How to Design a Regional Tax Treaty and Tax Treaty Policy Framework in a Developing Country

IMF How To Notes, May 4, 2021

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A well-designed regional tax treaty for developing-country signatories will include:
- provisions securing minimum withholding taxes on investment income and technical service fees;
- a taxing right in respect of capital gains from indirect offshore transfers;
- protections against treaty shopping.
A tax treaty policy framework—national or regional—that specifies the main policy outcomes to be achieved before negotiations commence can enable developing countries with more limited expertise and lower capacity for tax treaty negotiations to avoid concluding problematic tax treaties.
The note provides guidance for members of regional economic communities in the developing world on:
- what should and should not be included in a regional tax treaty; and
- how to design a common tax treaty policy framework for use in negotiations of bilateral tax treaties with nonmembers.

Purpose:
- Specify main policy outcomes before negotiations commence.
Benefits:
- Helps countries with limited expertise and lower capacity avoid concluding problematic tax treaties.
- Facilitates common positions for members of regional economic communities when negotiating with nonmembers.

Subjects: Corporate income tax, Dividend tax, Double taxation, Payroll tax, Revenue administration, Tax policy, Taxes, Withholding tax.
Keywords: Caribbean, Corporate income tax, corporate tax, developing countries, Dividend tax, Double taxation, group treaty negotiations, Payroll tax, regional tax, regional tax policy, regional tax treaty, tax treaty, tax treaty position, treaty negotiations, treaty shopping, value-added tax, West Africa, Withholding tax.