Tax arbitration via new double tax treaties is on the increase. Hence, knowledge of international arbitration is important. Take a look at the following extract from the IBFD Book – Arbitration under Tax Treaties:
This will complement the provisions of the mutual agreement procedure, which correspond exactly to the wording of Article 25(1) to (4) OECD Model, by adding the following paragraph (5):
If any difficulty or doubt arising as to the interpretation or application of this Convention cannot be resolved by the competent authorities within a period of two years after the question was raised pursuant to the previous paragraphs of this Article, the case shall , if all affected taxpayers agree, be submitted for arbitration by the competent authority that initiated the mutual agreement procedure. The arbitration board shall consist of one representative of each competent authority and one independent person per Contracting State taken from a list of arbitrators in the order of their nomination. The arbitrators shall elect a chairperson who must possess the qualifications required for appointment to the highest judicial of ices in his country or be a jurisconsult of recognized competence. Each Contracting State appoints five competent persons for the list of arbitrators.The taxpayer may at his request appear before the arbitration board. The arbitration board shall deliver its opinion not more than six months from the date on which the matter was referred to it. The decision of the arbitration board in a particular case shall be binding on both Contracting States and al taxpayers involved with respect to that case.(unofficial translation).
10 October 2005
1 January 2009
Country 1:South Africa
Signed:8 May 2007
Effective:1 January 2010
Documents:South Africa – Switzerland Income Tax Treaty (2007)
Country 2:South Africa
Signed:21 February 2011
Effective:26 February 2012
Documents:Guernsey – South Africa Exchange of Information Agreement (2011)
An arbitration board shall consist of not less than three members. Each competent authority shall appoint the same number of members, and these members shall agree on the appointment of the other member(s).
The other member(s) of the arbitration board shall be from either Contracting State or from another OECD member country. The competent authorities may issue further instructions regarding the criteria for selecting the other member(s) of the arbitration board.
Arbitration board members (and their staffs) upon their appointment must agree in writing to abide by and be subject to the applicable confidentiality and disclosure provisions of both Contracting States and the Convention. In case those provisions conflict, the most restrictive condition will apply.
each Contracting State shall bear the cost of remuneration for the member(s) appointed by it, as well as for its representation in the proceedings before the arbitration board;
the cost of remuneration for the other member(s) and all other costs of the arbitration board shall be shared equally between the Contracting States; and
the arbitration board may decide on a different allocation of costs.
After a period of three years after the entry into force of this Convention, the competent authorities shall consult in order to determine whether it is appropriate to make the exchange of diplomatic notes referred to in paragraph 5 of Article 26 (Mutual agreement procedure).
If the competent authorities of both States agree to submit a disagreement regarding the interpretation or application of this Convention in a specific case to arbitration according to paragraph 5 of Article 26, the following procedures will apply:
notwithstanding Article XXII and footnote 11 of the GATS, in the event that the GATS applies between the United States and Kazakhstan, a dispute concerning whether a measure is within the scope of the Taxation Convention shall be considered only pursuant to Article 25 (Mutual agreement procedure) of the Taxation Convention by the competent authorities of the United States and Kazakhstan as defined in subparagraph 1(h) of Article 3 (General definitions); and
unless the competent authorities determine that a taxation measure is not within the scope of the Taxation Convention, national treatment or most-favored-nation obligations under any other agreement (including GATS in the event that it applies between the United States and Kazakhstan) shall not apply to a taxation measure, except for such national treatment or mostfavored-nation obligations as may apply to trade in goods under the Agreement on Trade Relations between the United States and Kazakhstan, signed on May 19, 1992, and the General Agreement on Tariffs and Trade if it applies between the United States and Kazakhstan.
the provisions of this Article exclusively shall apply to any dispute concerning whether a measure is within the scope of this Convention, and the procedures under this Convention exclusively shall apply to that dispute; and
unless the competent authorities determine that a taxation measure is not within the scope of this Convention, the non-discrimination obligations of this Convention exclusively shall apply with respect to that measure.
If, in applying paragraphs 1 to 3 of Article 9, the competent authorities fail to reach an agreement within two years of the date on which the case was submitted to one of the competent authorities, they may agree to invoke arbitration in a specific case, but only after fully exhausting the procedures available for paragraphs 1 to 3 of Article 9. The competent authorities will not accede to arbitration with respect to matters concerning the tax policy or domestic law of either State.
The competent authorities shall establish an arbitration board for each specific case in the following manner:
The competent authorities may agree on and instruct the arbitration board regarding specific rules of procedure, such as appointment of a chairman, procedures for reaching a decision, establishment of time limits, etc. Otherwise, the arbitration board shall establish its own rules of procedure consistent with generally accepted principles of equity.
