Will civil society shake up the world of tax treaties?

Data source: index based on the forthcoming ActionAid tax treaties dataset

Data source: index based on the forthcoming ActionAid tax treaties dataset

When a multinational company makes a cross-border investment, the relevant tax treaty between the two countries will generally sort out which country gets to tax which part of the ensuing activity and income streams. (Read more about tax treaties here.) A key question is this: how do the ensuing taxing rights over the ensuing income get shared out between a) the country receiving the inward investment (which is the source of the profits, often a poor country); and b) the country where that multinational has residence (often a rich country)?

Given political realities, it’s hardly a surprise that most tax treaties, following an OECD model, generally favour ‘residence’ over ‘source.

Now Martin Hearson has an interesting new post about the UK-Senegal tax treaty. Take a look at that graph (click to enlarge).

A higher source-residence score means a treaty relatively more favourable to developing countries: so this is an interesting progression.

And Hearson’s key ensuing comment is this one:

“The implication that the UK is one of the toughest tax negotiators with developing countries is surely worth political interrogation, at a time when its Department for International Development is urging developing countries to improve tax collection.”

A very good question.

But one more thing. Look at the data source:

“index based on the forthcoming ActionAid tax treaties dataset.”

Now we don’t yet know how this dataset is compiled: we’ll bring you more when we know more. But a key message that we want to highlight is this: that civil society actors like ActionAid are getting increasingly and rapidly involved in this hitherto arcane but important area. The tax justice movement has helped change the world in many important areas, and there’s no reason why it won’t shake things up here too.

And if that slope were to start rising more steeply, that would surely be a good thing.



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3 thoughts on “Will civil society shake up the world of tax treaties?

  1. Charlie Matthews says:

    Hi – good spot!
    At ActionAid we are very much getting involved in this area with the help of Martin’s brilliant research. Some of this work was cited by the Shadow Financial Secretary Rob Marris MP on Wednesday, during the ratification of the UK-Senegal tax treaty – see more here:
    We will be sharing more of this publicly in the new year and look forward to working with you and others in the sector on this front.

  2. David Harold Chester says:

    As long as governments and the think tanks who advise them consider that taking away from earners their money and charging their purchasers a part of their buying price and collecting capital gains etc., then there will be NO TAX JUSTICE, no matter how carefully the way in which the tax is calculated and taken. Such kinds of taxes are transferring money by immoral means from the source to the nation. By taking revenues from natural resources there is no immorality once the nation realizes that these resources are to be shared and not monopolized. So true tax justice is not about corrupted practices of firms and companys but about national corrupting of the macro-economy. TAX LAND NOT PEOPLE;TAX TAKINGS NOT MAKINGS!

    • Nick Shaxson says:

      the tiresome comment that income tax is theft has been knocked on the head so many times. LVT is a good tax as part of a comprehensive tax system; those LVT extremists who think it can replace all other taxes are doing the LVT cause great harm.

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