Inter-Governmental Dispute Settlement Under Tax Treaties: Lessons from the GATT and International Relations Theory

Posted: 2 Dec 1996  

Robert A. Green

Cornell University

Date Written: October 1996


The inter-governmental dispute settlement provisions in international trade agreements, particularly the GATT, have evolved into quasi-judicial systems whose rulings cannot be blocked by one party. In contrast, dispute settlement under income tax treaties has remained decidedly "anti-legalistic," relying on endeavors to settle disputes through inter-governmental consultation and negotiation. This disparity is puzzling, since international tax policy can have an enormous impact on international trade and investment. Indeed, a country can use income tax measures to undercut the commitments it makes in international trade agreements. Recognizing these facts, some have argued that the procedures for resolving inter-governmental income tax disputes should be strengthened. This could be accomplished by modeling tax treaty dispute settlement procedures on the procedures in the GATT or by bringing income tax measures under the coverage of the GATT itself (as was done in the Uruguay Round agreement on services, but only to a very limited extent because of U.S. opposition). This article argues that the design of optimal income tax treaty dispute settlement procedures can be analyzed by drawing upon analytical methods and insights developed by international trade and international relations theorists. These approaches involve viewing inter-governmental dispute settlement systems as devices for facilitating international cooperation by changing the political context in which sovereign governments make decisions based on self-interest. The article suggests that there are significant differences between the problems of maintaining cooperation under international trade regimes and under existing international tax regimes. Because of these differences, the highly legalistic dispute settlement procedures that have evolved under trade agreements such as the GATT are not necessarily a reliable model for dispute settlement under income tax treaties.

JEL Classification: H87, K33, K34

Suggested Citation

Green, Robert A., Inter-Governmental Dispute Settlement Under Tax Treaties: Lessons from the GATT and International Relations Theory (October 1996). Available at SSRN:

Robert A. Green (Contact Author)

Cornell University ( email )

Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States
607-255-7389 (Phone)
607-255-7193 (Fax)

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