Open and Hidden Issues in the Interpretation of Article 2

The Vienna Convention on the Law of Treaties (VCLT) contemplates the interpretation of treaties topic in its articles 31, 32 and 33, portraying the frame to be followed by one who is engaged in this difficult endeavor. Tax treaties are, fore and foremost, treaties. Therefore, the VCLT is the leading guideline for their interpretation. The United States has sixty-eight income tax treaties in force. If one logs on any website provider of case-law services and types “tax treaty,” more than six hundred cases will pop up. This paper focuses both on what courts have been doing and on what they could have been doing, according to the VCLT, when ruling about tax treaties, but theorizing an approach to the interpretation of tax treaties is not its intent. Regardless of the inference of Savigny and other jurists that “interpretation is an art” and “cannot be learned and governed by any specific rules,” in accordance with the preponderant point of view, customary international law has developed rules on interpretation of treaties, which are accurately contemplated in the VCLT. Still, the American judiciary does not exactly follow its rules. Nonetheless, the U.S. court decisions that have already applied the interpretation rules of the VCLT are “especially valuable” as substantiation of international law since they are rendered by courts of a nation not a party to the Convention, and their importance is further reinforced because the United States, as the most active treaty-maker in the world, decidedly influences the law applicable to treaties.

The Vienna Convention on the Law of Treaties (VCLT) contemplates the interpretation of treaties topic in its articles 31, 32 and 33, portraying the frame to be followed by one who is engaged in this difficult endeavor. Tax treaties are, fore and foremost, treaties. Therefore, the VCLT is the leading guideline for their interpretation. The United States has sixty-eight income tax treaties in force. If one logs on any website provider of case-law services and types “tax treaty,” more than six hundred cases will pop up. This paper focuses both on what courts have been doing and on what they could have been doing, according to the VCLT, when ruling about tax treaties, but theorizing an approach to the interpretation of tax treaties is not its intent. Regardless of the inference of Savigny and other jurists that “interpretation is an art” and “cannot be learned and governed by any specific rules,” in accordance with the preponderant point of view, customary international law has developed rules on interpretation of treaties, which are accurately contemplated in the VCLT. Still, the American judiciary does not exactly follow its rules. Nonetheless, the U.S. court decisions that have already applied the interpretation rules of the VCLT are “especially valuable” as substantiation of international law since they are rendered by courts of a nation not a party to the Convention, and their importance is further reinforced because the United States, as the most active treaty-maker in the world, decidedly influences the law applicable to treaties.

2021 marks the fortieth anniversary of the 1981 US Model Tax Treaty as well as the fifth anniversary of the 2016 US Model Tax Treaty. The first author has repeatedly argued that the 1981 Model gave life to the single tax principle (‘STP’). The 2016 Model updates effectively implemented the principle that cross-border income should be taxed once – that is not more and but also not less than once. For example, the 2016 Model does not reduce withholding taxes on payments of highly mobile income that are made to related persons that enjoy low or no taxation with respect to that income under a preferential tax regime. The aim of this article is to identify with relative certainty the origins of the STP. The purpose is to give a systematic and historical interpretation of the STP by looking at the context during which it was purportedly founded. This article draws extensively on published and unpublished writings of the main architect of US international tax rules, Stanley Surrey, and is the result of archival research conducted at the Historical & Special Collections of Harvard Law School Library. The aim of this article is to show that the origins of the STP, from the perspective of the United States as a source country, can be traced to the eight-year period from 1961 to 1969 when Surrey, a Harvard law professor (1950-1984) became the first US Assistant Secretary of the Treasury for Tax Policy. As far as tax treaties are concerned, Surrey made two major contributions to applying the STP in practice. First, the tax treaties negotiated by Surrey: (1) the Luxembourg-United States Income and Capital Tax Treaty (1962), (2) the 1963 protocol to the treaty with the Netherlands applicable to the Netherlands Antilles, and (3) the Canada-United States Income Tax Treaty (1966) took pains to enforce source-based taxation in cases where there was no residence-based taxation of passive income. Second, it was during Surrey’s time at the US Treasury Department that the US delegation wrote two notes to the OECD Fiscal Committee recommending the establishment of a new Working Group which would address the problem of Tax Avoidance through the Improper Use or Abuse of Tax Conventions. This article discusses Surrey’s contributions to the practical implementation of the STP. Tax system, tax reform, Czechoslovakia, Czech Republic, Velvet Revolution, nullum tributum sine lege, income tax, property tax, VAT.

