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A Multilateral Tax Treaty for ASEAN ― Lessons from the Andean, Caribbean, Nordic and South Asian
Nations

Sunita Jogarajan

Asian Journal of Comparative Law / Volume 6 / January 2011, pp 1 - 23

DOI: 10.1017/S2194607800000521, Published online: 16 April 2015

Link to this article: http://journals.cambridge.org/abstract_S2194607800000521

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Sunita Jogarajan (2011). A Multilateral Tax Treaty for ASEAN ― Lessons from the Andean, Caribbean, Nordic and South Asian
Nations. Asian Journal of Comparative Law, 6, pp 1-23 doi:10.1017/S2194607800000521

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 Asian Journal of Comparative Law
Volume 6, Issue 1 2011 Article 8

A Multilateral Tax Treaty for ASEAN —

Lessons from the Andean, Caribbean, Nordic
and South Asian Nations

Sunita Jogarajan, University of Melbourne

Recommended Citation:
Jogarajan, Sunita (2011) "A Multilateral Tax Treaty for ASEAN — Lessons from the Andean,
Caribbean, Nordic and South Asian Nations," Asian Journal of Comparative Law: Vol. 6: Iss. 1,
Article 8.
DOI: 10.2202/1932-0205.1281
 A Multilateral Tax Treaty for ASEAN —
Lessons from the Andean, Caribbean, Nordic
and South Asian Nations
Sunita Jogarajan

Abstract
ASEAN member countries recently reiterated and renewed their commitment to creating the
ASEAN Economic Community. Tax has a role to play in facilitating the creation of the AEC and
ASEAN member countries have committed to completing the intra-ASEAN network of bilateral
tax treaties in pursuit of this goal. This paper suggests that instead of continuing with the
monumental task of agreeing individual bilateral tax treaties, ASEAN member countries should
learn from the experience of other regional blocs and conclude a multilateral tax treaty. The
conclusion of a multilateral tax treaty would address the general problems associated with bilateral
tax treaties, strengthen ASEAN’s presence in international tax relations and symbolise ASEAN’s
commitment to the creation of the AEC.

KEYWORDS: ASEAN, tax, treaties

Author Notes: Sunita Jogarajan is a Senior Lecturer at Melbourne Law School, University of
Melbourne. I am grateful for comments from Arlen Duke and Nick Burnett. This is a revised
version of a paper presented at the Asian Law Institute Conference, Kuala Lumpur, Malaysia, May
2010.
 Jogarajan: ASEAN Multilateral Tax Treaty

I INTRODUCTION

The Association of South East Asian Nations (ASEAN) was established in 1967
with one of its central purposes being the acceleration of economic growth in the
region. As outlined in the ASEAN Vision 2020 charter,1 which was agreed to by
ASEAN member countries in 1997, the centrepiece of this economic acceleration
is the creation of the ASEAN Economic Community (AEC). The AEC shall
establish ASEAN as a single market and production base where there is a free
flow of goods, services and investment; a freer flow of capital; equitable
economic development; and reduced poverty and socio-economic disparities in
the year 2020. ASEAN remains strongly committed to ‘Vision 2020’ and the
creation of the AEC. In fact, ASEAN member countries have heightened their
commitment to the AEC by accelerating the establishment of the AEC from 2020
to 2015.2 This commitment is reflected in the adoption of the AEC Blueprint by
all member countries on 20 November 2007. 3 The Blueprint provides detailed
targets and timelines to be implemented by member countries in order to create
the AEC by 2015.
Taxation has the potential to either facilitate or impede greater integration
and economic cooperation and the eventual establishment of the AEC. In
particular, double taxation has long been recognised as an obstacle to economic
growth and integration as it hinders the movement of capital, technology and
persons between countries.4 As the EU Commissioner for Taxation and Customs
Union, Audit and Anti-Fraud recently observed, double taxation can deter cross-
border activity and the functioning of an internal or common market.5 Double
taxation can be addressed by countries unilaterally, through their domestic tax
systems or in cooperation with one (bilaterally) or more (multilaterally) countries
through tax treaties. This paper examines only the tax treaty solution to double

1
ASEAN, ‘ASEAN Vision 2020’ (1997) available at <www.asean.org> (accessed 26 January
2011).
2
ASEAN, ASEAN Economic Community Blueprint (2008) 5; ASEAN Economic Ministers, ‘Joint
Media Statement of the Thirty-Eighth ASEAN Economic Ministers’ (AEM) Meeting’ (Kuala
Lumpur, 22 August 2006); Lee Hsien Loong, ‘Chairman’s Statement of the 13th ASEAN Summit:
One ASEAN at the Heart of Dynamic Asia’ (Singapore, 20 November 2007).
3
ASEAN, ‘Singapore Declaration on the ASEAN Charter’ (2007).
4
See for example Edwin Seligman, Double Taxation and International Fiscal Cooperation (1928)
17-31; OECD Committee on Fiscal Affairs, Model Tax Convention on Income and on Capital
(2010) 7. Double taxation in this context refers to international juridical double taxation and not
economic double taxation. International juridical double taxation has been described as ‘the
taxation of the same person or the same thing twice over’: Edwin Seligman, Essays in Taxation
(2nd ed, 1895) 95. International juridical double taxation arises where two (or more) countries
impose similar taxes on the same taxpayer on the same amount.
5
Algirdas Šemeta, ‘Commission Opens Public Consultation on Double Taxation Problems in the
EU’ (Press Release, 27 April 2010).

1
 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

taxation.6 The importance of tax considerations in establishing the AEC has been
recognised in the AEC Blueprint. Although largely concerned with the removal of
trade barriers, the Blueprint considers measures in relation to indirect taxes and
withholding taxes and importantly for the purposes of this paper, calls for
ASEAN member countries to ‘complete the network of bilateral agreements on
avoidance of double taxation among all Member Countries by 2010, to the extent
possible’.7
The commitment of ASEAN member countries to completing the intra-
ASEAN network of bilateral tax treaties clearly reflects an awareness of the
importance of tax being a facilitator of regional economic integration rather than a
hindrance. This paper argues, however, that rather than updating and completing
the ASEAN bilateral tax treaty network, in itself a monumental task, ASEAN
member countries should be bold and strive towards the conclusion of a
multilateral tax treaty. The two main reasons for this are firstly, ASEAN’s recent
evolution from an agreement by consensus approach to a more rules-based
approach (discussed in section II) which bodes well for the conclusion of a
multilateral tax treaty, and secondly, and perhaps crucially, the inherent problems
with bilateral tax treaties generally and the specific experience of the European
Union, which suggests that bilateral tax treaties are not sufficient for achieving
the single market (discussed in section III). In section IV, the paper considers four
existing multilateral tax treaties, the Andean Pact Income Tax Convention; the
CARICOM Income Tax Agreement; the Nordic Convention; and the South Asian
Association for Regional Cooperation Limited Multilateral Agreement on
Avoidance of Double Taxation and Mutual Administrative Assistance in Tax
Matters. The existence of these multilateral agreements demonstrates that the
conclusion of a multilateral agreement is possible and the strengths and
weaknesses of each multilateral treaty are considered in terms of their potential
application to the ASEAN situation. The paper concludes that ASEAN is at a
crucial stage in its quest to establish a single market and, rather than perpetuating
existing problems, it should be bold and strive for best practice, the conclusion of

6
Unilateral action to combat double taxation is generally considered insufficient as such measures
are not comprehensive and not mutually consistent: Klaus Vogel, Double Taxation Conventions
(1991) 8. For an examination of the impact of the tax regimes of individual ASEAN member
countries on the integration of ASEAN’s priority sectors, see: Ian Farrow and Sunita Jogarajan,
ASEAN Tax Regimes and the Integration of the Priority Sectors: Issues and Options (2005).
7
ASEAN, ASEAN Economic Community Blueprint (2008) B5. See also, ASEAN Finance
Ministers, ‘Joint Ministerial Statement of the Eleventh ASEAN Finance Ministers’ Meeting’
(Chiang Mai, 5 April 2007) where the Finance Ministers ‘agreed to strengthen cooperation on
taxation under the AFMM to accelerate the completion of bilateral agreements on avoidance of
double taxation and cooperation in other tax matters.’ The Ministers also agreed to establish a
forum on ASEAN Cooperation in Taxation to be represented by Heads of ASEAN Tax
Administration Units.

