No CrossRef data available.
Article contents
A Multilateral Tax Treaty for ASEAN ― Lessons from the Andean, Caribbean, Nordic and South Asian Nations
Published online by Cambridge University Press: 16 April 2015
Abstract
ASEAN member countries recently reiterated and renewed their commitment to creating the ASEAN Economic Community. Tax has a role to play in facilitating the creation of the AEC and ASEAN member countries have committed to completing the intra-ASEAN network of bilateral tax treaties in pursuit of this goal. This paper suggests that instead of continuing with the monumental task of agreeing individual bilateral tax treaties, ASEAN member countries should learn from the experience of other regional blocs and conclude a multilateral tax treaty. The conclusion of a multilateral tax treaty would address the general problems associated with bilateral tax treaties, strengthen ASEAN's presence in international tax relations and symbolise ASEAN's commitment to the creation of the AEC.
- Type
- Research Article
- Information
- Copyright
- Copyright © Faculty of Law, National University of Singapore 2011
References
1 ASEAN, ‘ASEAN Vision 2020’ (1997) available at <www.asean.org> (accessed 26 January 2011).
2 ASEAN, ASEAN Economic Community Blueprint (2008) 5; ASEAN Economic Ministers, ‘Joint Media Statement of the Thirty-Eighth ASEAN Economic Ministers' (AEM) Meeting’ (Kuala Lumpur, 22 August 2006)Google Scholar; Loong, Lee Hsien, ‘Chairman's Statement of the 13th ASEAN Summit: One ASEAN at the Heart of Dynamic Asia’ (Singapore, 20 November 2007)Google Scholar.
3 ASEAN, ‘Singapore Declaration on the ASEAN Charter’ (2007)Google Scholar.
4 See for example Edwin Seligman, Double Taxation and International Fiscal Cooperation (1928) 17-31; OECD Committee on Fiscal Affairs, Model Tax Convention on Income and on Capital (2010) 7. Double taxation in this context refers to international juridical double taxation and not economic double taxation. International juridical double taxation has been described as ‘the taxation of the same person or the same thing twice over’: Edwin Seligman, Essays in Taxation (2nd ed, 1895) 95. International juridical double taxation arises where two (or more) countries impose similar taxes on the same taxpayer on the same amount.
5 Šemeta, Algirdas, ‘Commission Opens Public Consultation on Double Taxation Problems in the EU’ (Press Release, 27 April 2010)Google Scholar.
6 Unilateral action to combat double taxation is generally considered insufficient as such measures are not comprehensive and not mutually consistent: Klaus Vogel, Double Taxation Conventions (1991) 8. For an examination of the impact of the tax regimes of individual ASEAN member countries on the integration of ASEAN's priority sectors, see: Ian Farrow and Sunita Jogarajan, ASEAN Tax Regimes and the Integration of the Priority Sectors: Issues and Options (2005).
7 ASEAN, ASEAN Economic Community Blueprint (2008) B5. See also, ASEAN Finance Ministers, ‘Joint Ministerial Statement of the Eleventh ASEAN Finance Ministers' Meeting’ (Chiang Mai, 5 April 2007)Google Scholar where the Finance Ministers ‘agreed to strengthen cooperation on taxation under the AFMM to accelerate the completion of bilateral agreements on avoidance of double taxation and cooperation in other tax matters.’ The Ministers also agreed to establish a forum on ASEAN Cooperation in Taxation to be represented by Heads of ASEAN Tax Administration Units.
8 ASEAN, ASEAN Community in Figures 2009 (2010) 1, 4.
9 ASEAN, ‘Overview Association of Southeast Asian Nations’ available at <www.asean.org> (accessed 26 January 2011)+(accessed+26+January+2011)>Google ScholarPubMed.
10 Hew, Denis, ‘Introduction: Brick by Brick – The Building of an ASEAN Economic Community’ in Hew, Denis (ed), Brick by Brick – The Building of an ASEAN Economic Community (2007) 5–7Google Scholar.
11 ASEAN Secretariat, ASEAN Economic Community Scorecard (2010) 13.
12 ASEAN Free Trade Area (AFTA) Council, ‘Joint Media Statement of the 42nd ASEAN Economic Ministers' (AEM) Meeting’ (Press Release, 24-25 August 2010)Google Scholar. On the progress of ASEAN trade integration see also, Mikic, Mia, ‘ASEAN and Trade Integration’ (Working Paper No 01-09, United Nations ESCAP, 2009)Google Scholar.
13 ASEAN Free Trade Area (AFTA) Council, ‘Joint Media Statement of the 42nd ASEAN Economic Ministers' (AEM) Meeting’ (Press Release, 24-25 August 2010)Google Scholar.
