J. W. Leeds*
Introduction:
Due to the rapid increase in international commerce,
and the growth in economic interdependence between nations
in the post-World war II era, there has been an associated
increase in the number of bilateral income tax treaties.
Currently, Thailand has in effect bilateral income tax
treaties with 27 nations. The United States has over forty
such treaties in force. The signing of the treaty between
the United States and Thailand marked an historic event,
and it is expected that the treaty will usher in a new
era of trade and investment between the two countries.
Background:
On
November 26, 1996 William H. Itoh, Ambassador of the United
States of America, and Amnuay Virawan, Deputy Prime Minister
and Minister of Foreign Affairs for the Kingdom of Thailand
signed a convention for the avoidance of double taxation
and the prevention of fiscal evasion with respect to taxes
on income.(1) The Convention
between the United States and Thailand (hereinafter the
"Convention") will become effective upon ratification
by the legislative bodies of each nation.(2)
The treaty may come into
force as early as 1998, assuming US Senate ratification.(3)
The
Convention between the United States and Thailand has
been under negotiation for almost twenty years. The main
source of disagreement had been Thailand's proposal for
a tax-sparing credit by the US government to waive taxes
for US-based investors in Board of Investment promoted
projects in Thailand.(4)
Tax sparing is a form of incentive to investment that
usually takes the form of a reduction of tax rates or
tax holidays.(5) The US
Congress has retained a policy of being consistently opposed
to tax-sparing credits.(6)
The final version of the Convention does not include a
tax-sparing provision.
Authority
and Rationale of the Convention: Double
taxation treaties have a dual legal nature. The treaty
is both an international agreement on behalf of two nations,
and also becomes part of the domestic tax law of each
contracting state.(7) As
an international treaty, interpretation of the treaty
is governed by public international law, and specifically
by the Vienna Convention on the Law of Treaties of 1969.(8)
In the United States, the rules of construction used in
interpreting treaties are essentially the same as those
used by the court in interpreting statutory law.(9)
The
governments involved consider the tax treaty as an agreement
to limit the taxing jurisdiction of each state, with a
primary aim being the encouragement of foreign investment
or labor or to assist the state's residents in overseas
investments or work-related projects.(10)
As is apparent from the title of the convention, there
is an additional purpose, that of preventing fiscal evasion.
A taxpayer can no longer be certain that the information
he supplies to the revenue authorities to one state will
be confidential from the authorities of the other state.(11)
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