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ASEAN needs tax treaty networks to boost tax certainty
Intra-ASEAN tax treaty networks can be a positive signal to the international community regarding ASEAN's commitment to realize tax fairness and prevent tax avoidance or evasion.
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T
o become the world's growth engine, ASEAN must be a region with positive economic growth, stable political conditions and strong cooperation among members. This cooperation can be achieved by intra-ASEAN tax treaty networks. Tax treaty networks are not only useful in preventing tax avoidance and evasion, but also in attracting investors, because the tax treaty contains incentives to reduce several tax rates.
The Organization for Economic Co-operation and Development (OECD) in its 2016 survey ranked taxation as the third factor affecting investment in a country. If we look at it in more detail, there are two main factors related to taxation that affect investment in a country: tax rates and the existence of tax treaty networks.
Tax treaty networks in the ASEAN region would be a positive signal to the international community regarding the commitment to realize tax fairness and prevent tax avoidance or evasion. The completion of ASEAN tax treaty networks is also expected to encourage a level playing field of taxation among ASEAN countries.
ASEAN still has some work to do regarding tax treaty networks, since some ASEAN countries are still in the negotiation or ratification process. For example, Myanmar is still in the negotiation stage with Brunei Darussalam, Cambodia, the Philippines and Indonesia. Likewise, the Philippines is still trying to reach a conclusion in the negotiation process with Cambodia and Laos. Thailand still has to work with Brunei Darussalam to finalize their tax treaty negotiation, while Brunei Darussalam and the Philippines also have an unfinished ratification process. Singapore is the only ASEAN country that has established tax treaties with nine other ASEAN countries.
Some circumstances have indeed slowed the negotiations, such as the COVID-19 pandemic and the unstable political situation in Myanmar. Indonesia's commitment to complete the tax treaty network in ASEAN is indicated by the enactment of Indonesia's tax treaty formation with Cambodia and Indonesia's tax treaty renegotiation with Singapore, in 2021 and 2022, respectively. To date, Indonesia has 70 tax treaties in force with partner jurisdictions.
Indonesia can encourage completion of tax treaty networks in the ASEAN region in taxation discussion forums. Of course, the tax forum is based on the desire of ASEAN countries to increase competitiveness in the fiscal field.
Although tax treaties are not the main factor in attracting investment, they should continue to be adjusted to international taxation standards in order to increase tax certainty. There are at least three roles a tax treaty can play in increasing tax certainty.
