Abstract
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.
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Notes
- 1.
The World Bank, Agreements Library, online: The World Bank <http://wits.worldbank.org/gptad/library.aspx>.
- 2.
The departure from the undertaken multilateral obligations is envisaged in some cases under the GATS. The GATS Article V is an illustration of one of such exemptions as it seeks to promote wider economic integration by allowing WTO Members to enter into economic integration agreements, such as regional trade agreements, provided such agreements do not result in raising the overall level of barriers to trade in services. Regional liberalization of trade on a bilateral or multilateral basis is thus seen as preferable to limited or no liberalization at all. Whether creation and proliferation of such agreements is the best way of dealing with this issue is debatable.
- 3.
See for example Canada-Colombia Free Trade Agreement, 21 November 2008, Can TS 2011 No. 11 (entered into force 15 August 2011), Chapter Nine [CCFTA].
- 4.
See for example CCFTA, Chapter 22.
- 5.
See for example CCFTA, Chapter 21.
- 6.
Whether the CCFTA and Canada-Panama Free Trade Agreement, 14 May 2010, Can TS 2013 No. 25 (entered into force 1 April 2013) [CPFTA] can be regarded as increasing opportunities in trade in services largely depends on whether the regulatory environment provided for in these regional trade agreements is more conducive to the cross-border trade in a services.
- 7.
See the discussion in Chap. 3 at 3.2.1.
- 8.
In the CPFTA, Article 23.01, what is considered a ‘tax’ or a ‘taxation measure’ is defined by exclusion. Specifically, it does not include a customs duty or certain measures related to anti-dumping or countervailing duties, customer user fees related to imported goods or certain premiums related to imported goods. There is a similar definition in the CCFTA, Article 2208.
- 9.
Taxation measures are defined only by exclusion. They do not include customs or related duties.
- 10.
See generally the discussion at Chap. 3 at 3.3.2.
- 11.
See CPTFA Article 23.04 and CCFTA Article 2204.
- 12.
CCFTA Article 2204(5)(a).
- 13.
See for example CCFTA Article 2204(5)(c)(iv).
- 14.
See for example CPFTA Article 23.05.
- 15.
See for example CPFTA Article 2204(5)(c)(i).
- 16.
See for example CPFTA Article 2204(5)(c)(ii) and (iii).
- 17.
See for example CPFTA Article 2204(5)(c)(iv).
- 18.
CCFTA, Articles 2204(8)(a) and (c).
- 19.
For the CCFTA, in the case of withholding tax, the Treaty applies as of 1 January 2013. In the case of other taxes, the Treaty applies for taxation years beginning on or after 1 January 2013.
- 20.
This conclusion depends on how the trade agreement is interpreted. Read literally the CCFTA, Article 2204(2) is clear that “Nothing in this Agreement shall affect the rights and obligations of any Party under any tax convention. In the event of any inconsistency between this Agreement and any such convention, that convention shall prevail to the extent of the inconsistency.” The imposition of a non-discrimination obligation under the trade agreement when there is none under the tax treaty is arguably inconsistent. In order to resolve an issue where the provisions are similar under a tax treaty and the CCFTA Article 2204(3)(c) requires that the procedural provisions of the tax treaty alone be used by the competent authorities identified in the tax convention resolve any issue related to the provisions.
- 21.
See discussion in Chap. 3.
- 22.
CCFTA, Article 28(3).
- 23.
The GATS, Article XIV. See discussion in Chap. 2 at 2.2.1.4.
- 24.
The text is available online: <http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154329.pdf>.
- 25.
Residence means residence for tax purposes. CETA, Article 28.1.
- 26.
“4. Nothing in this Agreement or in any arrangement adopted under this Agreement shall apply:
(a) to a taxation measure of a Party that provides a more favourable tax treatment to a corporation, or to a shareholder of a corporation, on the basis that the corporation is wholly or partly owned or controlled, directly or indirectly, by one or more investors who are residents of that Party;
(b) to a taxation measure of a Party that provides an advantage relating to the contributions made to, or income of, an arrangement providing for the deferral of, or exemption from, tax for pension, retirement, savings, education, health, disability or other similar purposes, conditional on a requirement that that Party maintains continuous jurisdiction over such arrangement;
(c) to a taxation measure of a Party that provides an advantage relating to the purchase or consumption of a particular service, conditional on a requirement that the service be provided in the territory of that Party;
(d) to a taxation measure of a Party that is aimed at ensuring the equitable and effective imposition or collection of taxes, including a measure that is taken by a Party in order to ensure compliance with the Party’s taxation system;
(e) to a taxation measure that provides an advantage to a government, a part of a government, or a person that is directly or indirectly owned, controlled or established by a government; …”.
- 27.
CETA, para 28.7(3).
- 28.
