Tax treaties prescribe how countries can tax cross-border activities between the treaty partners. In the overwhelming majority of cases, they are outdated and unfair. In the form that they commonly take (following the OECD model) tax treaties are bad for developing countries because they:
• give multinational corporations a legal means to avoid or dramatically reduce tax through treaty shopping;
• are inequitable – they carve up taxing rights and generally impose more limitations on the taxing rights of developing countries than on the taxing rights of developed countries. This results in reduced developing country revenue; and
• limit the ability of developing countries to collect tax by setting maximum tax rates, narrowing the scope of taxable earnings and limiting the sovereign discretion to increase taxes.
Tax treaties are squeezing the taxing rights of developing countries and impairing their ability to collect revenue urgently needed to fund essential services, infrastructure, development goals and the promotion of women's rights.
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