Double or Nothing: A Tax Treaty for the 21st Century

21 Pages Posted: 9 May 2012 Last revised: 13 Nov 2012

See all articles by Reuven S. Avi-Yonah

Reuven S. Avi-Yonah

University of Michigan Law School

Oz Halabi

University of Michigan Law School

Date Written: November 11, 2012


The current tax treaty network was developed in the 1920s and 1930s in order to prevent double residence/source taxation. This kind of double taxation rarely exists any more because most countries have adopted either an exemption system or a foreign tax credit regime in their domestic (non-treaty) law, which effectively prevents residence/source double taxation even in the absence of a treaty. Instead, as Tsilly Dagan has pointed out, the current treaties serve mostly to transfer revenue from the source country to the residence country. This suggests that treaties may be unnecessary because exemption from withholding taxes by source countries can be done unilaterally. However, in the era of globalization (post 1980), the treaties have developed two new functions, both of which apply primarily to individual taxpayers: First, to prevent double non-taxation by ensuring that withholding taxes are collected if there is no assurance of taxation by the residence country. Second, to enforce residence based taxation of individuals by having source countries provide information to residence countries about income derived by their residents in the source country. The paper proposes ways to update the US model treaty to reflect these new functions.

Keywords: tax treaties, US model tax treaty

JEL Classification: H26

Suggested Citation

Avi-Yonah, Reuven S. and Halabi, Oz, Double or Nothing: A Tax Treaty for the 21st Century (November 11, 2012). U of Michigan Law & Econ Research Paper No. 12-009, Available at SSRN: or

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

Oz Halabi

University of Michigan Law School ( email )

Ann Arbor, MI
United States

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