The Quiet Evolution in International Tax: Domestic Law and Double Taxation

This article describes the respective roles of international tax law (predominantly tax treaties) and domestic tax law and their relationship with each other. This is a complex and interdependent relationship, with treaties, as special law, generally overriding domestic law. The article discusses the founding principle of tax treaties preventing double taxation, reflecting the original purpose of tax treaties. Subsequent developments over time have vigorously established the second principle of treaties: that the purpose of tax conventions is also to prevent tax avoidance and evasion. Such an increasingly important principle heralds the rise of anti-avoidance rules, prevention of abuse and the preservation of domestic taxing rights. The thesis in this article is that domestic law has prevailed against the more specialized law of treaties and at an increasing rate. This evolution has occurred in situations where the special law of treaties is “watered down” by the principle that treaties should not be allowed to be abused or in situations where they facilitate tax avoidance. What are the implications of this trend on the development of international tax policy? The article reflects on the respective roles of international and domestic law and guides us to suggestions on how to preserve important international tax principles in good faith and limit expedient domestic tax law changes when they are not driven by taxpayers’ abusive actions.