14 ASEAN Free Trade Area (AFTA) Council, ‘Joint Media Statement of the 42nd ASEAN Economic Ministers' (AEM) Meeting’ (Press Release, 24-25 August 2010)Google Scholar.
15 Mahani, Zainal-Abidin, ‘ASEAN Integration: At Risk of Going in Different Directions’ (2002) 25 World Economy 1263, 1276CrossRefGoogle Scholar.
16 For discussion of these other areas of economic cooperation, see: Paul Davidson, ASEAN: The Evolving Legal Framework for Economic Cooperation (2002) 69-74.
17 ASEAN Secretariat, ASEAN Economic Community Scorecard (2010) 9.
18 Bwa, Aung, ‘The Jewel in My Crown’ in Koh, Tommyet al (eds), The Making of the ASEAN Charter (2009) 27, 34Google Scholar.
19 For a detailed account of the process of concluding the ASEAN Charter see, Tommy Koh et al (eds), The Making of the ASEAN Charter (2009).
20 For an examination of the evolution of ASEAN from a loose-knit organisation to a more rules-based system, see: Paul Davidson, ASEAN: The Evolving Legal Framework for Economic Cooperation (2002).
21 Ian Farrow and Sunita Jogarajan, ASEAN Tax Regimes and the Integration of the Priority Sectors: Issues and Options (2005) 1-5.
22 See for example, Thuronyi, Victor, ‘International Tax Cooperation and a Multilateral Treaty’ (2000) 26 Brooklyn Journal of International Law 1641, 1641–1681Google Scholar; Rigby, Michael, ‘A Critique of Double Tax Treaties as a Jurisdictional Coordination Mechanism’ (1991) 8 Australian Tax Forum 3, 303–427Google Scholar; Vann, Richard, ‘A Model Tax Treaty for the Asian-Pacific Region?’ (1991) 45 Bulletin of International Fiscal Documentation 151, 157-60Google Scholar.
23 Developing countries often provide tax concessions to attract foreign direct investment as the benefits of the investment are thought to outweigh the revenue loss. However, in the absence of appropriate treaty provisions, the revenue foregone by developing countries simply ends up in the coffers of the foreign investor's home jurisdiction (generally a developed country). See for example, Helmut Becker and Felix Wurm (eds), Treaty Shopping : An Emerging Tax Issue and Its Present Status in Various Countries (1988); Gild, Mimi, ‘Tax Treaty Shopping: Changes in the US Approach to Limitation on Benefits Provisions in Developing Country Treaties’ (1990) 30 Virginia Journal of International Law 553Google Scholar; Committee of Experts on International Cooperation in Tax Matters, ‘Abuse of Tax Treaties and Treaty Shopping’ (United Nations, 2005)Google Scholar.
24 See also, Brooks, Kim, ‘Tax Treaties as a Mechanism for the Just Distribution of Income Between Nations’ Paper presented at the annual meeting of the Law and Society Association, Jul 06, 2006Google Scholar; United Nations, ‘Draft Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries (2001).
25 This is because developed countries are unwilling to negotiate treaties based on the UN Model which generally allocates taxing rights in favour of developing countries. For example, Mexico and the United States only concluded a tax treaty in the early 1990s once Mexico agreed to negotiate based on the OECD Model. Mexico subordinated its revenue considerations in favour of using the treaty to attract foreign investment and to integrate into the global tax community: Peter Byrne, ‘Tax Treaties in Latin America: Issues and Models’ in Vito Tanzi et al, Taxation and Latin American Integration (2008) 231.
26 Central Intelligence Agency, The World Factbook (2006) <http://www.cia.gov/cia/publications/factbook>.
27 Government of India, Economic Survey 2005-2006 (2006) 1, 139.
28 Jayanthi Iyengar, Mauritius Tax Loophole Under Indian Scrutiny (5 December 2002) Asia Times Online <http://www.atimes.com>.
29 Richard Vann, Model Tax Treaty for the Asia-Pacific Region? (1989); Thuronyi, Victor, ‘International Tax Cooperation and a Multilateral Treaty’ (2000) 26 Brooklyn Journal of International Law 1641Google Scholar; Michael Lang et al, Multilateral Tax Treaties: New Developments in International Law (2005); Avi-Yonah, Reuven S., ‘Double Tax Treaties: An Introduction’ in Sauvant, Karl and Sachs, Lisa (eds), The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows (2009)Google Scholar. See also, Reinhold, Richard, ‘Some Things That Multilateral Tax Treaties Might Usefully Do’ (2003-2004) 663Google Scholar.
30 Avi-Yonah, Reuven S., ‘Double Tax Treaties: An Introduction’ in Sauvant, Karl and Sachs, Lisa (eds), The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows (2009) 108Google Scholar.
