International treaties to avoid double taxation and bilateral agreements on exchange of information on tax matters (I)


In accordance with the evolution of legal doctrine and jurisprudence, the domestic law of the different countries gradually adopted principles on fundamentals, limitations and guarantees in matters of taxation.

In exercise of its sovereign power, each state legislated on the relations between subjects, facts and their territory, defining in this way, when an act was taxed and to what extent the subject had to contribute.

If the relationship had elements involving two or more state jurisdictions, States established rules that included or excluded the operation in question from their power of taxation, based on different points of connection.

However, many times, two States sought to receive a tax for the same taxable event, given that there was a concurrence of some circumstance that linked that operation to its sovereignty. To do so, they considered the territory, the nationality of one of the subjects, the location of the goods or the place of celebration of the acts.

This resulted in a double taxation on the same event, which discouraged the conclusion of cross-border transactions.

On other occasions, it happened that certain facts or acts were not reached by any tax jurisdiction, and the opposite occurred, the phenomenon of non-imposition.

This is considered harmful, from the point of view of the tax administration, because it exempts economic agents from the duty to contribute, generally in a distorting way and without justifiable cause.

These difficulties were resolved through the progressive adaptation of domestic state legislation and the conclusion of conventions to avoid double taxation.

These are international treaties, generally bilateral, where tax administrations conventionally “distribute” tax powers to mitigate the disincentives and inequities that result from double taxation. They refer either to commercial operations or certain civil acts, mainly on direct taxes, to income and wealth.

However, there was a risk that the proliferation of dissimilar agreements, called to solve the need to harmonize and articulate the different legislations, would end up generating a complex normative framework that would complicate the issue even further.

information exchange

That is why the so-called “model conventions” were born. These are typified redactions that share a common scheme of distribution of tax power and that the States can adopt with the modifications that punctually agree to the contrary.

In these model conventions, two trends were reflected, referring to the connection point used to tax the rent – whether based on the source of wealth or on the residence of the owner of the capital. This depended on whether the adopter country was, respectively, importer or exporter of capital.

The first work on a model of an agreement to avoid double taxation in terms of income and wealth, by 1921 and 1928, was carried out by the League of Nations.

Subsequently (1956) published its model treaty the Fiscal Committee of the Organization for European Economic Co-operation (O.E.E.C.) which would be later the O.C.D.E.

Finally, the United Nations Organization further up in 1979 to a model alternative agreement to that first.

The bilateral agreements to which the States acceded thanks to these models, allowed to solve successfully that first challenge in the matter.

These agreements also included, progressively, commitments on the exchange of information between tax administrations for the purposes of their application.

At that time, however, such exchange was limited to the application of those bilateral agreements and was generally conditional upon the prior request of a party and the verification of the concurrence of certain conditions concerning the type of information requested, reciprocity and subsidiarity.

The question of the effective implementation of these agreements until the beginning of the millennium, shared the incipient of the institution. In fact, it was often the case that the legal provisions of many conventions remained a dead letter of the law, without the effective responses being given in a timely manner.

This experience generated the awareness in the international tax community of the importance of moving towards multilateral information exchange agreements, planned with a total view from their original design, and oriented towards automaticity as a principle in committed data traffic ( Coronas Valle, 2015).


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