In this note, the author outlines the position of French and Danish taxpayers following the termination, in 2009, of the former Denmark-France Income and Capital Tax Treaty (1957) and under the newly signed Denmark-France Income Tax Treaty (2022).

Based on an analysis of 3,844 tax treaties, the Vienna Convention on the Law of Treaties and its Commentaries (VCLT), and case law of various domestic and international courts. The current orthodoxy maintains that courts are not required to compare all language texts of a plurilingual treaty but may rely on a single one for cases of routine interpretation. This view is erroneous, in violation of the VCLT, and the source of treaty misapplication; taxpayers are ill-advised to pay attention only to the text in their own language. In daily practice, the issue is of great relevance: almost three-quarters of the well over 3,000 concluded tax treaties are plurilingual. The BEPS MLI escalates complexity because it modifies a large number of treaties having texts in various languages. This study aims to (1) increase awareness about the pitfalls of the current orthodoxy and, in consequence, help diminish misapplication of plurilingual tax treaties through its abandonment, (2) show that sole reliance on prevailing texts is available as a pragmatic alternative in line with the VCLT, and (3) provide policy recommendations how residual cases may be eliminated. To support these goals, this study seeks to provide conclusive arguments and useful data to policy makers, treaty negotiators, judges, practitioners, and other scholars. Its analysis of all tax treaty final clauses is intended to help both taxpayers and courts interpreting tax treaties in practice. The general arguments presented in this book are however not limited to tax treaties, since similar issues play a role in the interpretation of other treaties, for example, in the field of foreign investment regulation. Note: Excerpt of my Thesis, consisting in TOC, Introduction, and Chapter 3 (Routine Interpretation: A Refutation), the latter being an updated and more extensive version of my previous paper 'Not in Good Faith — A Critique of the Vienna Convention Rule of Interpretation Concerning its Application to Plurilingual (Tax) Treaties'.

The general purpose of this article is to demonstrate that customary international law (CIL) has a significant role to play in connecting international tax law and international investment law. Bridging a gap between those sources of international law is not only an important endeavour in the theory of law but also in practice. This article purports to achieve the abovementioned general purpose by focusing on the application of the rule and principles of interpretation under the Vienna Convention on the Law of Treaties (VCLT), which represent a codification of CIL, to limited most favoured nation (MFN) clauses in tax treaties. The hypothesis of the authors is that a serious failure in a proper application of the VCLT to interpret the MFN clauses in tax treaties may lead to a violation of international investment agreements (IIAs), in particular the fair and equitable treatment (FET) standard. The analysis and conclusions are relevant to all tax treaties and IIAs containing the MFN clause and FET standard, respectively. They are also of relevance for the interpretation of all provisions of tax treaties, not only the limited MFN clauses, in accordance with the VCLT. Examining tax treaties through the lens of the FET standard allows the FET standard to be seen as a gateway for the systemic integration of tax treaties in accordance with the principle enshrined in article 31(3) (c) of the VCLT, because some of core elements of that standard are deeply rooted in sources of international law (general principles of law and custom).

Nations benefit economically when their companies work abroad and develop their strength in international markets. Economic power also brings international political power and prestige. When dealing with international business, taxation is one o f the most important problems. Double taxation, which is to tax the same profit by two or more countries, is a serious obstacle that confronts international enterprises. Unless double taxation is avoided it will be difficult for enterprises to conduct international business profitably. Without the existence of a general multilateral tax treaty, in practice countries use bilateral tax treaties to prevent international double taxation. An important source of difficulty lies in the interpretation of treaties. When the terms in international double taxation agreements are not clear, uncertainities are created. This affects countries' tax revenues, because , two different interpretations are possible. The conflict between countries regarding the lack or existence of an obligation can translate into extremely large amounts of money. In practice some guidelines are used, such as the Vienna Convention on the Law of Treaties. Also, some schools of though offer liberal, strict or teleological interpretation to find the real meaning of the terms. In general, courts have tended to use a liberal interpretation, in order to find the countries' intention concerning the relevant articles or terms. However, in some cases the strict interpretation has been used which is based on the meaning o f the words used in the main text.

The new Australia-Germany Income and Capital Tax Treaty (2015) responds to the OECD recommendations in the Final Reports of the Base Erosion and Profit Shifting (BEPS) initiative. It is one of the first tax treaties concluded following the OECD/G20 BEPS initiative and the first to incorporate the final OECD recommendations.

On 9 November 2021, the Belgian and French Finance Ministers signed the Belgium-France Income and Capital Tax Treaty (2021) and Protocol (the “new tax treaty”). The new tax treaty, inspired by the Multilateral Instrument, is aligned with the existing international OECD principles and addresses concerns in the Belgian-French tax practice.

