New, Ethical Luxembourg–Senegal Double Tax Treaty Means Opportunity

On 10 February 2016, Luxembourg and Senegal reinforced their co-operation on an international level by signing a double tax treaty. Entering into force on 14 June 2018, and applicable from 1 January 2019, the treaty differs greatly to previous treaties between Luxembourg and African countries in that it is the first one to include specific guidance and provisions of the OECD/G20 Base Erosion and Profit Shifting project (BEPS) while combining influences from both the OECD and the UN models. The result is an economically balanced convention.

Will this brand-new format of treaty become a new standard of tax ethics in conventions between so-called developed and developing countries?

Ethics is increasingly important in tax, as this treaty shows. Rules everywhere are thus being adapted—or are in need of being adapted—to obtain balanced and fair taxation. When it was signed, the treaty with Senegal was the sixth double tax treaty (DTT) between Luxembourg and an African country, showing Luxembourg's willingness to improve its economic relationship with Africa.

However, it remains to be seen whether this treaty will affect future policy with Africa, notably with regard to the recently signed treaty with Botswana.

A mixed tax treaty: the best of both pillars of the international tax field

The international tax framework has been built over the last few decades by the globalization of commercial and financial exchanges. In response to a fundamental need to avoid double taxation on a global scale, DTTs have been a core element of this international cooperation.

In pursuit of a coherent system and support for developing countries, various DTT models have emerged. Nowadays, most DTTs worldwide are based on either the OECD model or the UN model.

The tax influence of the 2014 OECD model and BEPS actions Importantly, Senegal and Luxembourg are both members of the BEPS Inclusive Framework,1 a fact which without a doubt represents the cornerstone of the treaty and its being signed. The influence of the OECD—the body that initiated the BEPS project—on the Luxembourg-Senegal DTT is particularly noticeable in the preamble, its articles, and in the inclusion of a Principal Purpose Test (PPT).

Even though a preamble is often considered less important than the text itself, it is nevertheless an integral part of the treaty. It is legally binding and certainly a key factor in interpreting the text.

In the Luxembourg-Senegal treaty, both title and preamble emphasize...