DOI: 10.2202/1932-0205.1281 2
 Jogarajan: ASEAN Multilateral Tax Treaty

a multilateral tax treaty. A multilateral tax treaty removes the administrative

burden of having to negotiate and conclude separate bilateral tax treaties with
other member countries and also establishes ASEAN as an investment destination
of choice by promoting certainty and consistency of tax treatment in the region.
An ASEAN multilateral tax treaty could also form the basis for the negotiation of
bilateral tax treaties between ASEAN and non-ASEAN countries, strengthening
the bargaining position of ASEAN member countries and minimising negotiation
costs. Finally, the conclusion of a multilateral tax treaty would demonstrate
ASEAN’s capabilities in facilitating economic integration in the region and
exemplify the political will of member nations.

II ASEAN

ASEAN currently comprises all of the ten Southeast Asian nations – Brunei
Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines,
Singapore, Thailand and Vietnam. The five original member countries, Indonesia,
Malaysia Philippines, Singapore and Thailand, signed the ASEAN Declaration
(Bangkok Declaration) on 8 August 1967 which established ASEAN. These
countries were joined by Brunei Darussalam on 8 January 1984, Vietnam on 28
July 1995, Lao PDR and Myanmar on 23 July 1997 and Cambodia on 30 April
1999. Collectively, these ten nations represent almost nine per cent of the global
population and gross domestic product of almost 1.5 trillion US dollars.8
As discussed above, ASEAN has among its objectives, the creation of a
single economic market through greater economic integration. In order to achieve
this goal, ASEAN member countries have agreed to institute new mechanisms
and measures to strengthen the implementation of its existing economic initiatives
including the ASEAN Free Trade Area (AFTA), the ASEAN Framework
Agreement on Services (AFAS) and ASEAN Investment Area (AIA); to
accelerate regional integration in the priority sectors of air travel, agro-based
products, automotives, e-commerce, electronics, fisheries, healthcare, rubber-
based products, textiles and apparels, tourism, and wood-based products; to
facilitate movement of business persons, skilled labour and talents; and to
strengthen the institutional mechanisms of ASEAN, including the improvement of
the existing ASEAN Dispute Settlement Mechanism to ensure expeditious and
legally-binding resolution of any economic disputes.9

8
ASEAN, ASEAN Community in Figures 2009 (2010) 1, 4.
9
ASEAN, ‘Overview Association of Southeast Asian Nations’ available at <www.asean.org>
(accessed 26 January 2011).

3
 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

ASEAN member countries have made significant progress in establishing

these building blocks of the AEC. 10 By the end of 2009, ASEAN member
countries had achieved 73.6 per cent of targets in the AEC Blueprint. 11 In
particular, the ASEAN Free Trade Area was realised on 1 January 2010 with
duties on 99.65 per cent of all products on the Common Effective Preferential
Tariff Scheme eliminated. 12 The newer ASEAN member countries (Cambodia,
Lao PDR, Myanmar and Vietnam) have reduced tariffs on 98.96 per cent of
products to within the 0-5 per cent range.13 Member countries have also made
progress in eliminating non-tariff barriers, such as by reforming certification
regimes to facilitate intra-ASEAN trade.14 These measures have had some degree
of success as intra-ASEAN trade has increased both in book value and as a ratio
to total trade since efforts to reduce intra-ASEAN trade barriers commenced.15
The progress of ASEAN member countries towards achieving the AEC
has not been limited to trade integration. Cooperation has also been achieved in
industries such as minerals and energy; finance and banking; transport and
communications; food, agriculture and forestry.16 In addition, ASEAN member
countries have committed to pursuing important legal reforms in competition
policy and law, consumer protection and the protection of intellectual property
rights. 17 One of the most significant legal developments has been the recent
adoption of the ASEAN Charter which has been described as the most significant
milestone in ASEAN’s 40-year history. 18 The adoption of the Charter was not
without obstacles and its successful adoption demonstrates the political will of
ASEAN member countries towards greater cooperation and a strong political
institution. 19 The Charter is essentially ASEAN’s constitution and it endows
10
Denis Hew, 'Introduction: Brick by Brick - The Building of an ASEAN Economic Community'
in Denis Hew (ed), Brick by Brick - The Building of an ASEAN Economic Community (2007) 5-7.
11
ASEAN Secretariat, ASEAN Economic Community Scorecard (2010) 13.
12
ASEAN Free Trade Area (AFTA) Council, ‘Joint Media Statement of the 42nd ASEAN
Economic Ministers’ (AEM) Meeting’ (Press Release, 24-25 August 2010). On the progress of
ASEAN trade integration see also, Mia Mikic, 'ASEAN and Trade Integration' (Working Paper No
01-09, United Nations ESCAP, 2009).
13
ASEAN Free Trade Area (AFTA) Council, ‘Joint Media Statement of the 42nd ASEAN
Economic Ministers’ (AEM) Meeting’ (Press Release, 24-25 August 2010).
14
ASEAN Free Trade Area (AFTA) Council, ‘Joint Media Statement of the 42 nd ASEAN
Economic Ministers’ (AEM) Meeting’ (Press Release, 24-25 August 2010).
15
Zainal-Abidin Mahani, 'ASEAN Integration: At Risk of Going in Different Directions' (2002)
25 World Economy 1263, 1276.
16
For discussion of these other areas of economic cooperation, see: Paul Davidson, ASEAN: The
Evolving Legal Framework for Economic Cooperation (2002) 69-74.
17
ASEAN Secretariat, ASEAN Economic Community Scorecard (2010) 9.
18
Aung Bwa, 'The Jewel in My Crown' in Tommy Koh et al (eds), The Making of the ASEAN
Charter (2009) 27, 34.
19
For a detailed account of the process of concluding the ASEAN Charter see, Tommy Koh et al
(eds), The Making of the ASEAN Charter (2009).

DOI: 10.2202/1932-0205.1281 4
 Jogarajan: ASEAN Multilateral Tax Treaty

ASEAN with legal personality and codifies the norms, rules and values that are to
be adhered to by member nations. It will also enhance the ASEAN Secretariat,
ensure that agreements and decisions are legally binding on member nations and
provides a dispute resolution framework. The Charter was signed by all member
countries and entered into force in December 2008. The adoption of the Charter is
a significant achievement and demonstrates ASEAN’s evolution from a loosely-
knit organisation to a more rules-based system.20 Moreover, the adoption of the
Charter bodes well for the conclusion of an ASEAN multilateral tax agreement,
by providing member countries with the necessary legal and political framework
for negotiating and concluding a multilateral tax agreement.

III BILATERAL TAX TREATIES AND ASEAN

1. Problems with the ASEAN bilateral tax treaty network

As mentioned above, ASEAN member countries have committed to completing

the intra-ASEAN bilateral tax treaty network. A 2005 study found, however, that
the existing ASEAN bilateral tax treaty network was limited as member countries
generally did not have treaties with all other members and often provided non-
ASEAN members with more favourable terms than ASEAN members. 21 This
hampers economic integration as it creates uncertainty for taxpayers and imposes
additional administrative and business tax costs impeding cross-border activity.
The study also found that existing ASEAN bilateral tax treaties were generally
quite old with an average age between 10 and 15 years. This diminishes the value
of the treaties as the fast pace of fiscal reform may mean that member countries’
tax policies have overtaken the terms of the treaties, making them de facto
obsolete. Further, economic and technological advancements over the last decade
have created new income streams that are unlikely to be addressed by the treaties.
There is no doubt that the ASEAN bilateral tax treaty network must be updated
and completed to facilitate economic cooperation in the region. However, the
problems with bilateral tax treaties generally, and the lessons to be drawn from
the European Union experience, suggest that the conclusion of a multilateral tax
agreement is to be preferred to agreeing and updating individual bilateral tax
treaties between member countries.

