The Limits of Administrative Guidance in the Interpretation of Tax Treaties

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.

Keywords: Tax, international tax, treaties, regulations, interpretation, Vienna Convention

JEL Classifications: K33, K34, K20

Accepted Paper Series