Most Favoured Nation Clauses in Double Taxation Agreements: Identifying Problems and Recommending Policy Solutions for the Global South

Double Tax Agreements (DTAs) between treaty parties usually ensure the appropriate division of taxing rights and benefits between treaty partners. However, when a DTA is between a capital-exporting nation and a capital-importing country, the negotiations and DTA may be marred by unequal bargaining powers between the countries. Thus, capital-exporting nations often influence the fundamental design of these treaties to favour the entities in their economies that are responsible for the capital outflow.

This paper aims to understand the potential detrimental impact of one clause – the most favoured nation (MFN) clause in DTAs – on revenue collection and tax certainty for host/capital-importing nations. The study takes into consideration the recent tax litigation and controversies surrounding MFN clauses in India, South Africa, the Philippines, and Colombia, to assess the impact of negotiated MFN provisions on the Global South. Interestingly, neither the OECD nor the UN Model Tax Convention has a standard MFN provision. Therefore, we explore whether a template for MFN clauses can be framed to help Global South countries to protect their interests against capital-exporting nations.

Summary of Working Paper 222.