20
For an examination of the evolution of ASEAN from a loose-knit organisation to a more rules-
based system, see: Paul Davidson, ASEAN: The Evolving Legal Framework for Economic
Cooperation (2002).
21
Ian Farrow and Sunita Jogarajan, ASEAN Tax Regimes and the Integration of the Priority
Sectors: Issues and Options (2005) 1-5.

5
 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

2. Problems with bilateral tax treaties generally

The general problems with bilateral tax treaties have been extensively
documented and include the inconsistency of the bilateral network with the
multilateral nature of business, limitations of existing treaties on unilateral action,
incomplete coverage of countries, inability to deal with triangular taxation issues,
problems of interpretation and amendment and tax treaty abuses. 22 Treaty
shopping, where investors structure transactions to minimise taxes through
favourable treaties, is a particularly salient problem for ASEAN as member
countries are generally developing countries. 23 The United Nations Model Tax
Treaty was created to assist developing countries in concluding bilateral tax
treaties with developed countries. The provisions of the UN Model are intended to
better allocate revenue to developing countries to achieve economic development.
However, the UN Model appears to have achieved limited success in this regard.24
Developing countries often end up entering into tax treaties with developed
country partners based instead on the OECD Model which results in an equal
distribution of tax revenue or as is more often the case, more revenue for
developed countries.25 Even where developing countries enter into UN Model tax
treaties, the lack of treaty shopping measures has resulted in foreign investment

22
See for example, Victor Thuronyi, 'International Tax Cooperation and a Multilateral Treaty'
(2000) 26 Brooklyn Journal of International Law 1641, 1641-1681; Michael Rigby, ‘A Critique of
Double Tax Treaties as a Jurisdictional Coordination Mechanism’ (1991) 8 Australian Tax Forum
3, 303-427; Richard Vann, ‘A Model Tax Treaty for the Asian-Pacific Region?’ (1991) 45
Bulletin of International Fiscal Documentation 151, 157-60.
23
Developing countries often provide tax concessions to attract foreign direct investment as the
benefits of the investment are thought to outweigh the revenue loss. However, in the absence of
appropriate treaty provisions, the revenue foregone by developing countries simply ends up in the
coffers of the foreign investor’s home jurisdiction (generally a developed country). See for
example, Helmut Becker and Felix Wurm (eds), Treaty Shopping : An Emerging Tax Issue and Its
Present Status in Various Countries (1988); Mimi Gild, 'Tax Treaty Shopping: Changes in the US
Approach to Limitation on Benefits Provisions in Developing Country Treaties' (1990) 30
Virginia Journal of International Law 553; Committee of Experts on International Cooperation in
Tax Matters, 'Abuse of Tax Treaties and Treaty Shopping' (United Nations, 2005).
24
See also, Kim Brooks, ‘Tax Treaties as a Mechanism for the Just Distribution of Income
Between Nations’ Paper presented at the annual meeting of the Law and Society Association, Jul
06, 2006; United Nations, ‘Draft Manual for the Negotiation of Bilateral Tax Treaties between
Developed and Developing Countries (2001).
25
This is because developed countries are unwilling to negotiate treaties based on the UN Model
which generally allocates taxing rights in favour of developing countries. For example, Mexico
and the United States only concluded a tax treaty in the early 1990s once Mexico agreed to
negotiate based on the OECD Model. Mexico subordinated its revenue considerations in favour of
using the treaty to attract foreign investment and to integrate into the global tax community: Peter
Byrne, ‘Tax Treaties in Latin America: Issues and Models’ in Vito Tanzi et al, Taxation and Latin
American Integration (2008) 231.

DOI: 10.2202/1932-0205.1281 6
 Jogarajan: ASEAN Multilateral Tax Treaty

into a developing country being flowed through third countries to avoid tax. One
of the best examples of this occurring is in relation to investment into India.
Australia and India have concluded a bilateral tax treaty based on the UN Model
while India and Mauritius have a bilateral tax treaty based on the OECD Model.
Interestingly, Mauritius, with a world GDP ranking of 124 (0.03 per cent of
Australia’s GDP),26 appears to have the highest amount of investment into India,
providing 37.2 per cent of total inbound investment. The US in second place
accounts for only 15.92 per cent. 27 The bulk of the Mauritius investment,
however, is from developed countries, which is being routed through Mauritius
due to the favourable terms of the India-Mauritius tax treaty and it has been
estimated that India loses approximately $100 to $500 million in revenue annually
due to investments being structured through Mauritius.28
The weaknesses of bilateral tax treaties have prompted prominent
commentators such as Vann, Thuronyi, Lang and Avi-Yonah to propose a
multilateral tax treaty as a means of dealing with these problems, particularly in
an increasingly globalised economy.29 In a recent book, Avi-Yonah writes:30

One final important issue regarding DTTs [bilateral tax treaties] is why
they are bilateral, rather than multilateral, such as the GATT. The usual
explanation is that DTTs depend too much on the specific investment
flows between countries, and therefore cannot be multilateral; however,
the fact that developing countries are willing to enter into DTTs even if
they lose revenue suggests that this is not a complete explanation. In my
view, the fact that DTTs are bilateral is mostly due to the fact that the
models were developed before World War II, when bilateral treaties were
the norm, and when differences between the tax laws of different countries
were larger than they are today. If that is true, it suggests that the time may
be at hand to try to negotiate a multilateral DTT, especially given the

26
Central Intelligence Agency, The World Factbook (2006)
<http://www.cia.gov/cia/publications/factbook>.
27
Government of India, Economic Survey 2005-2006 (2006) 1, 139.
28
Jayanthi Iyengar, Mauritius Tax Loophole Under Indian Scrutiny (5 December 2002) Asia
Times Online <http://www.atimes.com>.
29
Richard Vann, Model Tax Treaty for the Asia-Pacific Region? (1989); Victor Thuronyi,
'International Tax Cooperation and a Multilateral Treaty' (2000) 26 Brooklyn Journal of
International Law 1641; Michael Lang et al, Multilateral Tax Treaties: New Developments in
International Law (2005); Reuven S. Avi-Yonah, 'Double Tax Treaties: An Introduction' in Karl
Sauvant and Lisa Sachs (eds), The Effect of Treaties on Foreign Direct Investment: Bilateral
Investment Treaties, Double Taxation Treaties, and Investment Flows (2009). See also, Richard
Reinhold, 'Some Things That Multilateral Tax Treaties Might Usefully Do' (2003-04) 663.
30
Reuven S. Avi-Yonah, 'Double Tax Treaties: An Introduction' in Karl Sauvant and Lisa Sachs
(eds), The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double
Taxation Treaties, and Investment Flows (2009) 108.

7
 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

difficulty DTTs face when dealing with ‘triangular cases’ involving third
countries. Tax laws have converged a lot since the 1920s, and multilateral
treaties are now the norm, so that a renewed effort to negotiate such a
multilateral DTT (perhaps in the World Trade Organization context)
seems to be called for.

The general issues with bilateral tax treaties which have been identified are not
resolved by updating and completing the intra-ASEAN bilateral tax treaty
network. As the EU experience suggests, bilateral tax treaties are incompatible
with a single market.

