Application of Tax Treaties

Tax conventions or treaties are mechanisms imposed by a state in order to minimize the effects of double taxation. They provide double taxation reliefs to taxpayers in the form of tax exemptions or preferential tax rates.

Tax treaties are part of the law of the land. In the case of Deutsche Bank AG Manila Branch vs Commissioner of Internal Revenue (GR 188550, August 19, 2013), the Supreme Court held that an application for the availment of tax treaty relief should not operate to divest entitlement to the relief as it would constitute a violation of the state’s duty to good faith in complying with a tax treaty in good faith. This is pursuant to the time-honored international law principle of pacta sunt servanda that demands the performance in good faith of treaty obligations on the part of the states that enter into the agreement.