Do less developed countries need tax treaties?

And now back to serious stuff. Due to my job as country specialist in IBFD, I have had the privilege of spending some time analyzing the tax systems of African-Portuguese speaking countries. During my analysis I came across a particular issue common to less developed countries: the lack of tax treaties with their main investment counter parties.

As businesses move toward deeper levels of globalization, suggesting the participation of "everyone in everywhere business", the task of expanding and deepen the knowledge of international taxation is crucial, especially for less developed countries, which are desperately seeking to attract foreign investment. The existence or in this case the lack of an extensive network of tax treaties in Africa is an interesting subject of analysis.

Just to give you some numbers, by 1956, when the OECD (then under another name) started its work on international tax, there were probably fewer than 100 tax treaties worldwide. The impact of the OECD is demonstrated by the fact that almost 40 years later the total number of tax treaties reached 2,000, covering almost 200 countries. Only by 1970, developing and less developed countries began to enter into tax treaties with developed countries. Nevertheless, especially with Africa there is still a long way to go.

Can the lack of tax treaties between the main investment power blocks (US and Europe) and African countries be explained by disinterest or lack of support of lawmakers? Can the lack of tax treaties be explained by the common understanding that when dealing with less developed countries tax treaties provide few tax benefits and add almost nothing to the current situation of investors?
It is usually said that tax treaties serve:
– to eliminate double taxation;
– to allocate taxing jurisdiction between the contracting states;
– to counter tax avoidance and evasion; and
– to facilitate international commerce and investment.
With regards to the last point, tax treaties may be considered a “good sign” that a country welcomes foreign investment. But sometimes they are not the only sign available or even the most effective one.

All of this, because of an interesting recent paper published by Allison Christians, from Northwestern University, "Tax Treaties For Investment And Aid To Sub-Saharan Africa: A Case Study" (2005). http://ssrn.com/abstract=705541