3. Bilateral tax treaties and the single market – the EU experience

ASEAN leaders have previously studied the European experience in economic

cooperation, carefully selecting which aspects to emulate and which to discard.
For example, they deliberately chose not to create a customs union as did the
European Economic Community. 31 Similarly, in addressing double taxation,
ASEAN member countries should eschew the EU approach of utilising bilateral
tax treaties and strive for the conclusion of a multilateral tax treaty. A recent
report to the President of the European Commission found that tax is still a
significant issue in achieving the EU single market and that greater cooperation
and coordination in the field is required.32 The report suggested, moreover, that
bilateral solutions cannot achieve the required level of coordination. 33 EU
countries utilise bilateral tax treaties to address double taxation but they have not
been sufficient and many cases have been referred to the European Court of
Justice creating uncertainty for taxpayers and tax authorities alike. 34 This
approach to tax vis-à-vis regional economic cooperation has been strongly
criticised and it has been suggested that a multilateral tax treaty is in fact the only
feasible mechanism of achieving the goal of creating common market
conditions.35 The European Commission launched a public consultation on double
taxation problems in the EU in April 2010 and it remains to be seen what course
of action the EU will pursue. 36 It is clear, however, that ASEAN member

31
Michael Plummer, 'The EU and ASEAN: Real Integration and Lessons in Financial
Cooperation' (2002) 25 World Economy 1469, 1483.
32
Mario Monti, A New Strategy for the Single Market (2010) 79-83.
33
Mario Monti, A New Strategy for the Single Market (2010) 80-81.
34
For discussion of ECJ cases on EU bilateral tax treaties, see, European Commission, ‘EC Law
and Tax Treaties: Workshop of Experts’ (2005) 9-12.
35
Otmar Thömmes, ‘A Tax Treaty for Europe: An Independent View Under EU Law’, speech
presented at Confederation Fiscal Européenne Forum (April 2005).
36
Algirdas Šemeta, ‘Commission Opens Public Consultation on Double Taxation Problems in the
EU’ (Press Release, 27 April 2010).

DOI: 10.2202/1932-0205.1281 8
 Jogarajan: ASEAN Multilateral Tax Treaty

countries should not seek to address double taxation within ASEAN through
bilateral treaties if they are committed to achieving a single market by 2015.

IV EXISTING MULTILATERAL TAX TREATIES

The adoption of a multilateral tax treaty is often dismissed as impracticable due to

administrative difficulties. 37 Currently, however, there are a number of
multilateral tax treaties in force, including the Andean Community Income Tax
Convention of 2005 between Bolivia, Colombia, Ecuador and Peru; the
CARICOM Income Tax Agreement of 1994 between 11 of the 14 countries of the
Caribbean Community; the Nordic Convention of 1996 between Denmark, the
Faroe Islands, Finland, Iceland, Norway and Sweden; and the Limited
Multilateral Agreement on Avoidance of Double Taxation and Mutual
Administrative Assistance in Tax Matters of 2005 between the South Asian
nations. The relatively long and continued existence of these multilateral tax
treaties demonstrates that a regional multilateral tax treaty is indeed feasible and
that ASEAN should look to these regional blocs for guidance with regard to
economic integration and tax treaties, rather than to the EU. This section
considers each of the existing multilateral tax treaties in detail and outlines the
lessons for ASEAN, good and bad, associated with the negotiation, development
and implementation of these treaties.

A ANDEAN Community Income Tax Convention

The Andean Community dates back to 1969 when Bolivia, Chile, Colombia,
Ecuador and Peru signed the Cartagena Agreement, establishing the Andean
Pact.38 Chile withdrew from the Pact on 30 October 1976, while Venezuela was a
member between 31 February 1973 and 22 April 2006. Similar to ASEAN, the
Andean Pact was formed with the purpose of improving living standards through
economic integration.
The genesis of the Andean Pact was in the formation of the Latin
American Free Trade Association (LAFTA). In 1959, the Secretariat of the
Economic Commission for Latin America had stated that ‘there are grounds for
asserting that a common market could be established, within which development
would be more rapid than if the market were not organized, not only in Latin

37
Kevin Holmes, International Tax Policy and Double Tax Treaties: An Introduction to Principles
and Application (2007) 63.
38
Historical background available at: Comunidad Andina Secretaria General
<http://www.comunidadandina.org/endex.htm> (accessed 26 January 2011).

9
 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

America as a whole, but in each of the individual countries of the region.’39 The
Treaty of Montevideo was signed by Argentina, Brazil, Chile, Mexico, Paraguay,
Peru and Uruguay in 1960, establishing LAFTA. They were soon joined by
Bolivia, Colombia, Ecuador and Venezuela. The countries were classified
according to their level of economic development and less developed countries
were given preferential treatment to promote development. However, this
classification failed to recognise the presence of an intermediate level of medium
level developed countries which were distinct from the lesser developed countries
and the three more developed countries, Argentina, Brazil and Mexico. It was this
failure coupled with the slow progress in LAFTA which led the medium level
developed countries and two of the lesser developed countries (Bolivia and
Ecuador) to form the Andean Pact.40
The Cartagena Agreement was far more precise in establishing the
objectives of the Andean Pact than the Treaty of Montevideo. The Agreement
also clearly set out the steps to be undertaken towards economic integration and
almost all of the Andean Pact bodies and institutions were created during the first
ten years of the integration process.

1. Tax Cooperation

The Andean countries concluded the ‘Agreement among Member Countries to

avoid double taxation and of the Standard Agreement for executing agreements
on double taxation between Member Countries and other States outside the
Subregion’ on 16 November 1971 (published as Decision 40). The Agreement
establishes the rules for preventing double taxation between member countries
and establishes a model agreement for negotiation of bilateral tax treaties between
member countries and non-members.
The Agreement is unlike the OECD or UN Models in that it allocates the
right to tax exclusively to source jurisdictions, i.e., the country where the income
is generated. As such, the provisions of the Agreement primarily prescribe the
source of different types of income and concepts such as the residence of the
taxpayer are rendered irrelevant. The adherence to exclusive source country
taxation means that countries are not permitted to tax income earned outside that

39
Cited in Adolfo Atchabahian, 'The Andean Subregion and its Approach to Avoidance or
Alleviation of International Double Taxation ' (1974) XXVIII(8) Bulletin 309, 309.
40
Adolfo Atchabahian, 'The Andean Subregion and its Approach to Avoidance or Alleviation of
International Double Taxation ' (1974) XXVIII(8) Bulletin 309, 311-312.

DOI: 10.2202/1932-0205.1281 10
 Jogarajan: ASEAN Multilateral Tax Treaty

country or income which has already been taxed in another country. 41 The
Agreement is similar to existing bilateral tax treaties in that it is very detailed but
the rules are provided at a multilateral level rather than through bilateral
agreement.42 The Agreement also provides for mutual assistance between member
countries with regard to tax administration.
The Andean countries renewed their commitment to the Agreement in
May 2004 through Decision 578, which came into effect on 1 January 2005.
Decision 578 continues the adherence to exclusive source country taxation.

