From the Archive – May 2012

No ITPA meeting is complete without some reference to tax treaties. This might lead the innocent observer to suppose that the purpose of a tax treaty is to benefit the taxpayer who is party to a cross-border transaction. Not a bit of it. The tax treaty is not concerned with how much the transaction generates: all it has to do is to divide the take between the jurisdictions involved: relief in country A is balanced by chargeability in country B. But of course tax planners have discovered that there are situations where the treaty confers on country B the right to tax a certain income stream, but the tax system in country B does not provide for such income to be taxed, or – at least – taxes it at a lower rate. Looking for such situations is what goes by the name “treaty shopping”. In Luxembourg, last year, Erich Baier gave us what was to many of us the startling news that Austria does not tax the foreign income of companies resident there, yet has 89 treaties! This is just the kind of situation which gives rise to “shopping” opportunities. And if we go right back to our first programme, on 12-14 May 1976 in Nice, we find the topic Taking Advantage of Double Taxation Agreements (Interest, Royalties and Trading Profits) addressed by a panel of speakers, including Francis Hoogewerf and Richard Pease. It comes as no surprise to find that the programme for our meeting in Cannes has three treaty-related topics. One includes a passing reference to the use of treaties with South Africa, but the others are full examinations of the treaty aspects of two very important jurisdictions in the Far East – Singapore and (which is an interesting newcomer to the tax treaty world) Hong Kong.