A Critique of International Tax Measures and the OECD BEPS Project in Addressing Fair Treaty Allocation of Taxing Rights Between Residence and Source Countries: The Case of Tax Base Eroding Interest, Royalties and Service Fees from an African Perspective

Authors Annet Wanyana Oguttu

ISSN: 1996-2193
Affiliations: Professor, Department of Taxation, Faculty of Economic and Management Sciences, University of Pretoria
Source: Stellenbosch Law Review, Volume 29 Issue 2, 2018, p. 314 – 346


This article analyses the international tax principles in double tax treaties regarding the allocation of taxing rights between residence states and source states. The article explains that from the early twentieth century when international tax principles to prevent double taxation were developed, due to the differing interest of developed/residence (largely capital exporters) and developing/source (largely capital importers), there has been a struggle between countries for treaty taxing rights in their favour. History seems to indicate that international tax developments for allocating treaty taxing rights; initially by the League of Nations and then by the Organisation for Economic Cooperation and Development, favoured developed countries and that efforts of the United Nations to champion the case of developing countries have over the years been hampered by under-funding and lack of strong support from developed countries. Even the OECD’s 2013-2015 Base Erosion and Profit Shifting ("BEPS") Project that purported to reform the international tax arena, neglected to deal effectively with matters pertaining to the allocation of taxing rights between residence and source countries. This article places particular attention on the treaty allocation rules that apply to the three types of income pertinent to developing countries (interest, royalties, and service fees) and how these are skewed in favour of developed/residence countries; thus affecting the tax bases of developing/source countries. In response, developing countries have devised measures to preserve their tax bases, which, in certain respects, diverge from current tax treaty principles. This article asserts that this state of affair is not conducive for international trade. The article highlights the dangers of an international tax system that promotes the interests of developed countries and argues for the reform of tax treaty principles, especially the allocation of taxing rights, to ensure a more equitable and effective international tax system.