(How) Should Trade Agreements Deal with Income Tax Issues?

Abstract

This paper addresses the relationship between tax and trade law, as embodied in the network of bilateral tax treaties and the multilateral agreements underlying the WTO. The paper argues that: (1) There is considerable overlap in the goals to be achieved by tax and trade agreements, and full achievement of these goals is not possible without addressing both tax and trade policies. (2) Tax treaties contribute to the avoidance of double taxation but, because of their bilateral nature, cannot effectively address the problem of double non-taxation resulting from tax competition. (3) The WTO agreements as currently drafted address some aspects of the tax competition issue (e.g., preferential tax regimes for trade in goods) but not others (competition for investment and trade in services, including traditional tax havens). (4) Fully achieving the goals of tax and trade agreements may require a multilateral agreement that will address services and investment issues, as well as goods. We remain agnostic whether the WTO or some other forum is the most appropriate one to effectuate such an agreement.