Press Conference on Revised United Nations Double Taxation Convention

 

Protecting against double taxation on cross-border income, helping developing countries to encourage foreign investment, and combating the “scourges” of tax avoidance and tax evasion were the main priorities of the newest United Nations economic guidance document, said top officials at a Headquarters press conference today.

Speaking on the eve of the launch of the 2011 update of the United Nations Model Double Taxation Convention between Developed and Developing Countries — known as the “UN Model Convention” — were Alex Trepelkov, Director of the Financing for Development Office of the United Nations Department of Economic and Social Affairs; Armando Lara Yaffar, Chairperson of the United Nations Committee of Experts on International Cooperation in Tax Matters; and Michael Lennard, Secretary of the Committee and Chief of the International Tax Cooperation Unit of the Department of Economic and Social Affairs.  They briefed correspondents on the scope and content of the revised UN Model Convention, which will be officially launched tomorrow as part of a special high-level meeting of the Economic and Social Council on international cooperation in tax matters.

“International law places very few limits on the tax sovereignty of countries,” said Mr. Trepelkov.  As a result, he explained, income from cross-border investments was often subjected to taxation in both the source country — where investment takes place — and the residence country of the investor or trader.  That situation could discourage cross-border investment, in particular, in developing countries.  The purpose of the Convention, revised more than a decade after its original 1999 version, was, therefore, to assist countries in negotiating modern bilateral double-tax treaties, he said.

Together with the world’s other most prominent Model Double Taxation Convention, that of the Organisation for Economic Cooperation and Development (OECD), the UN Model Convention already forms the basis for most of the several thousand bilateral tax treaties between countries, said Mr. Trepelkov.  The updated Convention represents yet another milestone in the United Nations continued efforts to enhance international tax cooperation, as it takes into account more recent developments in the area of international tax policies.

Double taxation, and the related issues of tax avoidance and tax evasion, had risen to a new prominence due in part to the galvanized international dialogue about financing for development, said Mr. Lennard.  Agreeing that the threat of double taxation could hinder the investment opportunities of developing countries, he also highlighted the major toll that tax abuses took on those same countries.

Indeed, according to a recent study by the independent organization Tax Justice Network, tax losses resulting from the “shadow economy” — or transactions made “off the books”, without paying taxes — amounted to an estimated $3.1 trillion annually worldwide.  An estimated $160 billion of those losses occurred in developing countries, a figure which could save the lives of some 1,000 children per day.  Among other new elements in the revised UN Model Convention was a series of tools to combat tax abuses and to assist countries with the often challenging process of tax collection.

Addressing the similarities and differences between the UN Model Convention and that of the OECD, Mr. Yaffar noted that the UN Model Convention generally sought to preserve a greater share of tax revenue to the country where investment took place, a strategy that normally allowed developing countries more taxing rights on income generated by foreign investments.  The non-binding nature of the UN Model Convention was aimed at providing guidance to States, while allowing them to “make their own decisions” with regard to the tax policies that would best suit their national priorities.  In addition, he said, the UN Model Convention provided for the possibility of implementing an arbitration mechanism in tax disputes, but it did not bind countries to recognize such a mechanism.

The speakers also responded to a number of questions from correspondents, including one concerning the lengthy period between the first and revised versions of the UN Model Convention.  Mr. Lennard reiterated that the issue was an important part of the new conversations taking place around financing for development.  There was also a difference in the amount of resources available to the United Nations Committee of Experts and that available to the OECD, whose Convention was updated more frequently, he added.

Another correspondent asked how the UN Model Convention tackled the issues of implementation and compliance.  In that regard, Mr. Lennard again stressed that the Convention was non-binding and that it allowed countries to “pick and choose” the elements of the model that worked best to address their particular needs.  “We’re not requiring countries to pick up this model,” he said.  While there were good reasons why developing countries might want a source-friendly taxation model such as the one provided in the Convention, “different countries will have different approaches on this”, he explained.

Mr. Yaffar added that the United Nations would be doing more to help build implementation capacity in developing countries — in particular, in the least developed countries.  A capacity development subgroup of the Committee of Experts had been created with the aim of better understanding the specific needs of countries, and ultimately allowing the United Nations to provide the appropriate technical assistance for the implementation of tax policies.

“There will be pros and cons [to implementing the UN Model Convention] in each country,” said Mr. Lennard in that regard.  However, he hoped that, for most States, encouraging investment and reducing tax abuses would have a positive effect in the long term.  “The best thing we can do is put [the model] before them […] and let them make the decisions,” he concluded.

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For information media • not an official record