Taxpayers and/or their representatives shall be afforded the opportunity to present their views to the arbitration board.
The arbitration board shall decide each specific case on the basis of the Convention, giving due consideration to the domestic laws of the States and the principles of international law. The arbitration board will provide to the competent authorities an explanation of its decision. The decision of the arbitration board shall be binding on both States and the taxpayer(s) with respect to that case. While the decision of the arbitration board shall not have precedential effect, it is expected that such decisions ordinarily will be taken into account in subsequent competent authority cases involving the same taxpayer(s), the same issue(s), and substantially similar facts, and may also be taken into account in other cases where appropriate.
Costs for the arbitration procedure will be borne in the following manner:
of costs. However, if it deems appropriate in a specific case, in view of the nature of the case and the roles of the parties, the competent authority of one of the States may require the taxpayer(s) to agree to bear that State’s share of the costs as a prerequisite for arbitration.
The competent authorities may agree to modify or supplement these procedures; however, they shall continue to be bound by the general principles established herein.
SUB-SAHARAN AFRICA AND INTERNATIONAL ARBITRATION
Setting the scene
The past decade has seen a growing recognition of the substantial investment opportunities offered by Sub-Saharan Africa. This has been helped by increasing political stability, and the implementation of investor-friendly economic policies by many African governments. Measures to facilitate, promote and support the resolution of disputes by arbitration form a key element of these policies.
Africa is a diverse continent, and the legal position in each country is a product of the interactions between indigenous traditions, colonial history and more recent political developments. It is not possible here to address in detail the differences and distinctions between and within different Sub-Saharan African states, and some broad generalisations are unavoidable. What can be done, however, is to consider generally some of the key issues in arbitration in Sub-Saharan Africa and some recent developments.
Of course many international arbitrations about Sub-Saharan African projects and contracts end up having very little to do with Africa. It is common for contracts in Sub-Saharan Africa to provide for a foreign seat of arbitration (e.g. London or Paris) and to choose international arbitration rules (e.g. LCIA or ICC). Foreign parties also often seek, where possible, to enforce awards in jurisdictions outside Africa, if assets can be found there.
But, when contracting in Sub-Saharan Africa, there will still be times when a claimant has to conduct and perhaps enforce an arbitration in an African state (possibly under African arbitration rules), for instance where enforcement is sought against a party that does not hold assets outside Sub-Saharan Africa. The contract may also specify an African seat of arbitration or African arbitration rules. Whilst this is currently comparatively rare (particularly in relation to major projects), it is likely to occur more frequently in the future, particularly since this is something that many African governments (often contracting parties in relation to major African projects) are increasingly keen to promote.
What challenges does Sub-Saharan Africa present?
The challenges and issues particular to arbitrating in Sub-Saharan Africa, and the concerns to which they give rise, may well account for the fact that so many “African” arbitrations end up taking place outside Africa. What are these challenges and issues and what recent developments have there been?
Several of the most commonly perceived challenges and obstacles in arbitrating or enforcing arbitral awards in Africa relate to the approach and efficacy of the domestic courts in African states. These courts will often have a key part to play in relation to arbitration, potentially ruling on matters such as the existence or validity of an arbitration agreement (and consequent anti-suit injunctions, etc.), challenges regarding the constitution or conduct of the arbitral tribunal or the enforcement of an arbitral award.
The lack of an established body of jurisprudence in relation to international arbitration in many Sub-Saharan African countries, coupled, in some cases, with limited judicial familiarity with issues concerning international arbitration, inevitably fuels uncertainty as to the attitude and approach that domestic courts are likely to take. Another issue faced by many national courts in Sub-Saharan Africa is a strain on resources which can lead to backlogs of cases and lengthy delays, even in addressing relatively straightforward matters.
Corruption, whether on the part of arbitrators, the judiciary or court staff, is also a serious concern. Although there is a tendency to generalise about the extent of corruption in African nations, it still remains the case that corruption can often constitute a significant obstacle to the just and effective disposal of disputes by arbitral tribunals and national courts. Any risk of corruption inevitably gives rise to major concerns on the part of a party faced with the prospect of arbitration.
Enforcement and public policy
A common exemption from the recognition and enforcement of arbitral awards is on the grounds of public policy (for example under Article V(2)(b) of the New York Convention1). This is an important factor in relation to arbitrations in Africa, since public policy can be a relatively fluid concept, and may be very widely construed.
This exemption, which may add a further element of uncertainty to the enforcement of awards, can be exacerbated by the wide-ranging cultural, linguistic, religious and political diversity between, and sometimes even within, African states. For example, a significantly different view of public policy could be taken in courts which apply aspects of Shari’a law (e.g. in Sudan, or certain states of Nigeria) from those which apply the common law.
