3. International Taxation Agreements

International taxation agreements deal primarily with the issue of double taxation in international financial activities (e.g. regulating taxes on income, assets or financial transactions). They are commonly concluded bilaterally, though some agreements also involve a larger number of countries.

The main purpose of international taxation agreements is to regulate how taxes imposed on the global income of multinational enterprises are distributed among countries. In most cases, this is done through the elimination of double taxation. The core of the problem lies in the disagreements among countries on who has jurisdiction over the taxable income of multinationals. Most commonly, such conflicts are addressed through bilateral agreements that deal solely with taxation on income and sometimes also capital. Nevertheless, a few multilateral agreements on taxation as well as bilateral agreements that address taxation together with other issues have also been concluded in the past.

Avoidance of double taxation is achieved by concurrently applying two separate approaches:

1. The first approach is the elimination of definition mismatches for terms such as "residence" or "income" that could otherwise be a cause of double taxation.

2. The second approach constitutes the relief from double taxation through one of three methods:

- The credit method allows foreign tax to be credited against the tax paid in the residence country.

- According to the exemption method, foreign income and resulting taxation is simply disregarded by the residence country.

- The deduction method taxes income net of foreign tax, but it is rarely applied.

29. Describe the evolution of and recent trends in International investment agreements.

The emergence of the international investment framework can be divided into two separate eras:

1) 1945-1989: disagreements among countries about the degree of protection that international law should offer to foreign investors. Developed countries (argued that foreign investors should be entitled to a minimum standard of treatment in any host economy) vs. developing and socialist countries (tended to contend that foreign investors do not need to be treated differently from national firms).

In 1959, the first Bilateral Investment Treaties (BITs) were concluded, and during the following decade, much of the content that forms the basis of a majority of the BITs currently in force were developed and refined.

In 1965, the Convention for the Settlement of Investment Disputes Between States and Nationals of Other States was opened to countries for signature. The rationale was to establish International Centre for Settlement of Investment Disputes (ICSID) as an institution that facilitates the arbitration of investor-State disputes.

2) 1989-today: generally more welcoming sentiment towards foreign investment, and a substantial increase in the number of BITs concluded. Amongst others, this growth in BITs was a result of the opening up of many developing economies to foreign investment.

The mid-1990s saw the creation of three multilateral agreements that touched upon investment issues as part of the Uruguay Round of trade negotiations and the creation of the WTO:

• the General Agreement on Trade in Services (GATS);

• the Agreement on Trade-Related Investment Measures (TRIMS);

• the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

In addition, this era saw the growth of Preferential Trade and Investment Agreements (PTIAs), such as regional, interregional or plurilateral agreements (examples: NAFTA in 1992 and the establishment of the ASEAN Framework Agreement on the ASEAN Investment Area in 1998). These agreements typically also began to pursue liberalization of investment more intensively.

Statistics show the rapid expansion of IIAs during the last two decades. By 2007 year-end, the entire number of IIAs had already surpassed 5,500, and increasingly involved the conclusion of PTIAs with a focus beyond investment issues.

Another trend in IIAs is the increased conclusion of such agreements among developing countries. In line with their emerging role as outward investors, and their improved economic competitiveness, developing countries are increasingly pursuing the dual interests of encouraging FDI inflows but also seeking to protect the investments of their companies abroad.

Another key trend relates to the myriad of different agreements (so called phenomenon of a "spaghetti bowl"). According to UNCTAD, the system is universal, as practically every country has signed at least one IIA. At the same time, it can be considered as atomized due to the large amount of individual agreements currently in existence. So, the system is (characteristics):

• multi-layered, with agreements being signed at all levels (bilateral, sectoral, regional etc.).

• multi-faceted, as an increasing number of IIAs include provisions on issues traditionally considered only distantly related to investment, such as trade, intellectual property, labor rights and environmental protection.

• dynamic, as its key characteristics are currently rapidly evolving.

Finally, beyond IIAs, there is other international law relevant for countries' domestic investment frameworks, including customary international law, United Nations instruments and the WTO agreement (e.g. TRIMS).

The Agreement on Trade-Related Investment Measures (“TRIMs Agreement”), one of the Multilateral Agreements on Trade in Goods, prohibits trade-related investment measures, such as local content requirements, that are inconsistent with basic provisions of GATT 1994.

This Agreement, negotiated during the Uruguay Round, applies only to measures that affect trade in goods. Recognizing that certain investment measures can have trade-restrictive and distorting effects, it states that no Member shall apply a measure that is prohibited by the provisions of GATT Article III (national treatment) or Article XI (quantitative restrictions). Examples of inconsistent measures, as spelled out in the Annex's Illustrative List, include local content or trade balancing requirements. The Agreement contains transitional arrangements allowing Members to maintain notified TRIMs for a limited time following the entry into force of the WTO (two years in the case of developed country Members, five years for developing country Members, and seven years for least-developed country Members). The Agreement also establishes a Committee on TRIMs to monitor the operation and implementation of these commitments.

S.Sutyrin claims, that TRIMs is extremely disadvantageous for African state subsidies, which are very important for such important (but undeveloped) sphere of economics as African industry.

There have been several initiatives for the establishment of a more multilateral approach to international investment rulemaking:

- the Havana Charter of 1948;

- the United Nations Draft Code of Conduct on Transnational Corporations in the 1980s;

- the Multilateral Agreement on Investment (MAI) of the OECD in the 1990s.

None of these initiatives reached successful conclusion, due to disagreements among countries and, in case of the MAI, also in light of strong opposition by civil society groups.

Further attempts of advancing the process towards establishment of a multilateral agreement have since been made within the WTO, but also without success.

Particularly developing countries may require "policy space" to develop their regulatory frameworks, such as in the area of economic or financial policies, and one major concern was that a multilateral agreement on investment would diminish such policy space. As a result, current international investment rulemaking remains short of having a unified system based on a multilateral agreement. In this respect, investment differs for example from trade and finance, as the WTO fulfills the purpose of creating a more unified global system for trade and the IMF plays a similar role with respect to the international financial system.