2. Observations

The Andean multilateral tax agreement is unfortunately often cited as an example

of the failure or impracticality of multilateral tax agreements.43 This is mainly due
to the Agreement’s allocation of taxing rights exclusively to source countries,
which was not accepted outside the region. While the Agreement does govern the
tax consequences of cross-border activities between Andean countries, only two
treaties have been concluded between Andean countries and non-Andean
countries based on the model of exclusive source taxation. Argentina concluded
treaties with Bolivia and Chile on that basis in the 1970s.
Nonetheless, the Andean experience should not discourage ASEAN from
concluding a multilateral tax agreement. The Andean experience highlights an
important lesson that tax treaties must adhere to international norms if they are to
be widely accepted. Worldwide rather than territorial taxation is proving to be the
international norm and tax treaties which push for exclusive source country
taxation are unlikely to succeed.44 In the context of bilateral tax treaties between

41
Under most existing bilateral tax treaties, countries retain the right to tax income which has been
subject to tax in another country but will provide relief for taxes paid in that other country so as to
avoid double taxation. For example, assume Country A has a tax rate of 20 per cent, Country B
has a tax rate of 30 per cent and both countries have a system of worldwide taxation whereby they
tax their residents on all income regardless of where it is earned and they tax non-residents on
income earned within the country. Country B may still impose tax on income earned by its
residents in Country A which has been subject to tax in Country A. The taxpayer will pay tax at a
rate of 20 per cent in Country A and Country B will impose tax at a rate of 30 per cent but provide
relief for the taxes already paid in Country A such that the taxpayer is effectively subject to tax at
a rate of 10 per cent in Country B, avoiding double taxation of the same income.
42
For detailed analysis of the provisions of the Agreement, see: Adolfo Atchabahian, 'The Andean
Subregion and its Approach to Avoidance or Alleviation of International Double Taxation ' (1974)
XXVIII(8) Bulletin 309, 325-337.
43
See for example, Richard Vann, Model Tax Treaty for the Asia-Pacific Region? (1989); Peter
Byrne, ‘Tax Treaties in Latin America: Issues and Models’ in Vito Tanzi et al, Taxation and Latin
American Integration (2008).
44
Peter Byrne, ‘Tax Treaties in Latin America: Issues and Models’ in Vito Tanzi et al, Taxation
and Latin American Integration (2008) 239.

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 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

developed and developing nations, tax treaties can serve developmental objectives
but not at the complete expense of the developed country. It has been noted that
Latin American countries concluded more bilateral tax treaties with countries
outside the region once they abandoned exclusive source taxation. 45 While
ASEAN member countries will have more bargaining power in concluding
treaties with non-ASEAN members if they do so collectively, the Andean
experience highlights that international norms are nonetheless likely to prevail.

B CARICOM Income Tax Agreement

The Caribbean Community and Common Market (CARICOM) was established in

1973 by the Treaty of Chaguaramas which came into effect on 1 August 1973.46
The Treaty was initially signed by only four countries – Barbados, Guyana,
Jamaica and Trinidad and Tobago. However, CARICOM soon tripled its
membership with the joining of eight other Caribbean nations, being Antigua and
Barbuda, Belize, Dominica, Grenada, Montserrat, Saint Lucia, St. Kitts and Nevis
and St. Vincent and the Grenadines in 1974. Bahamas soon followed in 1983,
Suriname joined in 1995 and the most recent member, Haiti, joined in 2002. A
further five nations, Anguilla, Bermuda, British Virgin Islands, Cayman Islands
and Turks and Caicos Islands, have associate member status.
The process of regional integration was a long one, beginning in 1958
with the British West Indies Federation comprising Antigua and Barbuda,
Barbados, Dominica, Grenada, Jamaica, Montserrat, St Kitts-Nevis-Anguilla (as it
then was), Saint Lucia, St Vincent and Trinidad and Tobago. The Federation was
aimed at establishing a political union among its members but this aspiration was
short-lived as the Federation collapsed in 1962 following the withdrawal of its
largest member, Jamaica. Following a period of decolonisation, the Caribbean
Free Trade Association (CARIFTA) was formed by Antigua and Barbuda,
Barbados, Guyana, and Trinidad and Tobago on 15 December 1965. These
countries were joined on 1 July 1968 by Dominica, Grenada, St Kitts-Nevis-
Anguilla, Saint Lucia and St Vincent and the Grenadines; and on 1 August, 1968
by Montserrat and Jamaica. In 1971 Belize (then British Honduras) joined the
Association. These countries had recently achieved independence and CARIFTA
was established to integrate their economies and consolidate their international
presence. CARIFTA was transformed into CARICOM to also cover issues such
as the free movement of labour and capital and the coordination of agricultural,
industrial and foreign policies.

45
Ibid. See also, Nicasio del Castillo et al, 'Taking Advantage of Tax Treaties in Latin America'
(2003) International Tax Review 1.
46
Historical background available at: Caribbean Community (CARICOM) Secretariat
<http://www.caricom.org> (accessed 26 January 2011).

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 Jogarajan: ASEAN Multilateral Tax Treaty

In 1989, the countries decided to transform the Common Market into a single
market and economy (CSME). 47 The Revised Treaty of Chaguaramas
Establishing the Caribbean Community, including the CARICOM Single Market
and Economy was eventually concluded in 2001. The Revised Treaty was signed
by all members between 2001 and 2002 but the Bahamas and Haiti chose not to
participate in the single market. The CARICOM Single Market was formally
launched on 30 January 2006,48 and has substantially achieved the goal of a single
market for goods, with more than 95 per cent of the goods produced by member
nations moving freely within the region. The continued progress towards a single
market is now focused on removing restrictions on the right of establishment and
facilitating the movement of services, capital and skilled labour.

1. Tax Cooperation

Members of CARICOM have had a long commitment to tax cooperation, having

formed the Caribbean Organization of Tax Administrators (COTA) in 1971. In
1973, the member countries concluded a multilateral agreement between
Barbados, Guyana, Jamaica and Trinidad and Tobago (the ‘more developed
countries’ (MDC)) and Antigua, Belize, Dominica, Grenada, Montserrat, St.
Kitts-Nevis-Anguilla, St. Lucia and St Vincent (the ‘less developed countries’
(LDC)). 49 The Agreement is similar to ‘typical’ bilateral tax treaties in that it
allocates taxing rights for various types of income between the countries.
However, a key aspect of the 1973 Agreement is the promotion of development of
the LDCs and these countries were prioritised in the allocation of taxing rights.
The Agreement was concluded but never formally ratified and is seen as
somewhat unsuccessful with some countries not honouring the Agreement.50 A
secondary problem with the Agreement was its limited scope as it was designed to
only promote trade and investment between the MDCs and the LDCs and not
between the MDCs. This was inconsistent with the progression towards a single
market and the removal of all intra-regional restrictions to movement.

47
Grande Anse Declaration and Work Programme for the Advancement of the Integration
Movement (1989).
48
Caribbean Community (CARICOM) Secretariat, 'CARICOM Set for Formal Launch of Single
Market' (Press Release 21/2006, 27 January 2006)
49
Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and for the Encouragement of International Trade and Investment
(1973).
50
Caribbean Community (CARICOM) Secretariat, ‘Taxation’ available at
<http://www.caricom.org> (accessed 26 January 2011).

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 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

In 1994, member countries concluded a new Intra-Regional Double Taxation

Agreement to replace the 1973 Agreement.51 The new Agreement was signed by
member countries between 1994 and 1996 with the exception of the Bahamas,
Haiti and Suriname. As mentioned above, the Bahamas and Haiti chose not to
participate in the CARICOM single market and their non-participation in the
multilateral tax treaty is consistent with that position. Suriname is thought not to
have signed the new Agreement because its income tax system is very different to
that of the other CARICOM members.52 For example, Suriname does not impose
withholding taxes on interest and royalties and would be required to introduce
such taxes if it signed the new Agreement. The similarity between the domestic
tax systems of the participating countries due to their common heritage as former
British colonies or dependencies is in fact cited as one reason why CARICOM
member countries have been able to conclude a multilateral tax agreement where
others, such as the European Union, have failed.53 Suriname, as a former Dutch
colony, has a different tax heritage. Of the twelve countries which signed the new
Agreement, currently nine have enacted the Agreement into domestic law.54
The new Agreement is broadly similar to the general style of the OECD
and UN Model treaties but differs in its wording of the individual provisions.55
For example, Article 8 of the new Agreement which deals with the allocation of
taxing rights in relation to business profits uses the expression ‘place of business
activities’ rather than the ubiquitous ‘permanent establishment’. Such differences
are unfortunate as it renders the commentaries to the OECD and UN Models and
international case law and academic writings irrelevant when interpreting the new
Agreement. The fundamental practical difference between the new Agreement
and the OECD and UN Models however is the general allocation of taxing rights
exclusively to source countries unless provided otherwise. This is certainly
unusual, as the domestic tax systems of participating countries, given their British
tax heritage, would generally be one of worldwide taxation with relief for any
source country taxation. The focus on source country taxation could be

