The past few decades have seen a rapid increase in the amount of double tax treaties signed
between countries, from a global number of around 500 to more than 3,000. Initially
proposed to prevent double taxation in different jurisdictions, today these treaties have
become instruments for reinforcing global inequality, by reducing the ability of developing
countries to raise revenues.
The resulting network of bilateral tax treaties is skewed towards the needs of resident
countries (home to multinational companies, and their intermediaries). This occurs
through rules that reduce withholding tax rates on intra-group payments (e.g. interests,
dividends, royalties) that flow from countries where the economic activity occurs (source
countries) to the home countries of multinationals or to offshore intermediaries, which can
be located in low-tax jurisdictions.
The ability of multinationals to structure their intra-group payments to take advantage of
low-tax jurisdictions oſten results in low or double non-taxation and a loss of revenues for
the source country.
In order to ensure a minimum level of taxation of intra-group payments, the G20/OECD
Inclusive Framework (G20/OECD IF) and the United Nations Committee of Experts on
International Tax Cooperation (UNTC) have separately developed a Subject to Tax Rule
(STTR). This is a minimum tax that applies on a transactional basis to payments from
source States that are subject to low nominal tax rates in the State of the payee.
The STTR is based on an understanding that where, under a tax treaty, a source State has
ceded taxing rights on certain outbound payments, it should be able to recover some of
those rights when the income in question is taxed (if at all) in the State of the payee (i.e. the
residence State) below a certain rate.