Double Taxation Treaties and International Investment Agreements Vimal Tilakapala, Partner – Taxation Mark Middleditch, Partner – Taxation Marie Stoyanov, Counsel – Litigation (Arbitration) Rishab Gupta, Associate – Litigation (Arbitration) 7 October 2014 © Allen & Overy 2014 Double Taxation Treaties and International Investment Agreements 8.30 – 9.30am Vimal Tilakapala Mark Middleditch Marie Stoyanov Rishab Gupta Summary Structuring foreign investment to maximise tax efficiency and minimise political risk Multinational businesses are increasingly affected by legislative, regulatory and tax developments around the world. As a result, it has become more important than ever to structure, or indeed restructure, investments to both ensure tax efficiency and to minimise the political risk facing foreign investments. Two sets of international instruments are key to this objective: double taxation treaties (DTAs) and international investment agreements (IIAs). DTAs are designed to minimise the risk of double taxation by allocating taxing rights between two jurisdictions, including the setting of withholding tax rates on certain types of cross border payments. They also contain provisions intended to prevent discriminatory treatment and dispute resolution procedures to address breaches of the treaty by the signatory states. Given the obvious benefits of these treaties, it is crucial that all businesses take them into account when investing abroad. Equally important, but lesser known, are IIAs, which create legal obligations owed by the host State to the foreign investor. These protections typically include a commitment to pay market compensation in the case of an expropriation and to provide a transparent and predictable regulatory framework for the investment. In addition, most IIAs allow foreign investors to enforce breaches of these obligations directly against the host State by recourse to international arbitration. Political risk is often one of the most important constraints to foreign direct investment; IIAs are crucial to minimising that risk. In this seminar, our public international law, taxation and arbitration experts consider how to structure foreign investments to make them more tax efficient and less risky, whist at the same time explaining the international legal remedies available should an investor become involved in a dispute with the host State. © Allen & Overy 2014 3 Notes How do investment treaties fit in? X Co (Investor) X Co (Investor) Country X (home state) Dividends (no limited) Double tax treaty = withholding tax Country X (home state) double tax treaty Country Y (host state) shares Z Co shares (investment) Y Co Dividends ≠ no withholding tax Country Z double tax treaty Dividends ≠ no withholding tax investment treaty shares (investment) Y Co Country Y (host state) © Allen & Overy 2014 21 Double tax treaties: current issues – Treaty shopping – Limitation of benefits – Beneficial ownership – Conduit arrangements – BEPS – What is it? – What’s the problem? – Double tax treaty abuse – Multilateral instrument © Allen & Overy 2014 16 22 © Allen & Overy 2014