51
Agreement among the Governments of the Member States of the Caribbean Community for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on
Income, Profits or Gains and Capital Gains and for the Encouragement of Regional Trade and
Investment (1994).
52
Irma Valderrama, 'International Tax Law Developments in the Tax Treatment of Interest,
Royalties and Other Flows of Income: The Case of Suriname' in Irma Valderrama and K.L.H. van
Mens (eds), The Suriname Papers (2008) 8.
53
Huub Bierlaagh, 'The CARICOM Income Tax Agreement for the Avoidance of (Double)
Taxation?' (2000) January Bulletin - Tax Treaty Monitor 99, 99.
54
Grenada, Montserrat, and St. Kitts and Nevis have yet to enact the new Agreement.
55
For analysis of each of the provisions of the new Agreement against the OECD and UN Models,
see: Huub Bierlaagh, 'The CARICOM Income Tax Agreement for the Avoidance of (Double)
Taxation?' (2000) January Bulletin - Tax Treaty Monitor 99, 99-104.

DOI: 10.2202/1932-0205.1281 14
 Jogarajan: ASEAN Multilateral Tax Treaty

attributable to the developmental aspirations of the new Agreement, consistent

with the goals of establishing the CARICOM single market. However, it has been
said that this approach promotes capital exporting which will not encourage
regional trade and investment and creates a significant hurdle for economic
development and growth which requires capital for local investment. 56 The
adoption of source country taxation may be due to its perceived simplicity but in
practice, the determination of source of income is never straightforward.57

2. Observations

The impact of the new Agreement is not yet certain and was in fact the subject of
a recent two-day review by heads of tax administrations of participating countries
and other representatives.58 Even so, there are a number of valuable lessons for
ASEAN from the CARICOM experience. The perceived failure of the 1973
Agreement highlights two important lessons. Firstly, although regional blocs may
wish to prioritise the development of less developed members, it is important that
this objective be balanced against the interests of all members. One reason for the
failure of the 1973 Agreement was the fact that it did not benefit the more-
developed participating countries. The new Agreement takes a more balanced
approach to this issue, and ASEAN should adopt a similar approach. Secondly,
the failure of the 1973 Agreement highlights the significance of a formal
ratification process. Although countries may in principle commit to an agreement,
codification is more likely to result in adherence.
The successful conclusion of the new Agreement demonstrates the
importance of conformity in domestic tax systems for the conclusion of a
multilateral tax agreement. ASEAN member countries have a number of different
tax systems due to their differing colonial backgrounds and it may therefore be
difficult to achieve a regional tax agreement. This should not, however, be fatal to
the conclusion of an ASEAN multilateral agreement as some countries within
ASEAN could conclude a multilateral agreement in the first instance with other
countries participating at a later date if appropriate. The new Agreement also
highlights the importance of the drafting of a treaty for its later success. It is

56
Huub Bierlaagh, 'The CARICOM Income Tax Agreement for the Avoidance of (Double)
Taxation?' (2000) January Bulletin - Tax Treaty Monitor 99, 103-104.
57
See, Klaus Vogel, 'Worldwide vs Source Taxation of Income - A Review and Re-evaluation of
Arguments (Part I)' (1988) 8-9 Intertax 216; Klaus Vogel, 'Worldwide vs Source Taxation of
Income - A Review and Re-evaluation of Arguments (Part II)' (1988) 10 Intertax 310; Klaus
Vogel, 'Worldwide vs Source Taxation of Income - A Review and Re-evaluation of Arguments
(Part III)' (1988) 11 Intertax 393; John Avery-Jones, 'Tax Treaty Problems Relating to Source'
(1998) 3 British Tax Review 222.
58
Caribbean Community (CARICOM) Secretariat, 'CARICOM Tax Experts Look at Regional
Double Taxation Agreement' (Press Release 464/2009, 1 December 2009).

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 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

preferable to maintain consistency with the terminology of the OECD and UN

Models which enables tax administrators and the judiciary of participating
countries to rely on the commentaries and the vast body of international writing
on tax treaties. Consistency with international norms also promotes certainty for
international investors and increases the likelihood of success of the treaty.

C Nordic Convention

The Nordic region comprises Denmark, Finland, Iceland, Norway, Sweden, the
Faroe Islands and Greenland. The formal cooperation regime between the Nordic
countries is one of the oldest and most extensive regional cooperation agreements
in the world.59 The current formal political cooperation agreement commenced in
1952 with the formation of the Nordic Council by Denmark, Iceland, Norway and
Sweden. They were joined by Finland in 1955. The Nordic Council is the Nordic
parliamentary cooperation forum and acts as an advisory body for the Nordic
governments. The Nordic Council is supplemented by the Nordic Council of
Ministers which was formed in 1971 and is the Nordic governmental cooperation
forum. Representatives of the governments meet in the Council of Ministers and
develop Nordic conventions and policies.
Nordic cooperation is different to that of the other regional cooperation
arrangements in that its primary objective is not the economic development of
member countries. Rather, Nordic cooperation is focused on making the region an
attractive destination for people to live, work and do business in and to strengthen
the international presence of the Nordic countries. These two goals are achieved
through cooperation by the Nordic countries in areas such as research, welfare,
the environment, culture and economic policies including tax.

1. Tax Cooperation

Nordic tax cooperation is strongly linked to the region’s general cooperation

goals. Its two key objectives are to remove any tax barriers to Nordic citizens
living and working in other countries in the region and to improve collaboration
between the Nordic countries in order to strengthen their international presence.
Consistent with their long history of cooperation the first Nordic tax cooperation
multilateral treaty, on mutual administrative assistance in tax matters, was

59
One of the earliest formal cooperation arrangements was the formation of the Nordic
Association by Denmark, Norway and Sweden in 1919. They were joined by Iceland in 1922 and
Finland in 1924. Historical background and information on Nordic cooperation available at:
Norden <http://www.norden.org/en> (accessed 26 January 2011).

DOI: 10.2202/1932-0205.1281 16
 Jogarajan: ASEAN Multilateral Tax Treaty

concluded in 1972 by Denmark, Finland, Iceland, Norway and Sweden. 60 The

impetus for the conclusion of this treaty is very relevant to ASEAN’s current
situation. The Nordic countries had entered into a number of bilateral mutual
assistance agreements from as early as 1949 and it had become apparent that these
treaties needed updating. In 1967, the countries agreed to coordinate their
approaches and develop a model treaty on mutual assistance. It was during the
process of developing the model treaty that it became clear that a multilateral
treaty would be preferable to bilateral treaties. The current treaty on
administrative assistance, which includes the Faroe Islands and Greenland, was
signed on 7 December 1989 and entered into force on 9 May 1991. The treaty
stipulates the obligations of the countries with regard to exchange of information
and collection of taxes, including the supply of tax return forms and service of
documents. For example, information on dividends and interest is automatically
exchanged every year as well as other information such as credit balances with
banks, salaries, pensions and so forth. It should be noted that the treaty is not
limited to direct taxes and also covers other taxes such as value added taxes,
motor vehicle taxes and inheritances taxes. The mutual assistance treaty, which
has existed for over 30 years, is considered very successful.61
Following on from the success of the mutual assistance treaty, Denmark,
Finland, Iceland, Norway and Sweden subsequently concluded a multilateral
convention on the avoidance of double taxation on 22 March 1983. Given the
extensive cross-border economic activities between the countries it was apparent
that a multilateral treaty was to be preferred to ten different bilateral tax treaties.
Despite the relative homogeneity of the Nordic countries (they are economically
and culturally similar and all are members of the OECD) and the fact that the
multilateral tax treaty was largely based on the OECD Model, amended for the
multilateral situation as necessary, negotiation and conclusion of the multilateral
income tax treaty nonetheless took almost 10 years. The original treaty was soon
replaced by the convention concluded on 18 February 1987 which was then
replaced by the convention of 12 September 1989.
The existing treaty, which includes the Faroe Islands but not Greenland,
was signed on 12 November 1996 and includes an additional protocol which was
signed on 20 November 1997 and became effective on 1 January 1998. The treaty
largely follows the OECD Model and includes all the general provisions while
any special provisions which apply to only some countries are contained in the

60
Due to language constraints, the information on Nordic tax cooperation is primarily drawn from:
Odd Hengsle, 'The Nordic Multilateral Tax Treaties – for the Avoidance of Double Taxation and
on Mutual Assistance' (2002) August/September Bulletin 371, 371-376. Mr Hengsle was the
Director General of the Norwegian Ministry of Finance at the time of writing the article.
61
Odd Hengsle, 'The Nordic Multilateral Tax Treaties – for the Avoidance of Double Taxation
and on Mutual Assistance' (2002) August/September Bulletin 371, 376.

