Tax sparing in tax conventions
Prepared by the ICC commission on :
Taxation
Publication date : 29/09/2005 | Document Number : 180-486
National tax systems often seek to attract investment through tax concessions. Such measures reduce the tax otherwise imposed on income derived from specified activities, or on the distribution of earnings to the foreign investor, through special tax holidays, credits, deductions or exemptions. However, the economic benefit of such tax-based incentives may be reduced or eliminated by the tax regime of the investor’s home jurisdiction. This particularly occurs where that country provides recognition for the taxes paid to the host country under the credit system.
Some bilateral tax conventions preserve the benefit of host country tax-based incentives through “tax sparing”. These treaty provisions generally stipulate the granting of a credit for taxes that have not actually been collected.
Tax sparing is found most often in conventions with developing economies and is of particular concern to those economies. The purpose of this policy statement is to consider and evaluate the current international practice regarding tax sparing and provide recommendations for future action.
For further information, please contact
Camilla PAGNETTI
Policy Manager , Taxation, Custom & Trade Facilitation
Tel:
+33 (0)1 49 53 28 53
camilla.pagnetti@iccwbo.org