Double taxation treaties and their implications for investment: What investment policymakers need to know

Double taxation treaties (DTT) are international agreements, almost exclusively concluded on a bilateral basis, that aim to alleviate double taxation arising from cross-border business activities.

They do so by distributing taxing rights over different items of income or capital between the contracting States. At the same time, DTTs aim to prevent instances of their improper use for the purpose of tax evasion and avoidance.

They are the central pillars of international tax coordination and despite their bilateral nature and divergent details, they all follow the same overall patterns determined by model conventions put forward by the United Nations and the Organisation for Economic Co-operation and Development (OECD).

The overarching goal of DTTs is to facilitate cross-border business activities, trade and investment, by preventing the double taxation that such activities might be subject to, while creating a level playing field.

Given the material impact that DTTs can have on investment, it is important that investment policymakers understand their main features and are able to engage in debates related to different double taxation treaty policy options.

This guide assesses the most relevant double taxation treaty provisions and their implications for investment using the Model Conventions of the United Nations and of the Organisation for Economic Co-operation and Development (OECD) as a basis.

It provides guidance to investment policymakers on the working of DTT provisions, the proposed changes to DTTs following the OECD/G20 Base Erosion and Profit Shifting project and the implications of those changes for investment.

It also draws on UNCTAD’s previous work on the impact of the global minimum tax on foreign direct investment, in the World Investment Report 2022 (UNCTAD, 2022) and the taxation paper in the UNCTAD Series on Issues in International Investment Agreements (UNCTAD, 2000).

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