Legal Research On Non-discrimination Provisions Under Bilateral Tax Treaties

Tax revenue is an important factor affecting investment return.To prevent its nationals or residents from bearing too heavy a tax burden in the other state,a state will usually include a non-discrimination treatment provision in its bilateral tax treaty with that state,requiring the contracting state not to enforce discriminatory tax measures against nationals and residents of the other contracting state.For states with foreign investment,the non-discrimination treatment provision in bilateral tax treaty is undoubtedly an important international law system to protect foreign investment return of the domestic investors and reasonable allocation of tax revenue of the resident states from improper encroachment.As two most influential model tax conventions in the international community,the OECD Model Tax Convention on Income and on Capital(hereinafter referred to as the "OECD MC")and the United Nations Model Double Taxation Convention between Developed and Developing Countries(hereinafter referred to as the "UN MC")have adopted non-discrimination treatment provision for so long,and the bilateral tax treaties based on them barely exclude such provision.Even so,judging from the relevant cases and the situation reflected by the practitioners,it is still very common for a state to take discriminatory tax measures against residents of its contracting state.What is it that makes the non-discrimination treatment provision fail to fully exert its effect?For the purpose of protecting the investment income of domestic foreign investors and reasonable allocation of tax revenue of the Chinese government,this paper will explore the defects in the interpretation and application of the non-discrimination treatment provisions in the current bilateral tax treaties,by analyzing the leaning of the internal tax authorities or courts and OECD MC Commentary to interpret the provision,as well as the mechanism of countries violating the provision,and then reveal the reasons why the provision is frequently in vain in protecting the investors.For the above purpose,this paper is divided into four chapters.The first chapter will briefly introduce the concept,theoretical basis and component of the provision.To have the analysis more typical,the object of this paper will be limited to several provisions in OECD MC non-discrimination treatment provision unless otherwise indicated.In this chapter,it endeavors to figure out the reason for the application scope of the provision being so limited and scattered,in a way to observe the aim it strives to achieve and the obstacle it meets along the path.In the second chapter,this paper will turn to examine the interpretation and application of this provision.As the provision is mostly interpreted by internal tax authorities or courts and OECD Commentary,this chapter will take several domestic tax system like branch profit tax and group consolidation as an example,to dig out the leaning of those interpreters when applying the provision to these systems.The third chapter will focus on states? overriding of non-discrimination treatment provision in bilateral tax treaties,which did happen in the practice of the UK,the USA and India.Such behavior constitutes a breach of Pacta Sunt Servanda,and should be remedied in theory.Based on the issues discussed in the former two chapter and the background of Chinese “going out” policy in recent years,as well as the aim to protect investment return of Chinese enterprises and reasonable allocation of tax revenue of Chinese government from improper erosion,the final chapter will endeavor to put forward some feasible suggestions for Chinese government to negotiate the bilateral tax treaties,and for Chinese enterprises to avoid risk of or to response to the discriminatory tax measures by the host states.