Why the Philippines must say no to old treaty templates

The Philippine government recently celebrated the renegotiation of its double taxation agreement (DTA) with Japan. Officials have framed it as a diplomatic success—a modernization of a decades-old treaty that will signal to the world that the Philippines is open for business. Ten more new treaties are reportedly in the pipeline, 10 to be added to the 43 treaties already in place.

But let us look closely at what was actually agreed. And let us be honest with the Filipino people about what we lost.

What the new treaty does not do

Under the renegotiated Philippines-Japan treaty, we cannot tax fees for technical services paid to Japanese residents. Management fees, consultancy charges, engineering services, IT support—all delivered remotely from Japan, all flowing out of our economy, all tax-free in the Philippines. None of the official announcements mention a withholding tax on these payments. There is a reason for that silence: Japan, like most Organization for Economic Cooperation and Development (OECD) countries, does not sign treaties that allow source countries to tax technical services.

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This is deliberate policy. Japan’s model treaty is designed to protect its resident companies from being taxed where their customers are located. The only way a Japanese firm becomes taxable in the Philippines under this treaty is if it has a “permanent establishment”—a physical office, branch or employees on our soil. A Japanese engineering firm providing designs from Tokyo pays zero tax to the Philippines. A Japanese consultant advising a Filipino company via video conference pays zero tax. A Japanese software company licensing a program from Osaka pays zero tax.

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The old treaty was signed in 1980 and amended in 2006 through a protocol, a different era. In the decades since, cross-border services have. Yet under the “modernized” treaty, these payments continue to escape taxation, while remaining deductible from the taxable profits of Filipino businesses. The government has not solved a problem—it has ratified one.

What we gave up

The new treaty adjusts withholding tax rates on dividends, interest and royalties—almost always downward, reducing the tax that Japanese companies pay on income earned from our market. These changes are presented as concessions, but they are not gains for the Philippines. They are tax expenditures—revenue we forego in exchange for nothing concrete. The core business of modern taxation—taxing profits generated from economic activity within our borders—has been conceded. We gave up revenue. We surrendered our right to tax the services economy. In return, we received promises of investment that history shows rarely materialize.

This is not a theory. Empirical studies of developing countries with similar treaty networks—Kenya, Nigeria, Colombia, Argentina, Brazil—have documented revenue losses running into the hundreds of millions and even billions of dollars over less than two decades, directly attributable to treaty provisions that restrict source taxation of services. The Philippines, with 43 treaties and counting, is walking deeper into the same trap.

Consider a company like “X,” which earns billions of pesos annually from Filipino users but has no physical office in the country. Under the renegotiated Philippines-Japan treaty—and under every treaty like it—“X” can structure its revenue outside the Philippines, while still using data from the Filipino users to increase its profits from its several businesses and claim that it has no permanent establishment in the Philippines. The result? Zero Philippine income tax on billions in revenue, even as the company’s content is consumed daily in Filipino homes. The income tax, which should reflect the value created by our subscribers, remains untaxed.

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The investment myth

The justification we are given is that DTAs encourage foreign direct investment. This is one of the most durable myths in international tax policy. Where is the evidence? Investment decisions are driven by market size, infrastructure, labor costs, political stability and access to supply chains. The fine print of a tax treaty is rarely, if ever, the deciding factor. What treaties reliably deliver is revenue loss. And that loss is borne by every Filipino who depends on public services funded by a shrinking tax base.

DTAs do not create investment. They create tax competition—forcing developing countries to compete by offering lower rates to multinationals. It is a race to the bottom and we are losing.

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Why the UNFCITC matters

This is precisely why the ongoing negotiation of a UN Framework Convention on International Tax Cooperation (UNFCITC) is an urgent national interest for the Philippines. The negotiations, now entering critical sessions in August 2026 in New York and November 2026 in Nairobi, represent the first genuine opportunity in a generation to rewrite the rules of international taxation.

A strong UNFCITC would include a services protocol granting source countries broad taxing rights over all cross-border services—digital and traditional. It would allow withholding taxes on gross payments, which are simple and administratively feasible for our overstretched tax authorities. It would include fractional apportionment to allocate services-related profits fairly. And crucially, it would override inconsistent bilateral treaties, freeing us from the renegotiation treadmill where each new DTA takes years and concedes more ground.

Asia must find its voice

The Africa Group has shown remarkable ambition and unity in the UNFCITC negotiations. Asian developing countries—the Philippines, Indonesia, Vietnam, Thailand, Malaysia—have been fragmented and pragmatic. This must change. We are dynamic, growing economies. Our markets are valuable. Our right to tax is not a bargaining chip.

The Philippines has just demonstrated, in its renegotiation with Japan, the limits of bilateral bargaining. We sat across the table from a wealthy, powerful OECD country. They protected their tax base. We eroded ours. That is not a negotiation between equals. That is a structural asymmetry built into every bilateral treaty we sign.

We have two futures before us. One is a future of continued bilateral surrenders—43 treaties and counting, each eroding our tax base a little more. The other is a future where we join with developing countries to build a fair multilateral system through the UNFCITC—a system that restores our right to tax, overrides unequal treaties and places the Philippines at the table, not on the menu.

The window is narrow. The OECD countries will not surrender their advantages easily. But the UNFCITC is the only table where we have a real seat and a real voice. We must use it. —CONTRIBUTED INQ

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Kim Jacinto Henares is a commissioner of the Independent Commission for the Reform of International Corporate Taxation (ICRICT). The views expressed are her own.