There has been a steady drumbeat by academics and others over the last 50 or more years that developing countries should refrain from entering into bilateral tax treaties with developed countries because the terms of these tax treaties favor developed countries at the expense of developing countries. 1 To be sure, developing countries face tough choices about whether to enter into tax treaties with developed countries. Several benefits flow from entering into tax treaties, including potentially increasing foreign direct and portfolio investments from reducing double taxation, creating greater tax certainty for investors, and providing for dispute resolution mechanisms for tax controversies. But there are real costs of entering into tax treaties. Treaty provisions invariably result in developing countries yielding taxing rights with respect to economic activity taking place in their country.
