Process of negotiating a Tax Treaty - International Taxation - Income Tax

Process of negotiating a tax treaty Entering into a tax treaty involves the following steps or stages: Signature, Ratification, Conclusion and Entry into force. The process of negotiating a tax treaty typically begins with initial contacts between the countries. In deciding whether to enter tax treaty negotiations with other countries, a country will consider many factors, the most important of which is the level of trade and investment between the countries. Once the countries have decided to negotiate, they will exchange their model treaties (or their most recent tax treaties, if they do not have a model treaty) and schedule face-to-face negotiations. Typically, treaties are negotiated in two rounds, one in each country. During the first round of negotiations, the negotiating teams will agree on a particular text usually one of the countries model treaties to use as the basis for the negotiations. After presentations by both sides about their domestic tax systems, the negotiations proceed on an article-by-article basis. Aspects of the text that cannot be agreed on are usually placed in square brackets, to be dealt with later. Once the wording of the treaty is agreed on, the parties initial it. After such agreement has been reached, arrangements will be made for the treaty to be signed by an authorized official (often an ambassador or government official). After signature, each State must ratify the treaty in accordance with its own ratification procedures. The treaty is generally concluded when the countries exchange instruments of ratification. The treaty enters into force in accordance with the specific rules in the treaty.