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Sources of International Tax Law

International trade has existed from the most ancient civilization of the world like Harappan, Mesopotamia, Egyptian and Roman civilizations. However, the volume of international trade was not so large in those days as it is today. After World War II, not only international trade but finance and investment also increased. With the gradual removal of barriers to international trade through GATT (General Agreement on Tariffs and Trade) and WTO (World Trade Organization).

With the formation of IMF (International Monetary Fund) and Bank for International Settlements, barriers in finance vanished. Regarding investment, the main multilateral push is yet to come. The negotiations on Multilateral Agreement on Investment were launched by governments at the annual meeting of the OECD Council in May 1995 but never concluded.

It is a corollary of this growth in international transactions that the significance of international tax laws has increased in each country's legal system. As restrictions in other areas are significantly reduced or removed, taxation is brought into focus increasingly.

This guide will focus on international tax law from a worldwide standpoint, but it will also provide information and resources for anyone interested in international taxation. This research guide will discuss tax treaties, customary international law, and basic legal principles. Secondary sources will be covered as well, including selected treatises, practice manuals, periodicals, internet sources and research aids. There are many sources involved in international tax law. There are two types of sources primary and secondary sources.

Primary Sources:
  1. Vienna Convention on the Law of Treaties
    It is an international treaty which regulates treaties between states.[i] It is also called a treaty on 'treaties'. It establishes comprehensive rules, guidelines and procedures for how treaties are defined, drafted, amended and generally operated.[ii] This convention was ratified on May 23, 1969, and it became effective on January 27, 1980.The Vienna Convention on the Law of Treaties applies to the treaties between states within an intergovernmental organization.[iii]

    It is significant because it establishes the minimum requirements for all treaties, including tax treaties. It has been ratified by 116 countries (as of January 2018) and has 15 signatories that have not yet ratified. The number of United Nations state members that have neither ratified nor signed the convention is 66.

    The United States of America (despite being a signatory) is one of the countries that have yet to ratify the convention. Even though the United States Senate has never ratified the Vienna Convention, many federal and state appellate courts believe the treaty interpretation requirements to be obligatory.
     
  2. Model Tax Conventions
    These serve as a starting point for international tax treaty negotiations. Three fundamental model conventions should be understood: the Model Tax Convention of the Organization for Economic Cooperation and Development (OECD); the Model Tax Convention of the United States; Model Tax Convention of the United Nations.

    The main difference between the UN model and the OECD model is that the UN model provides taxation of only those profits of an enterprise which are not directly attributable to a permanent establishment of an enterprise but are related to the same kind of goods sold or same kind of business activity as the permanent.

    This is also called the "limited force of attraction rule" and has been criticized by many countries for disincentivising businesses and burdening taxpayers. These three models are not legally binding, but they are intended to simplify tax treaty discussions and prevent issues for countries with ratification requirements.
     
  3. Tax Treaties
    These are bilateral agreements between two countries for resolving issues that involve double taxation of incomes (active or passive) of their respective citizens.[iv]Tax treaties are the most authoritative source of international tax law, although their authority is based on how each country interprets the treaty's wording regarding its domestic laws. These are in-depth resources that provide deep analysis, detailed explanation and interpretation of an area of the law.

    Usually, tax treaties are written by scholars in the field. These also provide many citations to the primary law. Some countries consider treaties to be automatically binding, whereas others require specific legislative procedures and ratification before the treaty's contents become law.

    Tax treaties are regarded as "the country's supreme law" in the United States. If there is a competing statute, the treaty's authority is determined by whether the statute was passed before or after the treaty. Treaties that are signed later in time have more weight than those that are signed earlier.
     
  4. Customary International Law
    It is an aspect of international law which involves the principles of custom. Custom is also considered by the International Court of Justice, the United Nations, and jurists along with general principles of law and treaties. The forms of evidence of customary international law, as listed by International Law Commission, in 1950, are treaties, national legislation, decisions of national and international courts, diplomatic correspondence, opinions of national legal advisors and practice of international organizations.[v]

    The UNGA (United Nations General Assembly) has also welcomed the Conclusions on Identification of Customary International Law with commentaries. For issues not covered by tax treaties, customary international law can help by examining "generally uniform and consistent state practice regarding a certain matter" to see if a particular action was performed because of a legal obligation or belief based on international law. Customary international law will examine historical acts made by nations on tax-related matters, and proof of this can be found in state practice sources, digests, and yearbooks.
     
  5. General Principles of Law
    These are basic rules whose content is very general and abstract. General principles of law have not been 'posited' according to the formal sources of law unlike other types of rules (enacted laws or agreements). These are included in the list of sources of international law in article 38 of the International Court of Justice statute as "general principles of law recognized by civilized nations".

    General principles of law can assist attorneys who are dealing with difficulties with little or no legal precedent in matters that cannot be addressed by treaties or customary international law. These are fundamental legal notions that all nations must adhere to, and they deal with issues that are difficult to manage through treaties.

    The International Court of Justice's Statute, which requires the court to consider "the general principles of law acknowledged by civilized nations" in deciding cases after reviewing treaties and customary international law, has given general principles of law credence. Case law and scholarly works can be used to create general legal concepts.

