2019 - BTR - Issue - 4 - Print - Anton (25.08.2019)

Multilateral Dynamics in Bilateral Settings: Back
to Realpolitik
Ricardo García Antón *
Abstract
This article attempts to shed light on the meaning of multilateralism in international taxation.
Reconstructing multilateralism in international taxation, namely under the recent Multilateral Convention
to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (OECD MLI),
speaks about the co-existence of different layers of governance and pinpoints the tensions which exist
between the progressive reaffirmation of global consensual standards, which are tailored to the needs of
developed countries in favour of residence taxation, and bilateral solutions. Under this polyhedral model
of tax governance, the so-called shift from bilateralism to multilateralism illustrates the symbolical
aspiration of these global consensual standards to become customary international law.
1. Introduction
The release of the OECD Multilateral Instrument to Implement Tax Treaty Related Measures
to Prevent Base Erosion and Profit Shifting was presented as the corollary to the process of
enforcing a truly global international tax law. The BEPS project and the OECD’s efforts towards
achieving the global standard of automatic exchange of information fed the scholarship’s
perception that a shift from bilateralism to multilateralism was taking place swiftly.1 In reality,
however, it seems that the standards are approved by a few powerful countries only and are
merely rubber-stamped by the rest of the participating states.2 Can it be said that we are really
*
Ricardo García Antón is Assistant Professor of International and European Tax Law at Tilburg University (Fiscal
Institute Tilburg). The author would like to thank the participants of the 2018 Conference, The Challenges and
Opportunities of Multilateralism, organised by the Said Business School, University of Oxford, for their insightful
comments upon an early draft of this article. In addition, the author would like to extend his gratitude to the external
peer-reviewers for their invaluable comments aimed at strengthening the final arguments raised by this article.
1
On the narrative of the shift, see J. Owens, “Tax Transparency: The ‘Full Monty’” (2014) 68(9) Bulletin for
International Taxation 512–514; P. Pistone, “Coordinating the Action of Regional and Global Players during the
Shift from Bilateralism to Multilateralism in International Tax Law” (2014) 6(1) World Tax Journal 3–9; V. Averyanova
and J. Sampat, “Transfer Pricing Aspects of Intra-Group Financial Guarantees in Light of the BEPS Action Plan”
(2015) 22(6) International Transfer Pricing Journal 361–368; I. Mosquera Valderrama, “Legitimacy and the Making
of International Tax Law: The Challenges of Multilateralism” (2015) 7(3) World Tax Journal 343–382; P. Pistone,
R. Julien and F. Cannas, “Can the Derivative Benefits Provision and the Competent Authority Discretionary Relief
Provision render the OECD-proposed LoB Clause Compatible with EU Fundamental Freedoms?” in M. Lang, et al.
(eds), Base Erosion and Profit Shifting (BEPS) (Vienna: Linde Verlag, 2016), 212.
2
A. Rocha, “The Other Side of BEPS: ‘Imperial Taxation’ and the ‘International Tax Imperialism’”, in S.A. Rocha
and A. Christians (eds), Tax Sovereignty in the BEPS Era, (Alphen aan den Rijn: Kluwer, 2017), 179–200; R.J.S.
Tavares, “Country-by-Country Reporting? National Sovereignty, International Tax Transparency, and the Inclusive
Framework on BEPS”, in S.A. Rocha and A. Christians (eds), Tax Sovereignty in the BEPS Era (Alphen aan den
Rijn: Kluwer, 2017), 201–242; on the lack of transparency and opacity within the OECD Inclusive Framework to the
detriment of the non-OECD Members, see A. Christians and L. van Apeldoorn, “The OECD Inclusive Framework”
(2018) 72(4/5) Bulletin for International Taxation 226–233.
2019 BTR, No.4 © 2019 Thomson Reuters and Contributors 483