The Convention clearly marked the beginning of a new era in the law of treaties. This book is necessarily devoted largely to the Vienna Convention on the Law of Treaties 1969 (‘the Convention’), which contains the body of rules that determine whether an instrument (document) is a treaty, how it is made, brought into force, amended, terminated and operates generally. It is not so concerned with the substance of a treaty (the rights and obligations created by it), which is known as ‘treaty law’. That is a matter for the negotiating states. For good reason, the Convention has been called ‘the treaty on treaties’. Although the Convention does not occupy the whole ground, it covers the most important areas, and is the starting point for any description of the modern law and practice of treaties. Thus, it merits its own chapter. This chapter's other purpose is to define the scope of this book by mentioning briefly those aspects of the law of treaties that the Convention does not deal with. Similarly, the MOU (which is not mentioned explicitly in the Convention) is between two or more states and looks at first sight rather like a treaty, but is not a treaty because it is not governed by international law, or, for that matter, any law (see Chapter 3 below). The UN General Assembly established the International Law Commission (ILC) in 1947 with the object of promoting the progressive development of international law and its codification. The law of treaties was one of the topics selected by the ILC at its first session in 1949 as being suitable for codification. A series of eminent British international legal scholars (Brierly, Hersch Lauterpacht, Fitzmaurice and Waldock) were appointed as (successive) Special Rapporteurs. Their task (which took them some fifteen years) was to draw up a coherent account of the already well-developed customary international law on treaties. In 1966, the ILC adopted a final set of draft articles. The UN Conference on the Law of Treaties considered them in 1966, and in 1968 and 1969. It adopted the Vienna Convention on the Law of Treaties on 22 May 1969, and the Convention entered into force on 27 January 1980. By the end of 2012, it had only 112 parties out of the 193 states that are members of the United Nations today. Some of the reasons for this will be discussed below.

The new US exit tax scheme: breaking off a long-term relationship with Uncle Sam

Tax treaties are legal agreements entered into by the states and is governed by the Vienna Convention on The Law of Treaties, 1980 (‘VCLT’). In a situation of conflict, principles of VCLT are referred to give a fair interpretation. The preamble and Article 26 of VCLT provides that the parties to the treaty must perform the obligations undertaken by them in a treaty in good faith i.e. the obligation of pacta sunt servanda. Article 27 of VCLT in extension to this provides that invoking of internal law is not a valid reason for non fulfillment of the treaty obligations. According to the general rules of interpretation mentioned in Article 31 of the VCLT, the interpretation of the tax treaties must be done in the light of the object of the treaties i.e. to avoid double taxation and to prevent treaty abuse. The interpretation intended can be arrived at by either a mutually agreed procedure or any other means mutually acceptable.The increasing use of favourable treaty network for abuse has forced the states to make amendments in its domestic tax laws so as to get its fair share of tax. However, the change in the domestic tax laws of any of the state in contravention to the treaty entered by it without the consent of the other parties amounts to breach of the treaty. Such amendments brought with a view to unilaterally override the tax treaty gives the other parties an opportunity to ask for specific performance/suspension or termination of the treaty. For example, on June 29, 1987 the US-Netherlands Antilles Tax Treaty was terminated by the United States.

This article considers the Argentina-Mexico Income and Capital Tax Treaty (2015). In particular, the provisions on a permanent establishment, business profits, dividends, interest, royalties, avoidance of double taxation, anti-avoidance and the exchange of information are analysed. The implications of the OECD/G20 Base Erosion and Profit Shifting measures are also examined.

This article discusses two decisions of the Belgian Supreme Court on the compatibility of the Belgian net asset tax with the Belgium-Luxembourg Income and Capital Tax Treaty (1970) and the Belgium-Netherlands Income and Capital Tax Treaty (2001), which raise questions regarding “tax on capital”, “taxes covered” and treaty interpretation.

This article focuses on recent initiatives to embed arbitration as a mechanism for resolving tax controversies under income tax treaties. Drawing on the author’s experience as an arbitration lawyer, the article considers developments in the frameworks for arbitration under income tax treaties, including (i) the OECD Model, (ii) the EU Arbitration Convention and (iii) the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the BEPS Multilateral Instrument). These frameworks are compared to existing (non-tax specific) arbitration frameworks, in order to evaluate the efficacy of arbitration as a mechanism for resolving tax controversies and identify where some lessons may be learned as the tax arbitration process is further developed and refined.