Memorandum of understanding (mou)

In the context of tax treaties, a Memorandum of Understanding (MoU) is a document exchanged between the treaty partners that outlines their mutual understanding or interpretation of the treaty provisions. It serves as a guiding tool to clarify ambiguous points or provide additional explanations, but it does not automatically have the legal status of a treaty unless the content explicitly grants it such authority.

Key Features: Non-binding: Generally, an MoU does not override the treaty or create additional legal obligations. Clarificatory: Helps resolve uncertainties or differences in interpretation of treaty terms. Supplementary: Provides guidance on implementation, administration, or dispute resolution. Content-dependent status: In rare cases, if both parties agree, certain provisions in the MoU may carry legal effect.

Example: Two countries sign a Double Taxation Avoidance Agreement (DTAA). Later, they exchange an MoU explaining the application of certain clauses related to capital gains taxation. While the treaty governs the legal obligations, the MoU clarifies how the treaty should be interpreted in practice.