See Article 24. Agreement Between Canada and the Federal Republic of Germany for the Avoidance of Double Taxation With Respect to Taxes on Income and Certain Other Taxes, the Prevention of Fiscal Evasion and the Assistance in Tax Matters. 19 April 2001. Entered into force March 1, 2002.
- 29.
CETA, para 28.7(7)(a): “Where an investor submits a request for consultations pursuant to Article 8.19 (Consultations) claiming that a taxation measure breaches an obligation under Sections C (Non-discriminatory treatment) or D (Investment protection) of Chapter Eight (Investment), the respondent may refer the matter for consultation and joint determination by the Parties as to whether:
(i) the measure is a taxation measure;
(ii) the measure, if it is found to be a taxation measure, breaches an obligation under Sections C (Non-discriminatory Treatment) or D (Investment Protection) of Chapter Eight (Investment); or
(iii) there is an inconsistency between the obligations in this Agreement that are alleged to have been breached and those of a tax convention.
- 30.
See Australia’s free trade agreements in force, Department of Foreign Affairs and Trade, Australia’s Free Trade Agreements, online: Australian Government <http://www.dfat.gov.au/fta/>. Australia is currently engaged in three bilateral free trade agreement negotiations: India, Indonesia, and the Gulf Cooperation Council.
- 31.
The 1989 protocol to this agreement in respect of services specifically excludes all taxation measures.
- 32.
See discussion in Chap. 3 at 3.4.
- 33.
What is considered to be a taxation measures is not generally specified in the free trade agreements however the definition in the agreement specifically excludes customs duties. See for example Article 18.3(8) of the Malaysia-Australia Free Trade Agreement, 22 May 2012, [2013] ATS 4 (entered into force 1 January 2013) [MAFTA].
- 34.
Singapore–Australia Free Trade Agreement, 17 February 2003, [2003] ATS 16 (entered into force 28 July 2003) [SAFTA]. The agreement has been the subject of three reviews in a progressive move towards further liberalization; the most recent in 2016.
- 35.
See the GATS Article XIV.
- 36.
The SAFTA does define direct tax for purposes of the agreement. See SAFTA, Chap. 7, Article 1(c).
- 37.
GATS, Article XIV.
- 38.
Australia-US Free Trade Agreement, 18 June 2004, [2005] ATS 1 (entered into force 1 January 2005), Article 22.3 [AUSFTA].
- 39.
AUSFTA, Article 22.3.
- 40.
AUSFTA, Chapters 10 and 11.
- 41.
Australia-Chile Free Trade Agreement, 30 July 2008, [2009] ATS 6 (entered into force 6 March 2009) [ACFTA].
- 42.
ACFTA, Article 22.3(4).
- 43.
ACFTA, Article 22.3(1).
- 44.
ACFTA, Article 22.3(2).
- 45.
Australia-Thailand Free Trade Agreement, 5 July 2004, [2005] ATS 2 (entered into force 1 January 2005) [ATFTA].
- 46.
ASEAN-Australia-New Zealand Free Trade Agreement, 27 February 2009, [2010] ATS 1 (entered into force 1 January 2010) [AANZFTA].
- 47.
See Chap. 2 at 2.2.1.
- 48.
MAFTA, Article 8.2(o).
- 49.
Ibid.
- 50.
See Chap. 4 at 4.2.1.2.
- 51.
See MAFTA, Article 18.3(4); ATFTA Article 1607(2).
- 52.
See generally the discussion in Chap. 2 at 2.2.1.
- 53.
MAFTA, Article 18.3(4): “Nothing in this Agreement shall affect the rights and obligations of a Party under any tax convention relating to the avoidance of double taxation in force between the Parties. In the event of any inconsistency relating to a taxation measure between this Agreement and any such tax convention, the latter shall prevail.”
- 54.
MAFTA, Article 18.2(2).
- 55.
MAFTA, Article 18.3(7).
- 56.
Free Trade Agreement between the Government of Australia and the Government of the Republic of Korea, 8 April 2014, [2014] ATS 43 (entered into force 12 December 2014), Article 22.3(2)(c) [KAFTA].
- 57.
KAFTA, Article 22.3(3)(a).
- 58.
Agreement between Australia and Japan for an Economic Partnership, 8 July 2014, [2015] ATS 2 (entered into force on 15 January 2015) [JAEPA].
- 59.
JAEPA, Article 1.
- 60.
Free Trade Agreement between the Government of Australia and the Government of the People’s Republic of China, 17 June 2015, [2015] ATS 15 (entered into force on 20 December 2015), Article 16.4(2) [ChAFTA].
- 61.
ChAFTA, Article 16.4(3).
- 62.
ChAFTA, Article 16.1. Tax measures exclude customs or import duties but not indirect tax measures.
- 63.
ChAFTA, Article 16.4(5).