Secondary sources
Several secondary sources focus on international tax law, and these are essential because they give critical analysis for individuals who practise or research in this field.
  1. Treatises/ Practice Guide
    Mainly there are 3 types of treaties are there:
    Model tax treaties, multilateral tax treaties, and bilateral tax treaties.
    Few multilateral tax treatises are also there. The list of following tax treatises is given here but the list the is not exhaustive:
    • Vienna Convention of the law of treatises.
    • Convention on Mutual Administrative Assistance in Tax Matters
    • Protocol Amending the Convention on Mutual Assistance in Tax Matters.
    • Multilateral Convention to Implement Tax treaty Related Measures to Prevent BEPS (MLI).
    Bilateral treaties are usually divided into two categories in the United States:
    bilateral treaties to which the United States is a party and bilateral treaties to which the United States is not a party.

    The IR'S website has a list of bilateral treaties involving the United States. These may be found on the websites of foreign legislatures or in international tax law databases.
    • OECD Model Tax Convention
    • US Model Income Tax Convention
    • UN Model Tax Convention
       
  2. News / Current Awareness
    • International Tax Monitor. Washington: Bloomberg BNA,2001
    • Tax Notes International. Arlington, VA: Tax Analysts,1989
    • Worldwide Tax Daily. Arlington, VA: Tax Analysts, 1998
       
  3. Selected Journals and Periodicals
    • Berkeley Journal of International Law.
      Berkeley: University of California Press, 1996- (previously International Tax and Business Lawyer, 1983-1996).
    • Journal of Taxation of Global Transactions. Chicago: Commerce Clearing House (CCH), 2001-2006 (merged with International Tax Journal starting 2007).
      Tax Management International Journal. Washington, DC: Bureau of National Affairs. Tax Management Inc., 1972
    • World Tax Journal. Amsterdam: IBFD, 2009.
    • Bulletin for International Taxation. Amsterdam: IBFD, 2006
    • International Tax Journal.Greenvale, NY: Panel Publishers, 1974
       
  4. Dictionaries
    • IBFD International Tax Glossary, 7th ed. Rogers-Glabush, Julie, ed. Amsterdam, Netherlands: IBFD, 2015.
    • Westin, Richard. Tax Dictionary. Valhalla, NY: Thomson Reuters/WG&L, 2014 (available on Thomson Reuters Checkpoint).
    • Smith, Robert Sellers. West's Tax Law Dictionary. St. Paul, MN: Thomson/West, 2018 (available on Westlaw).
       
  5. Online Research
    It is essential for research on International Taxation, especially for those who need to access model tax conventions and tax treaties. A lot of free databases as well as some databases on a subscription basis are provided by various foreign, international agencies, and private institutions which are helpful in the research of international taxation laws.

European Union ( EUROPA)
Organisation for Economic Co-operation and Development (OECD)
World Trade Organisation(WTO)
United Nations

Subscription Databases
  • Bloomberg Law
  • HeinOnline
  • International Bureau of Fiscal Documentation (IBFD)
  • CHEETAH(CCH)
  • Taxnotes.com
  • Lexis Advance
  • West Law
  • Tax Sutra
Conclusion
The two main categories with which International Tax Laws deal are:
First, is the Taxation of persons who are not the citizens of a country but work, enter into transactions or have property or income in the country.

Second, taxation of persons who belong to a country but work enter into transactions or have property or income outside that country. It is the term 'residence' that is used in international taxation to denote the concept of a person belonging. Similarly, it is the term 'source' is used to denote the source of a particular income that is inside or outside a country.

These two categories are present in all types and areas of taxation. The taxation of domestic income of non-residents and the taxation of foreign income of residents is a major issue.

In both cases, the problem of double taxation is the main issue. More than one country seeks to tax, without taking into taxation the tax levied in another country or no country may tax, assuming that another country is levying the tax. This results in increased opportunities for tax planning (or tax cheating). Double taxation thus acts as a hurdle to international transactions and nearly all the countries in the world are agreed on the desirability of removing such barriers.

In addition to this, double taxation will create a bias in favour of international transactions over domestic transactions which leads to loss of the welfare of the earth as a whole (Not mentioning tax revenues). Unfortunately, double non-taxation is tolerated by governments (sometimes even encouraged). Double non-taxation is obviously desired by taxpayers. Developing countries often argue that due to the removal of international barriers, it is the developed countries that are getting benefitted.

Therefore many times special regimes are introduced in international agreements such as a generalised system of preferences (in which tariff privileges are conferred on developing countries without being obliged to all GATT members) in the General Agreements on Tariffs and Trade (GATT) to deal with the concerns of developing countries.

In the income tax field, developing countries offer tax incentives to international investors to attract capital investments. Tax incentives are also provided by developing countries to counter the effect of the tax system of industrial/developed countries.

Therefore in the purview of the above problems of double taxation or non-taxation, a rule-based international taxation order is desired which takes care of the growing concerns of developing countries and at the same time increases investment across the globe. The problem of complying with domestic rules of various countries and providing a level playing field for all the investors across the world.

End-Notes:
  1. https://www.britannica.com/topic/Vienna-Convention-on-the-Law-of-Treaties
  2. https://scholar.smu.edu/cgi/viewcontent.cgi?article=3872&context=til
  3. https://en.m.wikipedia.org/wiki/Vienna_Convention_on_the_Law_of_Treaties
  4. https://www.investopedia.com/terms/t/taxtreaty.asp
  5. https://undocs.org/A/73/10

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