484 British Tax Review
in a truly multilateral setting in international taxation if such a setting is based only on the number
of signatory countries endorsing the standards? Which are the constituent elements of
multilateralism in international taxation? Is the shift purely rhetoric?
In answering the previous research questions, this article attempts to reconceptualise critically
the meaning of multilateralism within international taxation. In the author’s view, the current
multilateral narrative in international taxation encapsulates profound tensions that challenge the
achievement of a uniform and idyllic shift from bilateralism to multilateralism as heralded by
the mainstream scholarship. Reconstructing multilateralism in international taxation requires an
understanding of the interplay between two concurrent arguments.
The first argument identifies multilateralism as a form of governance, which always coexists
with and overlaps unilateral measures and bilateral arrangements. To put it simply, multilateralism
never walks alone. As the author demonstrates in Section 2 of this article, multilateral “layers”
have always interacted with bilateral and unilateral layers. The interaction of these forms of
governance reflects the complex power relations which exist in international settings and which
in turn reproduce the classical dichotomy between residence taxation in favour of a developed
country and source taxation aligned with the interests of developing countries. For example,
while the multilateral layers represented by the OECD MC clearly benefit residence taxation
over source taxation, the bilateral treaties could be more source-oriented since they are the
product of a bargaining process between the two states. It therefore comes as no surprise that
the current multilateralism triggered by the OECD and embedded in the MLI is in accordance
with the interest of developed countries in insulating residence-taxation and protecting their
domestic tax bases.
The second argument, which is presented in Section 3 of this article, highlights the symbolical
function of a multilateral treaty, which pleads for reaching normative principles for all the
signatories, thereby overcoming partial and fragmentary concessions in bilateral arrangements.
The ultimate aspiration of any multilateral treaty is to arrive at a global consensus within the
international community. Based on examples extracted from the Law of the Sea, the author will
make the argument that the aspiration to arrive at such a global consensus on norms and rules
leads undoubtedly to the notion of customary international law, which has itself undergone
profound changes in the sphere of public international law under the notion of “modern customs”.
Multilateral treaties and customary international law are both interconnected and channel
consensus within the international community. Such an attempt to reach consensus in international
taxation also matches the interests of developed countries.
In Section 4, the author will delve into the analysis of the MLI, to show that, although several
forms of governance co-exist, several rules, such as the four minimum standards, and emerging
principles are beginning to form the genesis of customary international law in anti-avoidance.
The MLI mirrors the two concurrent arguments within multilateralism, which are referred to
above, with the result that tensions and contradictions are unlikely to be reconciled. Since the
MLI’s ambitious aspiration to arrive at a consensus on anti-avoidance norms in the international
community is still weak, countries engage in tax competition to achieve unilateral or bilateral
solutions that can result in their eventually being better off than they would have been had they
endorsed multilateral standards. Section 5 finishes with a conclusion.
2019 BTR, No.4 © 2019 Thomson Reuters and Contributors

Multilateral Dynamics in Bilateral Settings: Back to Realpolitik 485
One may wonder why there is no reference to the processes of regional integration in the two
arguments which are encapsulated in the notion of multilateralism. The current regional integration
processes—the EU, Mercosur, the NAFTA (North American Free Trade Agreement), the Unión
Andina, the Caribbean Community and Common Market (CARICOM), the Asia-Pacific Economic
Cooperation (APEC), etc.—are commonly labelled by political scientists as a “thick
multilateralism”.3 Regional integration always goes beyond the strengthening of normative
principles for all the participant states in order to embrace the construction of a regional political
identity, anchored first in an area of free trade, and linked, secondly, with the consolidation of
democracy, human rights, social rights and good governance. With regard to the EU, the
neo-functionalist narrative has been quite relevant in emphasising how this process of political
integration is heading a new supranational political community.4 Due to the fact that such thick
multilateralism does not merely aspire to enforce binding normative principles but also to build
up a political entity, the author has deliberately decided to carve out any mention of regional
integration processes within the meaning of multilateralism.
Finally, in dealing with the meaning of multilateralism in international taxation, recourse to
legal analysis is not enough. Therefore, the author’s research methodology has combined pure
legal analysis, derived from an analysis of public international law and the MLI provisions, with
findings premised on the abundant literature on multilateralism in the field of international
relations. Both legal and political science dimensions shed light on the complexity of the
multilateralism phenomenon, which cannot be grasped exclusively from one dimension.
2. Multilateralism as a form of governance
2.1. The overlapping geological strata

