Avi-Yonah: Sunt Pacta Servanda? The Problem of Tax Treaty Overrides

Reuven S. Avi-Yonah (Univ. of Michigan - Law) has posted Sunt Pacta Servanda? The Problem of Tax Treaty Overrides. Here's the abstract:

Under Article 26 of the Vienna Convention on the Law of Treaties, 1969, pacta sunt servanda is defined as: “[e]very treaty in force is binding upon the parties to it and must be performed by them in good faith”. Article 27 of this Convention (“Internal law and observance of treaties”) provides that “[a] party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.” However, even though the US recognises the VCLT as binding customary international law (CIL), it has long persisted in overriding tax treaties by domestic legislation, because the US Supreme Court has held that under the US Constitution a later statute can override an earlier treaty. This US position has been roundly condemned , for example, by the OECD. But in recent years, more countries have decided that they can in fact override tax treaties, including countries that generally treat international law as superior to domestic law (for example, Germany) as well as countries that do not (for example,Australia). This development raises doubts as to whether the VCLT position can still be considered as CIL. In the meantime, ironically, since 2001 the US has found itself unable to override tax treaties explicitly because of a combination of partisan polarisation and its unique parliamentary procedures.

Garbarino: Judicial Interpretation of Tax Treaties

Carlo Garbarino (Bocconi Univ. - Law) has published Judicial Interpretation of Tax Treaties: The Use of the OECD Commentary (Edward Elgar Publishing 2016). Here's the abstract:

Judicial Interpretation of Tax Treaties is a detailed analytical guide to the interpretation of tax treaties at the national level. The book focuses on how domestic courts interpret and apply the OECD Commentary to OECD Model Tax Convention on Income and on Capital. Adopting a global perspective, the book gives a systematic presentation of the main interpretive proposals put forward by the OECD Commentary, and analyses selected cases decided in domestic tax systems in order to assess whether and how such solutions are adopted through national judicial process, and indeed which of these are of most practical value. The book operates on two levels: firstly it sets out a clear and comprehensive framework of tax treaty law, which will be an important tool for any tax practitioner. Secondly, the book provides crucial guidance on issues of tax treaty law as applied at domestic level, such as investment or business income, dispute resolution and administrative cooperation.

Symposium: Reconsidering the Tax Treaty

The latest issue of the Brooklyn Journal of International Law (Vol. 41, no. 3, 2016) contains a symposium on "Reconsidering the Tax Treaty." Contents include:

• Symposium: Reconsidering the Tax Treaty
• Steven A. Dean & Rebecca M. Kysar, Introduction: Reconsidering the Tax Treaty
• Yariv Brauner, Treaties in the Aftermath of BEPS
• Allison Christians & Alexander Ezenagu, Kill-Switches in the U.S. Model Tax Treaty
• Tsilly Dagan, Tax Treaties as a Network Product
• Mitchell A. Kane, Location Savings and Segmented Factor Input Markets: In Search of a Tax Treaty Solution
• Michael S. Kirsch, Tax Treaties and the Taxation of Services in the Absence of Physical Presence
• Omri Marian, Unilateral Responses to Tax Treaty Abuse: A Functional Approach
• Diane Ring, When International Tax Agreements Fail at Home: A U.S. Example
• Adam H. Rosenzweig, “Thinking Outside the (Tax) Treaty” Revisited
• Fadi Shaheen, How Reform-Friendly Are U.S. Tax Treaties?
• Daniel Shaviro, The Two Faces of the Single Tax Principle

Roundtable Discussion: Corporate Planning Through International Law

On February 1, 2017, the Dennis J. Block Center for the Study of International Business Law at Brooklyn Law School will host a roundtable discussion on "Corporate Planning Through International Law: The Use and Abuse of Tax Treaties, Investment Law, and Political Risk Insurance." Here's the idea:

Corporations are not formally subjects of international law. Yet in diverse fields, business entities can make use of robust treaty regimes to protect their ventures around the globe. By navigating a labyrinth of thousands of bilateral and multilateral treaties, corporations can unlock access to valuable benefits and protections far in excess of what is ordinarily available under national law – including especially tax treatment, protections for foreign direct investment, and political risk insurance.

Corporate planning through international law is fast becoming a critical field of practice in our increasingly globalized economy. At the same time, international economic law in these areas continues to feed into global anxiety over the distribution of benefits and burdens across the globe, and the national community’s loss of sovereignty. The international legal bar remains bitterly divided over how far international tax and investment law ought to discipline the domestic regulatory action of sovereign states.

