The Interaction Between Unilateralism and Multilateralism in International Tax

18 Pages Posted: 4 Oct 2022 Last revised: 7 Dec 2022

Date Written: September 15, 2022


From its inception, the international tax regime was heavily influenced by the United States. The regime is traditionally traced back to the work of the four economists for the League of Nations in 1923, who came up with the original compromise underlying the tax treaty network, i.e., that passive income should be taxed primarily at residence and active income primarily at source (the “benefits principle”). Arguably, this compromise between the claims of residence and source countries was made possible by the US unilateral adoption of the foreign tax credit in 1918, because the US (already the world’s largest capital exporter) was (unlike the UK) willing to cede taxing jurisdiction to the source by allowing a dollar for dollar credit (originally without limitation). Edwin Seligman, the US representative to the four economists, may have used the credit to persuade them to adopt the benefits principle. In addition, because the US rejected exemption to alleviate double taxation, it laid the groundwork for the single tax principle, first embodied in the original League of Nations model treaty of 1927 (e.g., imposing withholding tax on interest unless it was taxed at residence).

This state of affairs continued up through and including the Great Recession of 2008-2010, which brought us FATCA and its international progeny the CRS. But in the past decade the direction of influence has been reversed. The original OECD BEPS project (BEPS 1) of 2013-2015 was led by the EU, not by the US, and its influence can be seen in both the 2016 US model and the TCJA. The current BEPS effort (BEPS 2) is also primarily led by Europe in Pillar 1, which reacts to the adoption of DSTs, but the influence of TCJA can be seen in Pillar 2. However, Pillar 2 is an improvement of the TCJA. The recent adoption by the US of a global book-based 15% corporate AMT is consistent with Pillar 2 and may help its adoption by the EU. The current state of play can thus be characterized as a constructive dialogue between the US and the EU.

Despite recent attempts at achieving true multilateralism, I am doubtful about its prospects. The MLI is a mechanism for changing bilateral treaties, rather than a multilateral convention, and important countries like the US have not joined. Pillar 1 requires a true multilateral convention, but the US will not join, and neither will many countries that wish to keep their DSTs. In these circumstances, I doubt that a multilateral convention can be enacted, because it was designed primarily to tax US multinationals and eliminate the DSTs.

Keywords: TCJA, BEPS, Pillar 1, Pillar 2

JEL Classification: H26

Suggested Citation

Avi-Yonah, Reuven S., The Interaction Between Unilateralism and Multilateralism in International Tax (September 15, 2022). U of Michigan Public Law Research Paper No. 22-047, 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)

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