Structure of Tax Treaties

Chapter 18, International Aspects of Income Tax

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III. Tax Treaties

Tax treaties also often referred to as double taxation conventions or double tax agreements are international agreements entered into by countries and hence subject to general international law on treaties as codified in the Vienna Convention on the Law of Treaties. 7 Most tax treaties are bilateral, that is, involve two countries only, and cover income and capital taxes, though there are some examples of multilateral tax treaties. There are well in excess of 1,000 tax treaties and the number is growing rapidly. 8

A. Structure of Tax Treaties

The history of tax treaties can be traced to the League of Nations, which was pressed to deal with the problem of double taxation after income taxes became important during the First World War and which developed a number of models for use in negotiation of bilateral tax treaties. 9 The major modern successor to these models is the OECD Model Tax Convention on Income and on Capital the OECD Model, which itself has gone through various versions. 10 Of especial interest to developing and transition countries is the 1980 UN Model Double Taxation Convention the UN Model, which was based on the 1977 OECD Model but designed to take into account the special interests of developing countries. 11 The typical structure of tax treaties is most easily seen from the chapter and article headings of the OECD Model as follows: 7 1155 U.N.T.S. 331 1980, reprinted in 8 International Legal Materials 679 1969. Although the convention has not been adopted universally, it is regarded as largely declaratory of customary international law, and so its principles are for the most part applicable to treaties entered into by countries that are not parties to it. See Ian Brownlie, Principles of Public International Law 604 1990. 8 Because tax treaties are for the most part bilateral, it is difficult to keep track of the number of treaties actually in force; nowadays, research on tax treaties is greatly facilitated by two CD-ROM collections, which are regularly updated: International Bureau of Fiscal Documentation, Tax Treaties Database; and Tax Analysts, Worldwide Tax Treaties. The tax treaties cited in this chapter can be found on these CDs; therefore, only summary citations are given for these treaties below. 9 The major League of Nations documents are collected in Joint Committee on Internal Revenue Taxation, 4 Legislative History of United States Tax Conventions, Model Tax Conventions 1962. See also Michael Graetz Michael O’Hear, The “Original Intent” of U.S. International Taxation, 46 Duke L. J. 1021 1997. 10 The current version dates from 1992 and is in looseleaf format updated 1994, 1995, and 1997; the earlier versions were the Draft Double Taxation Convention on Income and Capital 1963 and Model Double Taxation Convention on Income and Capital 1977. 11 United Nations Model Double Taxation Convention Between Developed and Developing Countries 1980 STESA102, reprinted in Klaus Vogel, Klaus Vogel on Double Taxation Conventions 1991. For documentation of the influence of the UN Model on treaties, see Willem Wijnen Marco Magenta, The UN Model in Practice, 51 Bull. Int’l Fiscal Doc. 574 1997.

Chapter 18, International Aspects of Income Tax