17
 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

Protocol.62 An important aspect of the Nordic multilateral income tax treaty is the
ability of individual countries to reach bilateral agreements on specific issues. The
treaty also addresses some country-specific situations. For example, students
resident in the Faroe Islands or Iceland are granted more favourable treatment as
compared to students from other Nordic countries as they generally have to move
abroad to study at university.
Multilateral tax cooperation among the Nordic countries has not been
limited to the formal agreements. For example, since 2006 the countries have
targeted tax evasion by coordinating the negotiation of information exchange
agreements with so-called offshore tax havens. This approach has been successful
and the Nordic countries have concluded information-exchange agreements with
the Isle of Man; Andorra; Bermuda; Cayman Islands; Guernsey and others. These
agreements assist the Nordic countries in combating tax evasion and the
coordinated approach to negotiation minimises costs and increases bargaining
power.

2. Observations

There is little doubt that the Nordic multilateral tax treaties are successful and
exemplify the case for multilateral tax cooperation. Their success, however, is
sometimes dismissed as irrelevant to other regional blocs due to the extraordinary
level of conformity in tax systems, economic standards and culture, as well as the
extensive history of cooperation between the Nordic countries. While ASEAN
may not be in the same position, there are still relevant lessons for ASEAN from
the Nordic experience. The impetus for the conclusion of the first Nordic
multilateral tax treaty, being the impracticality and difficulty in modernising so
many individual bilateral agreements, holds an important message for ASEAN as
that is precisely the process that it is currently going through. It is also important
to remember that despite all of the similarities between the Nordic countries, it
took almost 10 years for the conclusion of the multilateral tax treaty on income
and ASEAN member countries will need to be similarly committed and
persevering. The Nordic countries do not have a development purpose in their
economic cooperation but the Nordic multilateral income tax treaty shows that it
is possible to take into account the circumstances of individual members and

62
For detailed analysis of the provisions of the treaty, see: Marjaana Helminen, 'Scope and
Interpretation of the Nordic Multilateral Double Taxation Convention' (2007) January Bulletin for
International Fiscal Documentation 23, 23-38; Marjaana Helminen, 'Dividends, Interest and
Royalties under the Nordic Multilateral Double Taxation Convention' (2007) February Bulletin for
International Taxation 49, 49-64; Marjaana Helminen, 'Non-discrimination and the Nordic
Multilateral Double Taxation Convention' (2007) March Bulletin for International Taxation 103;
103-108.

DOI: 10.2202/1932-0205.1281 18
 Jogarajan: ASEAN Multilateral Tax Treaty

therefore to incorporate development goals in a multilateral regime. As with some

of the other multilateral agreements, the Nordic experience demonstrates that
ASEAN could start with a limited multilateral tax agreement, for example on
mutual assistance, and that a multilateral agreement does not have to include all
ASEAN members in the first instance. Finally, universal agreement does not have
to be reached on the provisions of the tax treaty and individual countries can reach
bilateral agreements which address their specific circumstances. Such agreements
should, however, be reasonably limited so as to ensure the continued workability
of the multilateral agreement and not render it irrelevant.

D South Asian Limited Multilateral Agreement

The South Asian Association for Regional Cooperation (SAARC) was established
in 1985 by Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
Afghanistan became a member of the association in 2005.63 Australia, China, the
European Union, Iran, Japan, Republic of Korea, Mauritius, Myanmar and the
United States of America have been granted observer status.64 The Association’s
charter recognises a number of benefits of increased regional cooperation
including accelerating the process of economic and social development in
member nations.65 At its formation, the association primarily focused on technical
cooperation in specific fields such as agriculture and rural development, science,
technology and meteorology and transport. In the early 1990s, the association
targeted economic and social development as its key areas of cooperation. Social
issues addressed by the association included the eradication of poverty and the
development of the welfare of women and children such as by increasing literacy
rates of those groups. In the area of economic cooperation, the association has
achieved several significant developments.66
As with other regional blocs, early progress in the area of economic
cooperation was in relation to intra-regional trade arrangements. In December
1991, SAARC member nations began formulating a SAARC Preferential Trading
Arrangement (SAPTA). The Agreement on SAPTA was signed on 11 April 1993
and entered into force on 7 December 1995, two years earlier than its planned
establishment. SAPTA provided for trade concessions on a large number of
commodities, with favourable treatment towards the Least Developed Countries –
Bangladesh, Maldives, Bhutan and Nepal. SAPTA was always considered the
first step towards creating a South Asian Free Trade Area (SAFTA) and the

63
Dhaka Declaration, Thirteenth SAARC Summit, Dhaka (13 November 2005).
64
Colombo Declaration, Fifteenth SAARC Summit, Colombo (3 August 2008).
65
Charter of the South Asian Association for Regional Cooperation (1985) Article I.
66
Historical background available at: SAARC: South Asian Association for Regional Cooperation
<http://www.saarc-sec/org> (accessed 26 January 2011).

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 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

Agreement on SAFTA was signed on 6 January 2004 and entered into force on 1
January 2006. 67 SAFTA was a significant milestone in regional economic
cooperation in South Asia but was still only one step towards the Association’s
ultimate economic goal of creating a Customs Union, Common Market and
Economic Union.

1. Tax Cooperation

At the Ninth SAARC Summit in Malé in 1997, member nations accepted

Pakistan’s offer to host a meeting to address the avoidance of double taxation.
The SAARC Sub-Group on Avoidance of Double Taxation was formed and the
Sub-Group held three meetings between October 2004 and August 2005 to draft
an agreement on tax cooperation. At the third meeting of the Sub-Group on 30
August 2005, representatives of all member nations reached consensus on the text
of the Draft Agreement. The SAARC Limited Multilateral Agreement on
Avoidance of Double Taxation and Mutual Administrative Assistance in Tax
Matters was signed by the Heads of State or Government of all member nations at
the thirteenth SAARC Summit held in Dhaka on 13 November 2005.
The Agreement is primarily concerned with facilitating administrative
cooperation for the avoidance of double taxation and establishing the rules for tax
cooperation among member countries. For example, Articles 5, 6 and 7 specify in
some detail guidelines for cooperation with regard to the exchange of information,
assistance in the collection of taxes and the service of documents respectively.
However, the Agreement is not limited solely to administrative matters and does
deal with the allocation of taxing rights, the traditional domain of tax agreements.
Articles 8 and 9 ensure that professors, teachers, research scholars and students
are not subject to double taxation by providing a limited exemption from source
country taxation of certain types of income. Finally, the Agreement also addresses
cooperation with regard to capacity building – Articles 10 and 11 formalise joint
training programmes and the sharing of tax policy between member countries.

