Demystifying the Tax Provisions of the TPP

International trade watchers have high hopes for the Trans-Pacific Partnership Agreement ("TPP") and its potential impact on business taxes and, by extension, global commerce.

According to the Office of the United States Trade Representative, the TPP—a wide-ranging trade pact arrived at between the United States and 11 other nations—will, if ratified, allow American small businesses to compete more effectively in the world marketplace by eliminating more than 18,000 taxes.

Among the 30 chapters that comprise the TPP, tax issues are addressed in two of them—and those two chapters primarily relate to customs duties. A summary of some of the more notable tax provisions follows.

Stop Playing Favorites: "National Treatment" and the Elimination of Customs Duties

In Chapter 2, the TPP provides that "[e]ach Party shall accord national treatment to the goods of the other Parties." In this context, "national treatment" means that goods or products provided either domestically or non-domestically are treated similarly under the host country's tax laws. The TPP specifies that national treatment is to be in line with the General Agreement on Tariffs and Trade 1994, which provides that a country must not impose taxes on imports in a manner that grants favorable treatment to domestic production, and that a regional government may not impose taxes any higher than the most favorable rate that the country imposes.

The TPP's Chapter 2 also provides that, except as otherwise provided in the Agreement, "each Party shall progressively eliminate its customs duties on originating goods," and then issues guidelines for implementing the elimination. For this purpose, "originating goods" generally means any merchandise, product, article, or material that is manufactured or created in the territory of one of the 12 party countries.

Defining "Taxation Measures" and Dumping Tariffs

In Chapter 29, Article 29.4 provides that "[e]xcept as provided in [this Article 29.4], nothing in [the TPP] shall apply to taxation measures," with "taxation measures" meaning any law, regulation, procedure, requirement, or practice relating to taxes ("General Rule").

While this provision appears to be at odds with the promise of eliminating 18,000 taxes, the rest of Article 29.4 ultimately prevents parties to the agreement from applying certain taxes—primarily tariffs—on imported goods and services. Article 29.4 accomplishes this result by excluding customs duties (generally, tariffs) from the definition of "taxation measures," as that term is used in the General Rule. While the TPP does broadly define "taxation measures" in the General Rule, additional provisions are in place in an attempt to eliminate certain tax-related costs that are commonly regarded as tariffs.

Respecting Preexisting Treaties

Preexisting Treaties generally take priority in the event of a conflict. The TPP is careful to not interfere with any tax agreements previously struck between member parties, stating that, "[n]othing in [the TPP] shall affect the rights and obligations of any Party under any tax convention." Tax conventions include intergovernmental agreements covering taxes such as income tax treaties but also include intergovernmental agreements such as free trade agreements. However, there are additional provisions in Article 29.4 that attempt to eliminate certain discriminatory taxes included in preexisting income tax and free trade treaties.


The TPP's tax provisions are elaborate and difficult to decipher. There are exceptions to the General Rule and Treaty Priority referenced earlier, and there are provisions for protesting discriminatory tax measures.

The TPP, specifically measures found in Chapter 2, was constructed with the objective of eliminating all customs duties. Still, the articles that specifically apply to other types of taxes primarily pertain to the concept of "national treatment," meaning that if a party to the agreement does impose a certain tax, the rate cannot be higher on nondomestic producers than on domestic producers.

Taylor W. Vance, an associate in the New York Office, assisted in the preparation of this article.

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