Can the OECD`s standard tax agreement, which celebrates its 50th anniversary this year, continue to play its part in helping to make international taxation fairer and more efficient? Probably yes, even if there are challenges. International double legal taxation – generally defined as the collection of comparable taxes in two (or more) states on the same purpose and for identical periods – has adverse effects on international trade in goods and services and on cross-border movements of capital, technology and people. Recognizing the need to remove this obstacle to the development of economic relations between countries and the importance of clarifying and standardizing the tax situation of taxpayers operating in other countries, the OECD`s model tax treaty on income and capital provides a way to consistently resolve the most common problems with international double taxation. Quite simply, the OECD model has emerged as a means of solving the most common problems in the field of international taxation. By allowing for some harmonization of double taxation conventions, it conducts bilateral negotiations and contributes to the uniform settlement of disputes. Think about the issue of double taxation. If a U.S. company sells its products in the U.S. and earns revenue from that activity, it will pay taxes in the United States. If the same company also sells its products in France, it may be obliged to tax on the same income in both France and the United States. But how much tax should the company pay and to which tax administration? The negative effects of false double taxation on international trade, investment and trust are obvious. It is clear that neither the economy nor the government wants to feel discouraged or discriminated against. Double taxation agreements help to address these problems by providing agreed rules for the distribution of tax duties between cross-border income between the two countries, so that the U.S.
company is exempt from double taxation of its income. Consider the 2008 update, which has just been adopted with a series of interesting changes based on OECD reports in recent years. For example, a binding arbitration provision is introduced to resolve difficult unresolved issues through the procedure so called mutual agreement, with broader and more precise comments on how the mutual agreement procedure itself should work. In order to avoid double taxation, which has significant distorting effects on cross-border trade and investment, countries have developed a vast network of bilateral tax treaties. However, in the absence of internationally agreed standards and an easily accessible set of provisions, it would be extremely difficult to negotiate these bilateral agreements between countries and their application may give rise to divergent interpretations.