Equipping tax officials with tax treaty formulation, negotiation skills

The workshop on tax treaty negotiation was held as part of the "Tax for SDGs Initiative", a partnership between the Department of Revenue and Customs, Ministry of Finance and UNDP.

November 7, 2023

Twenty tax officials from the Department of Revenue and Customs (DRC) came together for a capacity-building workshop focused on tax treaty negotiation, tax treaty policy formulation and the creation of a tailored country-specific tax treaty model. It was a first such workshop for the Bhutanese tax officials and was organized by DRC and UNDP, as part of the “Tax for SDGs Initiative”, in collaboration with The South Centre.

The rigorous workshop enhanced participants' understanding of international tax law. They delved into the intricacies of international tax law, gaining in-depth insights into the complexities of cross-border taxation and public international law principles.

Participants also learned how to craft a tailored tax treaty policy framework that suits the specific needs of Bhutan. This included strategies to create policies that align with the country’s economic objectives as well as international obligations.

The highlight of the workshop was a simulated negotiation exercise, which offered the participants hands-on experience in crafting successful negotiation strategies.

Why tax treaties matter

Foreign investment remains a key source of revenue for developing economies and international tax agreements play a pivotal role in promoting cross-border trade, investment, and economic relations.

While tax treaties are designed, among other things, to promote cross-border investment, some developing economies have not always reaped the intended benefits. Complex provisions and negotiation power imbalances often result in these countries being unable to fully protect their tax base or secure favourable terms, potentially exacerbating inequalities in the global economic landscape.

Bhutan and tax treaties

Bhutan has signed tax treaties with only two countries- India and Bangladesh- so far. This workshop came at a time when the country is looking at entering into tax treaties with several other countries while at the same time working towards attracting more Foreign Direct Investments (FDIs).

“In view of the country’s policies geared towards attracting more FDI, it is important for Bhutan to enter into Tax Treaties with partner countries. It would help remove impediments to international trade and investment, ensure significant measure of certainty of tax liabilities to potential investors in Bhutan and vice versa, and prevent tax evasion.” said Sonam Jamtsho, Director General, DRC.

“This workshop, therefore, has enabled tax officials to understand the importance of Tax Treaties and proposing terms that are most favourable for the country’s long-term economic development.”

Mohamed Effendy, a seasoned tax treaty negotiator from the Inland Revenue Board of Malaysia, was one of the facilitators. “As the global tax landscape continues to evolve, this capacity-building initiative stands as a beacon of progress, especially for Bhutan, providing vital tools for Domestic Resource Mobilization. It is through such initiatives that nations can navigate the dynamic global tax environment, ensuring sustainable economic growth and financial stability for all,” he said.

The workshop also engaged tax officials in a comprehensive analysis of the United Nations and Organisation for Economic Co-operation and Development tax treaty model conventions. The facilitators guided the participants through an article-by-article exploration, providing a deep understanding of the provisions and their implications. Through this comprehensive training, the DRC is now equipped with the expertise to navigate treaty negotiations confidently, fostering tax certainty and ensuring a stable financial future for Bhutan.