Trends and developments
There is a growing recognition among Sub-Saharan African states of the potentially detrimental effect of some of the issues outlined above, and an increasing acknowledgment that support for arbitration represents a key part of providing an investor-friendly climate. A number of states have therefore taken steps which have the potential significantly to facilitate and increase the use of arbitration.
New York Convention
One aspect of this is the growing trend in Africa of adoption of international standardised arrangements for the recognition and enforcement of arbitration agreements and arbitral awards.
A growing number of African countries (just over half) are signatories to the New York Convention, which provides that signatory states shall:
- recognise and uphold valid written arbitration agreements; and
- recognise and enforce arbitral awards (subject to certain exceptions – e.g. public policy).
Reliance on the Convention represents, in many instances, the preferred means by which arbitrating parties seek to enforce international arbitration awards in those states.
The number of countries which are members of OHADA (the acronym, in French, for “Organisation for the Harmonisation of Business Law in Africa”) is also growing. OHADA came into being in 1993, with the aim of modernising, standardising and harmonising commercial law in Africa. Almost all of the OHADA member states are former French colonies (although Equatorial Guinea (formerly Spanish) and Guinea- Bissau (formerly Portuguese) are also members). The OHADA rules and institutions draw strongly on civil law legal traditions and French business law.
OHADA has a “Uniform Arbitration Act”, along similar lines to the UNCITRAL Model Law, which provides for the recognition and enforcement of arbitration agreements and arbitral awards. Arbitral awards with a connection to an OHADA member state are given final and binding status in all OHADA member states, on a par with a judgment of a national court. Support is provided by the OHADA Common Court for Justice and Arbitration (based in Abidjan, Cote d’Ivoire) which can rule on the application and interpretation of the Uniform Arbitration Act.
The enforcement regime under the Uniform Arbitration Act has a narrow definition of public policy. Enforcement of an arbitral award may only be refused on public policy grounds where the award manifestly breaches “international public policy”, as opposed to the public policy of individual member states.
UNCITRAL Model Law
Progress with the adoption of arbitration legislation based on the UNCITRAL Model Law has so far been limited (six states in Sub-Saharan Africa have adopted laws modelled on the Model Law so far) but the OHADA Uniform Arbitration Act (the provisions of which mirror the Model Law) is applicable in each of the OHADA member states.
ICSID and bilateral investment treaties
The great majority of Sub-Saharan African states have acceded to the ICSID2 Convention, and most bilateral investment treaties to which those states are party provide for the referral of investment disputes to ICSID for determination. In circumstances where a bilateral investment treaty is involved, this offers a further option for arbitration, although only in circumstances where the conduct of the state in question amounts to a breach of the applicable treaty, as opposed to a breach of the parties’ contract.
Specialist commercial courts
Some of the most significant difficulties and potential uncertainties relating to international arbitration in Sub-Saharan Africa concern the support provided by domestic courts. Recent steps taken in some Sub-Saharan African countries to improve this support could address some of these issues. For example, Tanzania (1999), Uganda (1999) and Ghana (2005) have established specialist commercial courts which employ a number of measures directed at better serving the needs of business, including specialised training for judges and support staff (with the facility for assistance by lay experts), bespoke procedural rules and the extensive utilisation of information technology.
These specialist courts are therefore likely to be better equipped (in comparison with other domestic courts) to provide timely and consistent rulings in relation to issues arising out of international arbitrations, and therefore offer the opportunity significantly to improve the support infrastructure for arbitration within the relevant countries.
There still remain a number of Sub-Saharan African states (for example, Burundi, Eritrea and Sudan) which are not signatories to the New York Convention, do not have arbitration laws based on the UNCITRAL Model Law and are not members of bodies such as OHADA. In these states the obstacles in the way of arbitrations and enforcement of international arbitral awards could therefore be more pronounced. However, the number of states in this category is falling, as more and more states realise the value of promoting and supporting arbitration.
On the credit side, there are a number of countries (for example Nigeria, Kenya and Uganda) where institutions and legislation to support arbitration are comparatively well-developed, and active steps are being taken to develop these further.
Enforcing an arbitration agreement, arbitrating or enforcing an arbitral award within a Sub-Saharan African state will always bring challenges. The picture inevitably varies across the continent but as the obstacles are addressed so the use of arbitration in Africa is expected to continue to grow.
So long as there is an appreciation of the challenges and issues which may arise, and a knowledge of the increasing number of options available in many countries to address them, the risk of problems with dispute resolution by arbitration need not deter those wishing to avail themselves of the lucrative investment opportunities which Sub- Saharan Africa has to offer.
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