Catherine A. Brown

Bilateral Free Trade Agreements

In this chapter the discussion turns to the interaction of tax and trade obligations in bilateral free trade agreements using as examples some of the bilateral free trade agreements entered into by Canada and Australia. The chapter examines the issues and interpretation problems that arise in Bilateral Free Trade Agreements which result in widely varying non-discrimination obligations in tax matters. The Chapter also discusses the newly negotiated Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union.

The General Agreement on Trade in Services

This chapter provides an overview of the non-discrimination obligations in the multilateral General Agreement on Trade in Services (GATS), including national treatment and most favoured nation treatment and examines how the GATS non-discrimination obligations interrelate with the Organization for Economic Co-operation and Development (OECD) and UN Model Tax Treaties. The purpose of the discussion in this chapter is twofold. The first is to make plain the differences in non-discrimination principles that emerge in tax and trade agreements as they apply to non-resident services and service providers. The second is to illustrate the permitted differences in the tax treatment of non-resident service providers under the GATS due to the carve out of tax measures from trade obligations.

The Potential for Discriminatory Tax Treatment Based on Structural Elements in OECD and UN Based Tax Treaties

This chapter focuses on the role of the national treatment obligation under trade agreements in regulating host country behaviour in the trade in services and the lack of any parallel non-discrimination in tax treaties. Specifically, it examines the general provisions in the OECD and UN Model Tax Treaties that are employed by bilateral tax treaty partners in the taxation of non-resident service providers and how these are interpreted and applied. The chapter is framed around three broad questions. First, is there potential for differences in tax treatment between resident and non-resident service providers? Second, is there evidence of differences in the tax treatment of resident and non-resident service providers? Third, do these differences in treatment affect the competitive position of non-resident service providers and can these differences be viewed as discriminatory? The chapter concludes that the manner in which a country interprets and applies the OECD and UN tax treaty provisions that apply to services varies widely and can result in the imposition of very onerous withholding taxes and/or administrative and compliance issues.

The Potential for Discriminatory Tax Treatment Based on Domestic Law

This chapter examines the potential for discriminatory tax treatment based on a countries domestic law and in particular its withholding tax regime. It does so from two perspectives. First, it examines the withholding tax regime applicable with respect to payments made for services provided by non-residents in a number of counties including Canada. Second it examines the proposed withholding tax regime under the US Foreign Account Tax Compliance Act (FATCA). It answers the question: should there be a tax treaty non-discrimination obligation to prevent the use of domestic tax measures that unfairly or arbitrarily impact the competitive position of a non-resident service provider?

Regional Free Trade Agreements

This chapter examines the non-discrimination obligations in regional trade agreements drawing on provisions from the North American Free Trade Agreement (NAFTA), the ASEAN–Australia–New Zealand Free Trade Agreement (AANZFTA) and the newly negotiated Trans-Pacific Partnership (TPP) for examples. This chapter also examines the interface between the tax treatment of service providers and non-discrimination obligations assumed under these regional trade agreements and trade obligations assumed by the signatories under the General Agreement on Trade in Services (the GATS) and under bilateral tax treaties within each free trade region. The purpose of the discussion is firstly to outline the non-discrimination obligations that apply to non-resident service providers in areas other than taxation in these regional free trade agreements and also to demonstrate that there are significant differences in the non-discrimination obligations to which the signatories are subject within these small free trade zones even in similar circumstances.

Towards a New Non-discrimination Obligation—Policy Considerations

This chapter attempts to build a bridge between the non-discrimination obligations in trade law agreements and tax treaties that impact non-resident service provider. Underlying the discussion are two broad questions. Should non-residents be ‘fair game’ (‘Fair game’ is used in this context to refer to a person that is considered a reasonable target for any type of treatment, including discriminatory treatment) for source state tax authorities? If not, what non-discrimination principle, obligation or standard should apply? The proposed non-discrimination obligation proposed is at best an uneasy compromise that engages the non-discrimination obligation in Article 24(1) of the OECD and UN Model Tax Treaties in a manner that was not anticipated by its drafters. Nonetheless, it attempts to safeguard the obligations assumed under trade agreements by introducing a minimum non-discrimination obligation to tax treaties while respecting tax sovereignty. The addition of such a non-discrimination obligation to a tax treaty challenges the current notion that a source State owes non-residents no such obligation. It also aligns with international trade law objectives.

The WTO, NAFTA and the TFEU: Regional Perspectives by WTO Members on Non-discrimination Obligations

The chapter addresses applicable non-discrimination principles impacting two World Trade Organization (WTO) Members, Canada and the UK, as a consequence of their respective memberships in the NAFTA and in the European Union (EU). Although both Canada and the UK are WTO Members, the non-discrimination obligations in tax matters splinter again when one looks at the operation of an integrated trade agreement. In Europe, direct tax measures are filtered through the lens of the free trade principles of the Treaty of Rome. EU members who are signatories to the GATS are subject to very different non-discrimination obligations with respect to tax measures when operating in a State that is a signatory to the Treaty on the Functioning of the European Union (TFEU) than, for example a service provider from a NAFTA Party operating in the same State. The non-discrimination obligations if any, that apply to a service provider from a State that is a GATS Member may therefore vary widely when providing services in another Member State depending on whether there is an additional integrated trade agreement like the TFEU with the source State. The non-discrimination obligations affecting service providers from EU Member State may also vary depending on the terms of the tax treaty between the EU Member States. The chapter concludes that there are many approaches to the matter of non-discrimination in tax matters and standards that may apply but there will be no minimum common standard of tax treatment for many non-residents without a non-discrimination obligation in a tax treaty.