For international tax practitioners, the Model Tax Convention on Income and Capital (“Model tax treaty”) and its Commentaries have long been a leading reference for information. The Organization for Economic Cooperation and Development (OECD) published the first draft of this model tax treaty in 1963, and since then had 11 updates. The latest edition was published in 2017 (https://www.oecd.org/tax/model-tax-convention-on-income-and-on-capital-condensed-version-20745419.htm ).
The Model tax treaty serves as a reference for countries in negotiating and concluding bilateral tax conventions. I recall learning this model in various training courses when I was the Chief of the International Tax Affairs Division of the Bureau of Internal Revenue (BIR) in the 1990s. I have since been involved in negotiations for the conclusion of at least 10 tax treaties with our foreign counterparts as a member of the Philippines Negotiation Panel.
The Model tax treaty also is oftentimes referred to in the implementation of concluded tax treaties. The various stakeholders, including the BIR, the courts, and taxpayers rely on the notations and commentaries of the Model tax treaty in the interpretation of provisions of existing tax treaties. The provisions and commentaries in the Model tax treaty have been cited in various BIR, Court of Tax Appeals, and Supreme Court decisions.
The Philippines has a total of 43 tax treaties in effect. The last treaty concluded was with Mexico. This was signed in November 2015 and became effective on January 1, 2019. The BIR can expand its tax treaty network by initiating negotiations or concluding ongoing treaties with countries that have growing investment and trade potential with the Philippines. These can include such African countries as Egypt, South Africa, etc., and South American countries, such as Argentina and Chile. It is also high time that the BIR reviews its existing tax treaties with the end of renegotiating those with contentious or outmoded provisions. This move will put the BIR on the global tax community map as a country that has pursued a robust bilateral tax treaty program.
The stature of the Philippines in the global tax community will also be upgraded if the BIR and the Department of Finance start being active participants in the updating of the Model tax treaty. It has been over six years since the last update and the OECD and the other countries have ongoing discussions on issues and developments to be included in the next set of updates.
It is a good step that last November 2023, the Philippines joined the OECD/G20 Inclusive Framework on Base Erosion and ProfitShifting (BEPS), an international collaboration with over 140 member countries and jurisdictions.
Through its membership, the Philippines has committed to addressing several global tax developments on harmful tax practices, tax challenges arising from the digitalization of the economy, measures to enhance tax transparency, and the BEPS initiatives on the Two-Pillar Solution to reform the international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate. The active, if not leadership, role of the BIR in these discussions will result in positive outcomes for the country. Locally, the BIR will be able to put in place the necessary measures on current and best global tax practices that can result in additional tax revenues and oversight of tax irregularities. Equally important, the BIR can become a leading advocate for the concerns of developing tax administrations in the global tax community and institutions.
There are indeed great opportunities for the Philippines, through the BIR, to shine in the arena of international taxation.
To be continued
Joel L. Tan-Torres was a former Commissioner of the Bureau of Internal Revenue. He has also held the various positions of Dean of the University of the Philippines Virata School of Business, Chairman of the Professional Regulatory Board of Accountancy, Tax partner of Reyes Tacandong & Co. and the SyCip Gorres and Velayo & Co., and director of various corporate boards. He is a Certified Public Accountant who garnered No. 1 in the CPA Board Examination of May 1979. He is now back to his tax and consultancy practice and can be contacted at firstname.lastname@example.org and his firm JL2T Consultancy.