in the territory of the other Contracting Party except for a public purpose related to the internal needs of that Party on a non-discriminatory basis and against prompt, adequate and effective compensation.
Such compensation shall amount to the market value of the investment expropriated immediately before the expropriation or before the impending expropriation became public knowledge, whichever is the earlier, shall include interest at a normal commercial rate until the date of payment, shall be made without delay be effectively realizable and be freely transferable.”
Key Elements of Key Elements of a BIT (6)a BIT (6)
Dispute Resolution.
oState to State Disputes
oInvestor State Disputes
Arbitration