On the Origins of Model Tax Conventions: 19th Century German Tax Treaties and Laws Concerned with the Avoidance of Double Taxation

Abstract

This book chapter suggests that nineteenth-century tax treaties and federal laws of German speaking European countries that concerned double taxation established the basis from which tax treaties and model conventions developed in the following centuries. The content of these German tax treaties and laws was initially inspired and influenced by general legal concepts such as equality and the freedom of establishment, which were aimed at the unification of the northern German states. It fell mainly to the German courts to develop autonomous tax-specific interpretations of these treaties and laws that served the effort to eliminate double taxation as part of the overarching goal of unification. The body of knowledge that accumulated in this manner had a considerable influence on domestic tax reform in these federal German states towards the end of the nineteenth century. The result was a significant alignment of domestic income tax regimes with an existing allocation of taxing rights along the source and residence dichotomy established by the first tax treaty of 1869. The cases and domestic tax reforms led to a refinement of concepts; for example, a taxpayer’s place of residence and a permanent establishment of a trading entity. The further result of this convergence of ideas was that the federal German states were able to conclude uniform tax treaties with other continental European countries at the start of the twentieth century. In this manner, the proliferation of similarly worded bilateral tax treaties began.

Keywords: History of Tax, International Tax Law, Tax Treaties, Prussia, Otto von Bismarck

JEL Classification: B10, B15, B31, K20, K30, K34