The panel of scholars and practitioners in international tax, the law of foreign direct investment, and political risk insurance will examine how multinational corporations can use international law to plan for growth in the 21st century. The speakers will explore practical aspects of corporate planning through international law, with due attention to the broader social consequences and legitimation concerns attending such maneuvers.

Kysar: Interpreting Tax Treaties

Rebecca M. Kysar (Brooklyn Law School) has posted Interpreting Tax Treaties (Iowa Law Review, forthcoming). Here's the abstract:

The circumstances, if any, that permit non-uniform, or differentiated, treaty interpretation are difficult to define. Generally, a differentiated approach stands in tension with the Vienna Convention’s rules of interpretation, which apply a methodology based on plain meaning to all treaties. Yet courts, states, and scholars widely accept the notion that some treaties warrant special interpretive rules. Thus far, however, efforts to justify differentiated treaty interpretation on the grounds of subject matter or treaty purpose have proven inadequate. A more promising avenue is the examination of the objective characteristics shared within a treaty type. One such characteristic, I argue, is the treaty’s degree of completeness. Specifically, all else being equal, standalone instruments call for less reliance upon extrinsic materials; interstitial instruments demand more.

Applying this insight to the tax treaty context, this Article argues that such instruments should not be viewed as complete; consequently, reference to plain meaning or even the treaty parties’ mutual intent is often incoherent. Specifically, I contend that tax treaties are jurisdictional overlays to the parties’ tax systems and substantially rely upon domestic law. Tax treaties also are not heavily negotiated and instead borrow from concepts that are embedded in model treaties, domestic law, and other international instruments. The highly complex nature of tax law and the factual situations to which it applies, the connection between revenue collection and state sovereignty, and the necessity to combat tax abuse retrospectively further explain the interstitial nature of treaties. Courts are thus justified in relying upon extrinsic, and at times unilateral, materials in the interpretation of tax treaties.

Riccardi: Chinese Tax Law and International Treaties

Lorenzo Riccardi has published Chinese Tax Law and International Treaties (Springer 2013). Here's the abstract:

The People’s Republic of China’s tax policies and international obligations are as multifaceted and dynamic as they are complex, developing closely with the nation’s rise to the world’s fastest-growing major economy. Today, after decades of reform and the entry into the World Trade Organization, China has developed regulatory systems that enable it to provide stable administration, including a tax structure. China’s main tax reform can be attributed to the enactment of the Enterprise Income Tax Law, which came into effect on January 1, 2008. Chinese tax regulations include direct taxes, indirect taxes, other taxes, and custom duties and from a collection point of view, China’s tax administration adopts a very devolved system, with revenue collected and shared between different levels of government in accordance with contracts between the different levels of the tax administration system. With respect to international treaties, China has established a network of bilateral tax treaties and regional free trade agreements. This publication describes in detail China’s complex tax system and policies, as well as major bilateral treaties in which China has entered into using country-by-country analysis.

Kysar: On the Constitutionality of Tax Treaties

Rebecca M. Kysar (Brooklyn Law School) has posted On the Constitutionality of Tax Treaties (Yale Journal of International Law, forthcoming). Here's the abstract:

Taxes kindled the American Revolution. Revolt against collecting revenues without representation caused a tea party, propelling the colonies towards convening the First Continental Congress. Forgotten, though, is the role of taxes in shaping our fledgling nation immediately after the Revolution. Control over which governmental body could impose taxes inflamed the delegates to the Constitutional Convention. So important was the issue that the decision to originate revenue bills in the lower house of Congress constituted a cornerstone of the Great Compromise, thus birthing the representational structure of our country. This principle became embodied in the Constitution as the Origination Clause, ensuring that the power to tax would begin with the house that was directly elected and proportionate to the population.

Tax treaties (generally, bilateral instruments that mitigate or eliminate double taxation of income across jurisdictions) upset the intra-congressional balance that was carefully constructed by the Framers. Because tax treaties are generally considered to be self-executing, meaning that they need no implementing legislation to take legal effect, the ratification of a tax treaty cuts the House of Representatives wholly out of the process of lawmaking in the area of taxation. This outcome, I argue, lies in derogation of the Origination Clause and also runs counter to the important policies embodied in the Clause, such as the involvement of the proportionally represented house and the reduction of special interest deals. Contrary to current treatment, substantial constitutional and policy considerations mandate that tax treaties be implemented through legislation passed by both houses of Congress. Abiding by this condition has the practical effect of significantly reducing statutory overrides of tax treaties, a phenomenon partially resulting from the House’s jealous, albeit well-founded, guardianship over tax matters. My prescription thus allows our nation not only to honor our Constitution but also to better uphold our obligations under international law, creating more certainty for public and private actors. Additionally, this analysis makes important contributions beyond the context of tax treaties by shedding light on the vexing question of whether and when the Constitution limits the reach of treaties.

