Taxation of Government-to-Government Aid Projects

The proliferation of special tax exemptions, including tax exemptions related to government-to-government aid projects, poses a serious obstacle to developing country efforts to broaden their tax base.  

Donor countries are increasingly conscious of the difficulties that such exemptions create for the tax authorities, and a number of them have reconsidered their policy in this area. This trend is further encouraged by the call in the 2015 Addis Ababa Action Agenda on Financing for Development for countries to consider not requesting tax exemptions on goods and services delivered as government-to-government aid, in order to make their development cooperation more effective. 

The new UN Guidelines on the Tax Treatment of Government-to-Government Aid Projects assist donors and recipient countries in determining the appropriate tax treatment of government-to-government aid projects, by facilitating their discussion of this issue.  

The Guidelines address various considerations that should be taken into account when determining whether such exemptions should be requested. Moreover, they provide guidance on the negotiation of any tax provisions related to government-to-government aid projects and the scope and implementation of these provisions.  

The annex contains a recommendation on public disclosure adopted by the Committee in support of the Guidelines and emphasizing the importance of transparency with respect to tax provisions related to government-government aid projects. 

The UN Guidelines on the Tax Treatment of Government-to-Government Aid Projects are a product of the UN Tax Committee, supported by its relevant Subcommittee and the Secretariat in the UN Department of Economic and Social Affairs. Having first initiated work on the issue in 2005, the Committee drew on the momentum of the Addis Agenda and multi-stakeholder discussion to revise, finalize and adopt the new Guidelines and Recommendation in 2020.