The most-favoured-nation clause in tax treaties: tool for potential reduction of withholding income tax applicable to Chile and Canada

• Main Authors: Renée Antonieta Villagra Cayamana, Jorge Antonio Villagra Cayamana
• Format: Article
• Language: Spanish
• Published: Pontificia Universidad Católica del Perú 2013-07-01
• Series: Contabilidad y Negocios: Revista del Departamento Académico de Ciencias Administrativas
• Subjects: impuesto a la renta; convenios para evitar la doble imposición; regalías; intereses
• Online Access: http://revistas.pucp.edu.pe/index.php/contabilidadyNegocios/article/view/6764

Tax treaties to avoid the double taxation signed by a country have consequences for the future, but they can also modify the terms of treaties that are already in force, in case these contain most-favoured-nation clauses. In this line, taxpayers and companies, particularly, as well as the Tax Administration must be alert, regarding topotential modifications of the terms of the Peruvian tax treaties already in force; mainly about the withholding tax rate applied to royalties in the Convention subscribed with Chile and the withholding tax rates applied to dividends, interests and royalties in the Convention subscribed with Canada, taking into account that both of the mentioned tax treaties contain most-favoured-nation clauses for those kind of income. The Ministry of Economy, as the entity in charge of negotiations of the bilateral conventions, according to Law Decree 25883, has the responsibility of negotiating future treaties with full knowledge that the terms to be included could also cause the effect to decrease the withholding tax rates of the income tax in respect to conventions already in effect, as a consequence of the most-favoured-nation clause they contain.