International Tax Law and its Influence on National Tax Systems

Abstract

In this paper it is controversially suggested that international tax law is broader than the traditional view of most academics. In addition to domestic laws that cover cross-border transactions and double taxation agreements (or their multilateral counterparts) there is a special consensus international tax law (CITL) based on the institutions, instruments and interpretation implemented by international consensus.

It is essential to understand how international laws and norms shape national tax systems and whether they constrain domestic taxation choices? In other words, are there limitations on States introducing domestic rules which cut across the obligations designed to make the international tax regime coherent? Also, to achieve fundamental, consensus-driven change, such as that in the area of the taxation of the digital economy requires significant cooperation by States. Understanding these parameters will inform whether, how, and why, States should get involved in the design and structure of the international tax architecture.

International tax law has components drawn from different areas of law, some parts of which are peculiarly domestic or sovereign in the sense that they are the exclusive decision of a state to impose taxation. In contrast, other parts reside in public international law because they deal with the rules, norms, and standards generally accepted in relations between nations. This dual dynamic is central as to why international tax law is influential on national tax systems. States impose taxes and deal with their citizens (or for most countries their residents) on their worldwide income, and non-residents in respect of income sourced in their jurisdiction. It is precisely because of this residence and source taxing matrix and the resultant double taxation that States need to deal with other States to make the international tax regime more coherent and fair. In respect of public international law, most focus has been on the part of international tax that relates to bilateral and multilateral treaties. In contrast, the area of law focusing on international law from other sources, such as customary international law (CIL), receives less consideration.

This paper explores what is meant by international tax law. The focus then shifts to that part of tax law which is public international law. Clearly, bilateral and multilateral treaties have a direct impact on the legal systems of participating States. Treaties are not the only source of international law even though in the tax arena they clearly are by far the most important. So important that some suggest they are “perhaps the source, of international law”. Other highly respected scholars suggest that CIL has a part to play in influencing national tax systems. This suggestion is controversial, and the weight of opinion does not support the view that CIL presently creates any binding tax obligations on States.

This paper proposes that there is, however, an emerging system based on common understandings, with the legal duties of cooperation and underpinning expectations of implementation which should be recognized as creating obligations upon States even though it does not constitute CIL.

CITL is highly influential on national tax systems and is a phenomenon that recognises both the sovereignty and politics of national tax laws, as well as the need for harmonisation and reasonableness in international dealings with other States and their tax systems.

Keywords: international tax law, customary international law, consensus international tax law, digital economy taxation, OECD, Inclusive Framework

JEL Classification: H20, H87, K33, K34