Treaty Transmittal: Protocol Amending Tax Convention with France

On September 9th, the President transmitted to the Senate, for its advice and consent to ratification, the Protocol Amending the Convention between the Government of the United States of America and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, signed at Paris on August 31, 1994, as Amended by the Protocol signed on December 8, 2004, signed January 13, 2009, at Paris, together with a related Memorandum of Understanding, signed January 13, 2009. The transmittal package (Treaty Doc. 111-4) is here.

Kirsch: The Limits of Administrative Guidance in the Interpretation of Tax Treaties

Michael S. Kirsch (Univ. of Notre Dame - Law) has posted The Limits of Administrative Guidance in the Interpretation of Tax Treaties (Texas Law Review, forthcoming). Here's the abstract:

This Article addresses the increasingly important role of administrative guidance in interpreting the United States' international treaty obligations. The relationship between administrative guidance and treaties raises important issues at the intersection of international law, constitutional law, and administrative law.

These issues are explored in the context of the United States' extensive tax treaty network. Tax treaties play an important role in a global economy, attempting to reconcile the complex and ever-changing internal tax laws of different countries. The Treasury Department is considering the increased use of administrative guidance to interpret the meaning and application of tax treaties, particularly in response to the increasingly sophisticated business structures and cross-border transactions utilized by multinational corporations.

This Article considers the weight that courts should give to unilateral administrative guidance when interpreting tax treaties. The Article concludes that Treasury's traditional ad hoc approach based on informal technical explanations is entitled to little, if any, deference in interpreting previously negotiated bilateral agreements between sovereign nations. However, the Article identifies certain limited circumstances where formal Treasury regulations might enable the Treasury Department to influence the application of previously negotiated tax treaties without violating the United States' obligations under these treaties.

Treaty Transmittal: Tax Convention with Malta

On Thursday, the President transmitted to the Senate, for its advice and consent to ratification, the Convention Between the Government of the United States of America and the Government of Malta for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed on August 8, 2008, at Valletta. The transmittal package (Treaty Doc. 111-1) is not yet available online.

Resolutions of Ratification: Law Enforcement, Tax, and Additional Treaties

Yesterday, the Senate, by the requisite two-thirds vote, agreed to the resolutions of advice and consent to ratification of the following treaties:

• Extradition Agreement with the European Union (Treaty Doc. 109-14) with 22 related bilateral agreements;
• Extradition Treaty with Latvia (Treaty Doc. 109-15);
• Extradition Treaty with Malta (Treaty Doc. 109-17);
• Extradition Treaty with Estonia (Treaty Doc. 109-16);
• Extradition Treaty with Bulgaria and an Agreement on Certain Aspects of Mutual Legal Assistance in Criminal Matters with Bulgaria (Treaty Doc. 110-12);
• Extradition Treaty with Romania and Protocol to the Treaty on Mutual Legal Assistance in Criminal Matters with Romania (Treaty Doc. 110-11);
• Treaty with Malaysia on Mutual Legal Assistance (Treaty Doc. 109-22);
• Protocol Amending 1980 Tax Convention with Canada (Treaty Doc. 110-15);
• Tax Convention with Bulgaria with Proposed Protocol of Amendment (Treaty Doc. 110-18);
• Tax Convention with Iceland (Treaty Doc. 110-17);
• 1992 Partial Revision of the Radio Regulations (Geneva 1979) (Treaty Doc. 107-17);
• 1995 Revision of the Radio Regulations (Treaty Doc. 108-28);
• CCW Protocol on Incendiary Weapons (Protocol III) (Treaty Doc. 105-1(B));
• CCW Protocol on Blinding Laser Weapons (Protocol IV) (Treaty Doc. 105-1(C));
• Amendment to Article 1 of the Convention on Prohibitions or Restrictions on Use of Certain Conventional Weapons Which May be Deemed to be Excessively Injurious or to have Indiscriminate Effects (Treaty Doc. 109-10(B));
• Treaty with Sweden on Mutual Legal Assistance in Criminal Matters (Treaty Doc. 107-12); and
• Mutual Legal Assistance Agreement with the European Union (Treaty Doc. 109-13) with 25 related bilateral agreements.