31 Plummer, Michael, ‘The EU and ASEAN: Real Integration and Lessons in Financial Cooperation’ (2002) 25 World Economy 1469, 1483CrossRefGoogle Scholar.
32 Mario Monti, A New Strategy for the Single Market (2010) 79-83.
33 Mario Monti, A New Strategy for the Single Market (2010) 80-81.
34 For discussion of ECJ cases on EU bilateral tax treaties, see, European Commission, ‘EC Law and Tax Treaties: Workshop of Experts’ (2005) 9–12Google Scholar.
35 Thömmes, Otmar, ‘A Tax Treaty for Europe: An Independent View Under EU Law’, speech presented at Confederation Fiscal Européenne Forum (April 2005)Google Scholar.
36 Šemeta, Algirdas, ‘Commission Opens Public Consultation on Double Taxation Problems in the EU’ (Press Release, 27 April 2010)Google Scholar.
37 Kevin Holmes, International Tax Policy and Double Tax Treaties: An Introduction to Principles and Application (2007) 63.
38 Historical background available at: Comunidad Andina Secretaria General <http://www.comunidadandina.org/endex.htm> (accessed 26 January 2011).
39 Cited in Atchabahian, Adolfo, ‘The Andean Subregion and its Approach to Avoidance or Alleviation of International Double Taxation’ (1974) XXVIII(8) Bulletin 309, 309Google Scholar.
40 Atchabahian, Adolfo, ‘The Andean Subregion and its Approach to Avoidance or Alleviation of International Double Taxation’ (1974) XXVIII(8) Bulletin 309, 311–312Google Scholar.
41 Under most existing bilateral tax treaties, countries retain the right to tax income which has been subject to tax in another country but will provide relief for taxes paid in that other country so as to avoid double taxation. For example, assume Country A has a tax rate of 20 per cent, Country B has a tax rate of 30 per cent and both countries have a system of worldwide taxation whereby they tax their residents on all income regardless of where it is earned and they tax non-residents on income earned within the country. Country B may still impose tax on income earned by its residents in Country A which has been subject to tax in Country A. The taxpayer will pay tax at a rate of 20 per cent in Country A and Country B will impose tax at a rate of 30 per cent but provide relief for the taxes already paid in Country A such that the taxpayer is effectively subject to tax at a rate of 10 per cent in Country B, avoiding double taxation of the same income.
42 For detailed analysis of the provisions of the Agreement, see: Atchabahian, Adolfo, ‘The Andean Subregion and its Approach to Avoidance or Alleviation of International Double Taxation’ (1974) XXVIII(8) Bulletin 309, 325–337Google Scholar.
43 See for example, Richard Vann, Model Tax Treaty for the Asia-Pacific Region? (1989); Byrne, Peter, ‘Tax Treaties in Latin America: Issues and Models’ in Tanzi, Vitoet al, Taxation and Latin American Integration (2008)Google Scholar.
44 Byrne, Peter, ‘Tax Treaties in Latin America: Issues and Models’ in Tanzi, Vitoet al, Taxation and Latin American Integration (2008) 239Google Scholar.
45 Ibid. See also, Castillo, Nicasio delet al, ‘Taking Advantage of Tax Treaties in Latin America’ (2003) International Tax Review 1Google Scholar.
46 Historical background available at: Caribbean Community (CARICOM) Secretariat <http://www.caricom.org> (accessed 26 January 2011).
47 Grande Anse Declaration and Work Programme for the Advancement of the Integration Movement (1989).
48 Caribbean Community (CARICOM) Secretariat, ‘CARICOM Set for Formal Launch of Single Market’ (Press Release 21/2006, 27 January 2006)Google Scholar
49 Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and for the Encouragement of International Trade and Investment (1973).
50 Caribbean Community (CARICOM) Secretariat, ‘Taxation’ available at <http://www.caricom.org> (accessed 26 January 2011)+(accessed+26+January+2011)>Google ScholarPubMed.
51 Agreement among the Governments of the Member States of the Caribbean Community for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Profits or Gains and Capital Gains and for the Encouragement of Regional Trade and Investment (1994).
52 Valderrama, Irma, ‘International Tax Law Developments in the Tax Treatment of Interest, Royalties and Other Flows of Income: The Case of Suriname’ in Valderrama, Irma and Mens, K.L.H. van (eds), The Suriname Papers (2008) 8Google Scholar.
53 Bierlaagh, Huub, ‘The CARICOM Income Tax Agreement for the Avoidance of (Double) Taxation?’ (2000) January Bulletin – Tax Treaty Monitor 99, 99Google Scholar.
54 Grenada, Montserrat, and St. Kitts and Nevis have yet to enact the new Agreement.
55 For analysis of each of the provisions of the new Agreement against the OECD and UN Models, see: Bierlaagh, Huub, ‘The CARICOM Income Tax Agreement for the Avoidance of (Double) Taxation?’ (2000) January Bulletin – Tax Treaty Monitor 99, 99–104Google Scholar.