2. Observations

The SAARC is an excellent model for ASEAN in its achievement of significant

economic cooperation agreements despite a degree of economic disparity between
member countries and political mistrust and disagreement. These achievements
suggest that ASEAN should be able to conclude similar agreements despite any
internal obstacles. In fact, in some ways, ASEAN may have achieved greater

67
For further discussion on SAPTA and SAFTA, see Mamta B Chowdhury, 'Trade Reforms and
Economic Integration in South Asia: SAARC to SAPTA' (2005) 5(4) Applied Econometrics and
International Development 23

DOI: 10.2202/1932-0205.1281 20
 Jogarajan: ASEAN Multilateral Tax Treaty

practical progress towards economic integration than SAARC. As discussed

above, ASEAN member countries have largely achieved their intra-trade
aspirations. Despite the conclusion of SAPTA and SAFTA, SAARC member
countries do not appear to have been similarly successful. The lack of progress in
intra-regional trade within South Asia is generally attributed to political
mistrust.68
Information with regard to the success of the Limited Multilateral Tax
Agreement is unfortunately scarce. This is in large part due to its relatively recent
conclusion and entry into force. Nonetheless, there are still valuable lessons for
ASEAN from the SAARC experience. First and foremost, the SAARC tax
agreement demonstrates that a multilateral tax agreement can have humble
beginnings and does not have to cover every aspect of tax cooperation between
member countries. Rather, it can establish the groundwork for future, more
comprehensive tax cooperation agreements. Achieving universal agreement on
even a few issues would be considered significant progress and an important
development given the economic disparities and political differences within
ASEAN. Second, codification of cooperation with respect to administrative tax
cooperation and tax reform by way of a multilateral agreement is an important
accomplishment which ASEAN should emulate. Informal cooperation in tax
administration and policy already exists within ASEAN. Formalising these
arrangements through a multilateral agreement would be consistent with
ASEAN’s evolution from a consensus-based organisation to one that is more
rules-based. Further, a formal agreement promotes transparency and can be an
important symbol of ASEAN member nations’ commitment to tax cooperation,
providing certainty and confidence for both foreign investors and ASEAN
residents.

V CONCLUSION

The four regional multilateral tax agreements discussed in this paper offer a
wealth of guidance for ASEAN. Important considerations for ASEAN member
countries are of course the great disparity in tax systems and economic conditions
between member countries. According to the latest United Nations’ Human
Development Report, of the ASEAN members, only Singapore and Brunei have

68
Mamta B Chowdhury, 'Trade Reforms and Economic Integration in South Asia: SAARC to
SAPTA' (2005) 5(4) Applied Econometrics and International Development 23, 38; Saleem Khan
and Zahira Khan, 'Asian Economic Integration: A Perspective on South Asia' in Calla Wiemer and
Heping Cao (eds), Asian Economic Cooperation in the New Millennium: China's Economic
Presence (2004) 175, 178-179.

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 Asian Journal of Comparative Law, Vol. 6 [2011], Iss. 1, Art. 8

very high human development and are classified as ‘developed’ countries. 69

Malaysia has ‘high human development’ while the remaining ASEAN members
have ‘medium human development’. Given the development goals of ASEAN,
these differences will need to be considered when concluding a multilateral tax
treaty. ASEAN member countries also have varied colonial backgrounds which
partly influences, though does not wholly determine, their current tax systems.
Brunei, Malaysia, Myanmar and Singapore were British colonies or protectorates;
Indonesia was a Dutch colony; Cambodia, Lao PDR and Vietnam were French
colonies; the Philippines was a Spanish and then United States colony while
Thailand is the only ASEAN country to have never been colonised. Malaysia and
Singapore operate a territorial tax system for individuals and companies while
Brunei uses a territorial tax system for companies only and Thailand uses a
territorial tax system for individuals only.70 The other ASEAN members adopt a
system of worldwide taxation whereby residents of the country are taxed on their
worldwide income, regardless of where it is earned, and non-residents are taxed
on any income sourced in the country. A multilateral tax treaty will need to
consider these (and other) differences in ASEAN member countries’ tax systems
but these differences are not insurmountable. For example, bilateral tax treaties
are currently concluded between countries with worldwide and territorial tax
systems. While these differences are not fatal to the conclusion of an ASEAN
multilateral tax treaty and are what make ASEAN such a vibrant and attractive
region for workers and investors alike, they do impose a need for strong and
continued commitment by ASEAN member countries to the achievement of a
multilateral tax treaty.
The experience of the other regional blocs strongly suggests that ASEAN
should begin with a limited multilateral tax treaty focused on achieving
conformity with regard to a few issues. A multilateral treaty can co-exist with
bilateral arrangements to address specific bilateral issues but these should be
reasonably limited. As the Nordic experience shows (and perhaps the South Asian
countries will one day), a multilateral mutual assistance agreement on tax
administration can be an important step in achieving a more comprehensive
multilateral agreement. Further, given the disparities in member countries’ tax
systems and economies, a multilateral tax treaty does not have to be concluded
between all member countries in the first instance. ASEAN-6 could first establish

69
United Nations Development Programme, Human Development Report - Overcoming Barriers:
Human Mobility and Development (2009) 143-145.
70
A territorial tax system is one where the country imposes its taxing rights only on income
sourced (i.e. earned) in that country. Brunei does not impose income tax on individuals while
Thailand taxes companies on a worldwide basis.

DOI: 10.2202/1932-0205.1281 22
 Jogarajan: ASEAN Multilateral Tax Treaty

a multilateral tax treaty, with the remaining four member countries joining the
treaty at a later stage.71
To ensure the success of a multilateral tax treaty, ASEAN should conclude
a treaty which is largely based on either the OECD or UN Models. This will
increase the likelihood of the treaty receiving widespread acceptance and will
enable ASEAN member countries and taxpayers to rely on the existing body of
literature regarding the Models. In particular, ASEAN should pay particular
attention to the drafting of the treaty and ensure that the treaty language is
consistent with the Models. Variances from the Models may only increase
uncertainty for taxpayers as they do not have any indication as to how the treaty is
to be interpreted or applied. In tax, regular amendments to the treaty will be
important and it is important that those responsible for the multilateral treaty meet
regularly as alongside the purely bilateral meetings addressing bilateral issues.72
A multilateral tax treaty can incorporate the development goals of ASEAN and
provide for increased taxing rights for less-developed countries. The Andean and
Caribbean experience emphasises, however, that it is important that the
multilateral tax treaty has ‘something for everyone’ to ensure that all countries are
fully committed to the treaty.
There is little doubt that concluding a multilateral tax treaty will be
difficult. ASEAN member countries will have to be fully committed to the
conclusion of such a treaty and be dedicated to what will certainly be a long
process if this goal is to be achieved. The adoption of the ASEAN Charter
demonstrates that ASEAN member countries have the necessary political will and
the benefits of a multilateral tax treaty over a network of bilateral tax treaties,
which require significant updating, are numerous. Perhaps more importantly, the
conclusion of a multilateral tax treaty, even a limited one which does not initially
involve all member countries, will be of incalculable benefit in strengthening the
commitment to cooperation among ASEAN members and establishing ASEAN’s
place in international tax relations. The conclusion of the ASEAN Charter was a
significant achievement which ASEAN member nations should build upon. If
ASEAN member nations can successfully overcome their cultural, political and
economic differences and conclude a multilateral tax treaty, the AEC will likely
be accomplished, supporting the development ambitions of ASEAN. With only
two members considered to have ‘very high human development’ indicators, such
goals are laudable and ASEAN member countries should ensure that they are
achieved rather than being merely aspirational.

71
The ASEAN Charter specifically contemplates and allows for one or more members to opt out
of a specific area of economic cooperation: ASEAN, Charter of the Association of Southeast
Asian Nations (2007) Art. 21(2).
72
Odd Hengsle, 'The Nordic Multilateral Tax Treaties – for the Avoidance of Double Taxation
and on Mutual Assistance' (2002) August/September Bulletin 371, 376.

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