Tanzania: Managing Tax Risks – Double Tax Treaties and Implications
Can tax treaty provisions override domestic law?In our last article we defined double taxation as an exposure to tax more than once on the same profit or income. We also highlighted the two types of double taxation i.e. economic double taxation and juridical double taxation and also noted that a double tax treaty is an agreement between two taxing states or countries entered into to address the question “which individuals and entities does a particular state have the right to tax?
“We also noted that the first double tax treaty for income taxes was between Prussia and Austria-Hungary entered into in 1899 and that Tanzania has signed and ratified double tax treaties with Sweden, South Africa, Zambia, India, Norway, Italy, Denmark, Canada and Finland. Some few other treaties have also been signed but not yet ratified. We also discussed the purposes of double tax treaties.
Today we focus on the relationship between tax treaties and domestic tax laws; the models on which double tax treaties are based i.e. the OECD Model, UN Model & the US Model; and types of income and capital covered by double tax treaties.
Can tax treaty provisions override domestic law?
Normally the provisions in the tax treaties override those of domestic tax law. Thus if the tax treaty provides a double tax relief by not allowing a state to impose certain taxes to Multinationals, this will not be overridden by any domestic tax provisions.Double tax treaties are governed by international law under the Vienna Convention on the Law of Treaties (1980). Nevertheless treaty override normally occurs and this may result from ignorance or sometimes it may done deliberately by a state. For instance a state may have entered into a double tax treaty but subsequently passes a domestic law to deny tax payers the benefits of the provisions of the tax treaty where there is too much tax revenue at stake.