56 Bierlaagh, Huub, ‘The CARICOM Income Tax Agreement for the Avoidance of (Double) Taxation?’ (2000) January Bulletin – Tax Treaty Monitor 99, 103–104Google Scholar.
57 See, Vogel, Klaus, ‘Worldwide vs Source Taxation of Income – A Review and Re-evaluation of Arguments (Part I)’ (1988) 8-9 Intertax 216Google Scholar; Vogel, Klaus, ‘Worldwide vs Source Taxation of Income – A Review and Re-evaluation of Arguments (Part II)’ (1988) 10 Intertax 310Google Scholar; Vogel, Klaus, ‘Worldwide vs Source Taxation of Income – A Review and Re-evaluation of Arguments (Part III)’ (1988) 11 Intertax 393Google Scholar; Avery-Jones, John, ‘Tax Treaty Problems Relating to Source’ (1998) 3 British Tax Review 222Google Scholar.
58 Caribbean Community (CARICOM) Secretariat, ‘CARICOM Tax Experts Look at Regional Double Taxation Agreement’ (Press Release 464/2009, 1 December 2009)Google Scholar.
59 One of the earliest formal cooperation arrangements was the formation of the Nordic Association by Denmark, Norway and Sweden in 1919. They were joined by Iceland in 1922 and Finland in 1924. Historical background and information on Nordic cooperation available at: Norden <http://www.norden.org/en> (accessed 26 January 2011).
60 Due to language constraints, the information on Nordic tax cooperation is primarily drawn from: Hengsle, Odd, ‘The Nordic Multilateral Tax Treaties – for the Avoidance of Double Taxation and on Mutual Assistance’ (2002) August/September Bulletin 371, 371–376Google Scholar. Mr Hengsle was the Director General of the Norwegian Ministry of Finance at the time of writing the article.
61 Hengsle, Odd, ‘The Nordic Multilateral Tax Treaties – for the Avoidance of Double Taxation and on Mutual Assistance’ (2002) August/September Bulletin 371, 376Google Scholar.
62 For detailed analysis of the provisions of the treaty, see: Helminen, Marjaana, ‘Scope and Interpretation of the Nordic Multilateral Double Taxation Convention’ (2007) January Bulletin for International Fiscal Documentation 23, 23–38Google Scholar; Helminen, Marjaana, ‘Dividends, Interest and Royalties under the Nordic Multilateral Double Taxation Convention’ (2007) February Bulletin for International Taxation 49, 49–64Google Scholar; Helminen, Marjaana, ‘Non-discrimination and the Nordic Multilateral Double Taxation Convention’ (2007) March Bulletin for International Taxation 103Google Scholar; 103-108.
63 Dhaka Declaration, Thirteenth SAARC Summit, Dhaka (13 November 2005).
64 Colombo Declaration, Fifteenth SAARC Summit, Colombo (3 August 2008).
65 Charter of the South Asian Association for Regional Cooperation (1985) Article I.
66 Historical background available at: SAARC: South Asian Association for Regional Cooperation <http://www.saarc-sec/org> (accessed 26 January 2011).
67 For further discussion on SAPTA and SAFTA, see Chowdhury, Mamta B, ‘Trade Reforms and Economic Integration in South Asia: SAARC to SAPTA’ (2005) 5(4) Applied Econometrics and International Development 23Google Scholar
68 Chowdhury, Mamta B, ‘Trade Reforms and Economic Integration in South Asia: SAARC to SAPTA’ (2005) 5(4) Applied Econometrics and International Development 23, 38Google Scholar; Khan, Saleem and Khan, Zahira, ‘Asian Economic Integration: A Perspective on South Asia’ in Wiemer, Calla and Cao, Heping (eds), Asian Economic Cooperation in the New Millennium: China's Economic Presence (2004) 175, 178–179Google Scholar.
69 United Nations Development Programme, Human Development Report – Overcoming Barriers: Human Mobility and Development (2009) 143–145Google Scholar.
70 A territorial tax system is one where the country imposes its taxing rights only on income sourced (i.e. earned) in that country. Brunei does not impose income tax on individuals while Thailand taxes companies on a worldwide basis.
71 The ASEAN Charter specifically contemplates and allows for one or more members to opt out of a specific area of economic cooperation: ASEAN, Charter of the Association of Southeast Asian Nations (2007) Art. 21(2)Google Scholar.
72 Hengsle, Odd, ‘The Nordic Multilateral Tax Treaties – for the Avoidance of Double Taxation and on Mutual Assistance’ (2002) August/September Bulletin 371, 376Google Scholar.