Mandatory Binding Arbitration: Avoiding Stalemates Over the Tax Chessboard

Abstract

The resolution of tax treaty disputes under the Mutual Agreement Procedure (MAP) mechanism is inherently problematic. This article examines how the introduction of final-offer arbitration (FOA) can improve dispute resolution using a game-theoretical approach. It will be argued that arbitration introduces an element of finality that was demonstrably absent in the MAP while also contributing to the speedier resolution of disputes which is beneficial to all international stakeholders. After demonstrating the advantages of arbitration, the paper considers how its institutional design can be optimized in the tax context. It makes proposals regarding the publication of arbitral decisions to address concerns of countries that are still skeptical about whether or not to endorse it. Tax dispute resolution, game theory, mandatory binding arbitration, double tax treaties, mutual agreement procedure, baseball arbitration, international taxation.