07.25.06
Tax treaty negotiated, signed, ratified or applied?
It is a usual question on double taxation treaties and most other treaties and international agreements as well. It is really important to understand whether a double taxation treaty is still negotiated or it has been signed or ratified or it has already been applied.
A double taxation treaty usually is a bilateral treaty, and it means that it is negotiated between a limited number of states, as a rule, just two, and it establishes legal rights and obligations between just those two states.
A treaty usually consists of these phases:
1) Consideration. Before starting negotiations an authoritative representative of each country informs each other on the intention to start negotiations. It usually happens when the first representatives of one country meet each other or ambassador of another country.
2) Negotiation. It is a formal process by which the terms of a treaty are agreed between countries and which should result in the signing of a treaty. Negotiators should be authorized and have a mandate of the party they represent. It could take up to several years to reach the consent.
3) Signature. It is the act by which a state expresses its consent to the text of the treaty, however, not its consent to be bound by it, unless the treaty states that it comes into force on signature. A country which has signed a treaty which is a subject to ratification is not obliged to ratify, therefore signed treaty does not mean that it will actually enter into force. Each country should obtain a parliamentary approval for ratification and sometimes it could be a never-ending process.
4) Ratification. Each country should ratify a treaty before it enters into force. Usually, before the ratification, each country also should check whether some changes in legislation should be made to avoid any obstacles in fulfilling the ratified treaty.
5) Application. Usually there is some date other than the date of ratification when the treaty is applied. The provisions of the treaty usually determine the date when the treaty comes into force.
6) Withdrawal. If some events that change a country’s interest in a treaty occur, the country can remove its consent to be bound by the treaty. The treaty usually specifies the terms of withdrawal and typically a party to a treaty remains bound by the treaty for an indicated period of time following notification of intention to withdraw before the withdrawal happens.
General guidelines on international treaty principles can be obtained at http://untreaty.un.org/English/guide.asp
In the next blog, we will look at double taxation treaty lifecycle on the examples of Seychelles double tax treaties.