- 64.
JAEPA, Article 1.11(2).
- 65.
ChAFTA, Article 16.4(a).
- 66.
Until 2008 Australia reserved its position on Article 24 in para. 85 of the Commentary on Article 24 of the OECD Model. This reservation was replaced in 2008 as follows: Australia reserves the right to propose amendments to ensure that Australia can continue to apply certain provisions of its domestic law relating to deductions for R & D and withholding tax collection.” Para 86 OECD Model Commentary on Article 24.
- 67.
The exceptions are the tax treaties with the United States, Japan and Chile. See for example, the Convention between Australia and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, 31 January 2008, [2008] ATS 21 (entered into force 3 December 2008) [Australia-Japan Tax Treaty]. Explanatory Memorandum of Article 26 of the Australia-Japan Tax Treaty, Chapter 1 2008 Australia-Japan Convention, International Tax Agreements Amendment Bill (No. 1) 2008 circulated by the authority of the Treasurer, the Hon Wayne Swan MP, online: <http://www.austlii.edu.au/au/legis/cth/bill_em/itaab12008416/memo_0.html>.
- 68.
A potential exception is an indirect obligation that results from the non-discrimination clause in the tax treaties with the United States and Chile as it applies to the deductibility of amounts paid to a non-resident.
- 69.
See generally Pauwelyn (2009) at 184–188.
- 70.
There is a non-discrimination article in the Australia-Japan, Australia-U.S. and Australia-Chile Tax Treaties.
- 71.
KAFTA. Article 1.2(3).
- 72.
Pauwelyn (2009) at 169.
- 73.
Ibid at 158. This can be contrasted with a strict interpretation. Under a broad interpretation conflict will exist in more situations than the strict case of mutually exclusive, irreconcilable obligations that cannot logically be enforced at the same time Aufricht (1952) at 655–656.
- 74.
- 75.
Purposively, Australia and South Korea did not include a non-discrimination obligation in the tax treaty and this is an implicit part of the bargain between the two sovereign nations.
- 76.
Article 1.2 of the trade agreement does not cover ‘inconsistencies between this Agreement and the sovereign taxing rights of both Parties’, it only includes within its ambit ‘inconsistencies between this Agreement and other agreements to which both Parties are a Party’. The right to discriminate is not an implied term of the tax treaty. It would be absurd for either state to claim the right to discriminate exists after subsequently, and expressly, agreeing to a term which provides for the opposite obligation. If the right to discriminate were central to the aims of the tax treaty such that the tax treaty is actually incompatible with the trade agreement, surely such an important term would be included or at least mentioned in the tax treaty.
- 77.
See discussion in Sect 2.2.1.3.
References
Treaties & Treaty Documents
Agreement between Australia and Japan for an Economic Partnership, 8 July 2014, [2015] ATS 2.
ASEAN-Australia-New Zealand Free Trade Agreement, 27 February 2009, [2010] ATS 1.
Australia-Chile Free Trade Agreement, 30 July 2008, [2009] ATS 6.
Australia-Thailand Free Trade Agreement, 5 July 2004, [2005] ATS 2.
Australia-US Free Trade Agreement, 18 May 2004, [2005] ATS 1.
Canada-Colombia Free Trade Agreement, 21 November 2008, Can TS 2011 No. 11.
Canada-Panama Free Trade Agreement, 14 May 2010, Can TS 2013 No. 25.
Convention between Australia and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, 31 January 2008, [2008] ATS 21.
Explanatory Memorandum of Article 26 of the Australia-Japan Tax Treaty, Chapter 1 2008 Australia-Japan Convention, International Tax Agreements Amendment Bill (No. 1) 2008.
Free Trade Agreement between the Government of Australia and the Government of the Republic of Korea, 8 April 2014, [2014] ATS 43.
Free Trade Agreement between the Government of Australia and the Government of the People’s Republic of China, 17 June 2015, [2015] ATS 15.
Malaysia-Australia Free Trade Agreement, 22 May 2012, [2013] ATS 4.
Singapore-Australia Free Trade Agreement, 17 February 2003, [2003] ATS 16.
Secondary Material
Aufricht H. (1952). Supersession of treaties in international law. Cornell Law Quarterly 655.
Sir Gerald Fitzmaurice. Third Report on the law of treaties. YBILC 1958 (vol. 2) 20.
Lauterpacht, H. (1936). The covenant as the ‘higher law’. (1934) 17 BYIL 54.
Pauwelyn, J. (2009). Conflict of norms in public international law: How WTO law relates to other rules of international law. Cambridge: Cambridge University Press.
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Brown, C.A. (2017). Bilateral Free Trade Agreements. In: Non-discrimination and Trade in Services. Springer, Singapore. https://doi.org/10.1007/978-981-10-4406-9_4
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