The resolutions of ratification, with any reservations, understandings, declarations, and conditions, can be found here, here, here, here, here, here, here, and here.

SFRC: Hearing on Tax, Marine Pollution, and Telecom Treaties

This afternoon, the Senate Foreign Relations Committee held a hearing on the following treaties:

• Protocol Amending the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital (Treaty Doc. 110-15);
• Convention Between the Government of the United States of America and the Government of Iceland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, and accompanying Protocol (Treaty Doc. 110-17);
• Convention Between the Government of the United States of America and the Government of the Republic of Bulgaria for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, with accompanying Protocol (Treaty Doc. 110-18);
• International Convention on the Control of Harmful Anti-Fouling Systems on Ships (Treaty Doc. 110-13);
• 1996 Protocol to the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter (Treaty Doc. 110-5);
• Protocol Concerning Pollution from Land-Based Sources and Activities to the Convention for the Protection and Development of the Marine Environment of the Wider Caribbean Region, with Annexes (Treaty Doc. 110-1);
• Amendments to the Constitution and Convention of the International Telecommunications Union, as contained in the Final Acts of the Plenipotentiary Conference (Antalya, 2006) (Treaty Doc. 110-16);
• Amendments to the Constitution and Convention of the International Telecommunications Union, as contained in the Final Acts of the Plenipotentiary Conference (Marrakesh, 2002) (Treaty Doc. 109-11);
• 1995 Revision of the Radio Regulations, with appendices, as contained in the Final Acts of the World Radiocommunication Conference (WRC-95) (Treaty Doc. 108-28);
• Amendments to the Constitution and Convention of the International Telecommunications Union, as contained in the Final Acts of the Plenipotentiary Conference (Minneapolis, 1998) (Treaty Doc. 108-5); and
• 1992 Partial Revision of the Radio Regulations, with appendices, together with declarations and reservations of the United States as contained in the Final Acts of the World Administrative Radio Conference (WARC-92) (Treaty Doc. 107-17).

Witnesses included: Michael Mundaca (Deputy Assistant Secretary (International), Office of Tax Policy, Department of the Treasury); Emily S. McMahon (Deputy Chief of Staff, Joint Committee on Taxation, U.S. Congress); David A. Balton (Deputy Assistant Secretary for Oceans and Fisheries, Bureau of Oceans and International Environmental and Scientific Affairs, Department of State); and Richard C. Beaird (Senior Deputy U.S. Coordinator for International Communications and Information Policy, Bureau for Economic, Energy, and Business Affairs, Department of State). Links are to the witnesses' written statements.

Treaty Transmittal: Tax Treaty with Bulgaria

On Wednesday, June 4th, the President transmitted to the Senate, for its advice and consent to ratification, the Convention Between the Government of the United States of America and the Government of the Republic of Bulgaria for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income, with accompanying Protocol, signed at Washington on February 23, 2007, as well as the Protocol Amending the Convention Between the Government of the United States of America and the Government of the Republic of Bulgaria for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income, signed at Sofia on February 26, 2008. The transmittal package (Treaty Doc. 110-18) is here.

Treaty Transmittal: Tax Treaty with Iceland

Yesterday, May 6, the President transmitted to the Senate, for its advice and consent to ratification, the Convention Between the Government of the United States of America and the Government of Iceland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, and accompanying Protocol, signed on October 23, 2007, at Washington, D.C. The transmittal package (Treaty Doc. 110-17) is here. The treaty would replace the current tax convention with Iceland, which was concluded in 1975.

Treaty Transmittal: Protocol Amending the 1980 Tax Convention with Canada

On Thursday, March 13, the President transmitted to the Senate, for its advice and consent to ratification, the Protocol Amending the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital done at Washington on September 26, 1980, as Amended by the Protocols done on June 14, 1983, March 28, 1984, March 17, 1995, and July 29, 1997, signed on September 21, 2007, at Chelsea. The transmittal package (Treaty Doc. 110-15) is here. According to the transmittal letter: "The proposed Protocol would eliminate withholding taxes on cross-border interest payments. In addition, the proposed Protocol would coordinate the tax treatment of contributions to, and other benefits of, pension funds for cross-border workers. The proposed Protocol also includes provisions related to the taxation of permanent establishments, so-called dual-resident corporations, income derived through certain entities that are considered fiscally transparent, and former U.S. citizens and long-term residents. The proposed Protocol further strengthens the existing Treaty's provisions that prevent the Treaty's inappropriate use by third-country residents. The proposed Protocol also provides for mandatory resolution of certain cases before the competent authorities."

Bar: Sharing the First Bite - A New Approach to Tax Treaties

Navot Bar has posted Sharing the First Bite - A New Approach to Tax Treaties. Here's the abstract:

The existing 'international tax regime' derived from the international tax treaties network and from unilateral domestic legislation of the world's nations. Among several unintended byproducts, the current 'tax regime' enables situations of double non-taxation and tax evasion. The most problematic aspect of the current international tax system is the arbitrary and unfair way the global tax pie is distributed among the world's nations who take part in the common regime. The tax treaties worldwide network shifts tax revenues from developing to developed countries. Essentially, the common excuse presented to developing countries for the discrimination in tax revenue sharing, that is built-in in the tax treaties, is that a greater flow of foreign investment will enter the developing countries and enhance the domestic economy in the long run. Many developing countries are not convinced with this claimed incentive and some of them avoid signing tax treaties with developed countries. The developing countries that do sign these tax treaties with developed countries do so with either very little bargaining power or as a default to the best they can get out of the bad circumstances they are confronted with, mainly under the desire to be part of the global modern market, even in the price of giving up revenues. This paper suggests a new approach to tax treaties: tax revenues from global activity should be shared more equally among developed and developing countries. It suggests that the total global tax pie will be larger if a more equal distribution would take place, and that both countries will benefit by collecting more revenues than under the current system.

Resolutions of Ratification: Tax Treaties with Belgium and Germany

On Friday, December 14, the Senate, by the requisite two-thirds vote of members present, agreed to the resolutions of advice and consent to ratification of: the Convention between the Government of the United States of America and the Government of the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, and accompanying Protocol, signed at Brussels on November 27, 2006 (Treaty Doc. 110-3); and the Protocol Amending the Convention between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, signed at Berlin on June 1, 2006 and an Exchange of Notes dated August 17, 2006 (Treaty Doc. 109-20). The resolutions of ratification contained no reservations, understandings, or declarations. The Senate Foreign Relations Committee favorably reported the treaties on October 31, following a hearing on July 17. The Committee submitted its reports on November 14.

Avi-Yonah: Double Tax Treaties: An Introduction

Reuven S. Avi-Yonah (Univ. of Michigan - Law) has posted Double Tax Treaties: An Introduction. Here's the abstract:

The existing network of over 2,500 bilateral double tax treaties (DTTs) represents an important part of international law. The current DTTs are all based on two models, the OECD and UN model DTTs, which in turn are based on models developed by the League of Nations between 1927 and 1946. Despite some differences that will be discussed below, all DTTs are remarkably similar in the topics covered (even the order of articles is always the same) and in their language. About 75% of the actual words of any given DTT are identical with the words of any other DTT. Thus, the DTT network is the most important element of the international tax regime, i.e., the generally applicable rules governing income taxation of cross-border transactions. Indeed, I have argued that given the similarities among all DTTs, certain rules embodied in them (such as the requirement to prevent double taxation by granting an exemption or a foreign tax credit) have become part of customary international law, and therefore may be binding even in the absence of a DTT.

Resolutions of Ratification: Protocols to Tax Conventions with Denmark and Finland

On Friday, November 16, the Senate, by the requisite two-thirds vote of members present, agreed to the resolutions of advice and consent to ratification of the Protocol Amending the Convention Between the Government of the United States of America and the Government of the Kingdom of Denmark for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed at Copenhagen May 2, 2006 (Treaty Doc. 109-19) and the Protocol Amending the Convention between the Government of the United States of America and the Government of the Republic of Finland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, signed at Helsinki on May 31, 2006 (Treaty Doc. 109-18). The resolutions of ratification did not contain any reservations, understandings, or declarations. The Senate Foreign Relations Committee favorably reported the Protocols on October 31, following a hearing on July 17. The Committee submitted its reports on the Protocols last Wednesday, November 14.

SFRC: Reports on Pending Tax Treaties

On Wednesday, November 14, the Senate Foreign Relations Committee submitted its reports on the four tax treaties that were ordered favorably reported at the Committee's October 31 business meeting. The reports are:

• Report to accompany Tax Convention with Belgium (Treaty Doc. 110-3) (Ex. Rept. 110-2);
• Report to accompany Protocol Amending Tax Convention with Denmark (Treaty Doc. 109-19) (Ex. Rept. 110-3);
• Report to accompany Protocol Amending Tax Convention with Finland (Treaty Doc. 109-18) (Ex. Rept. 110-4); and
• Report to accompany Protocol Amending Tax Convention with Germany (Treaty Doc. 109-20) (Ex. Rept. 110-5).