In International Public Law, multilateral solutions always coexist with the bilateral and unilateral
responses of the states. In this regard, Weiler’s metaphor of the geological strata of international
law clearly challenges the idea of there being a shift from bilateralism to multilateralism.5 Rather
3
On the interaction between regional integration and multilateralism, there is abundant literature. See among others:
T. Renard, “Partnerships for effective multilateralism? Assessing the compatibility between EU bilateralism,
(inter-)regionalism and multilateralism” (2016) 29 Cambridge Review of International Affairs 1, 18–35; T.A. Börzel
and T. Rhisse, “Diffusing (Inter-Regionalism): The EU as Model of Regional Integration” (2009) KFG WP No.7
(Freie Universität Berlin); E. Adler, “The Change of Change: Peaceful Transition of Power in the Multilateral Age”,
in C. Kupchan, E. Adler, J.M. Coicaud and Y. Foong Khong (eds) Powers in Transition: The Peaceful Change of
International Order (New York: United Nations University Press, 2001), 146: “Thick multilateralism refers to people’s
self-conscious efforts to construct regional identities by the use of multilateral diplomacy and organizations. In other
words, whereas thin multilateralism aims at better policy coordination between states, thick multilateralism aims at
constructing security communities”; E. Mansfield and H.V. Milner, “The New Wave of Regionalism” (1999) 53(3)
International Organization 589–627;
4
On the EU regional integration process, the neo-functionalist was introduced in the seminal works of Haas and
Lindberg. See E.B. Haas, The Uniting of Europe: Political, Social and Economic Forces 1950–1957 (Stanford:
Stanford University Press, 1958); and, L. Lindberg, The Political Dynamics of European Economic Integration
(Stanford, CA: Princeton University Press, 1963). On a recent account of the neo-functionalist dimension to EU
integration, see C. Strøben Jensen, “Neo-Functionalism” in M. Cini, N. Pérez-Solórzano Borragán (eds) European
Union Politics (Oxford: OUP, 2016)
5
J.H.H. Weiler, “The Geology of International Law — Governance, Democracy and Legitimacy” (2004) 64 Heidelberg
Journal of International Law 547–562.

than speaking about transformation or shift, international law is composed of superimposed

strata. For this author, bilateralism and multilateralism are geological layers which overlap with
earlier layers in a clear continuity. Bilateral and multilateral normative layers interact, complement
and inhibit one another. New strata layer themselves alongside but without replacing previous
strata. Whilst the World Trade Organization (WTO) resulting from the Uruguay Rounds has a
multilateral form, the bound tariffs “are simply an aggregate of bilateral arrangements extended
universally through the principle of Most Favored Nation”.6
Also within the WTO framework, several multilateral agreements were achieved as a result
of bilateral negotiation.7 Bilateralism and multilateralism are completely mixed in the different
stages of the co-operation process between states (bargaining, agreement and enforcement). In
the field of international taxation, Rixen has already concluded that, despite the preference of
bilateral bargaining and agreement in the political economy of avoiding international double
taxation, the OECD MC served as “a focal point” to reduce transaction costs and enable quicker
solutions in bilateral settings.8
A good example of the continuous interaction of forms of governance is the
most-favoured-nation (MFN) provision contained in several bilateral treaties signed by India.9
In these treaties, the MFN principle pursues the goal of equal and uniform tax on dividends,
interests and royalties for all OECD member countries that sign double tax conventions (DTCs)
with India, thereby overcoming the bilateral nature of those treaties, at least with respect to these
provisions.10 If India signs a treaty with a third country, which is a member of the OECD, limiting
its taxation at source on dividends, interest, royalties and technical fees to a lower rate than the
rate provided for in the treaty containing the MFN provision, India must automatically apply the
lower rate to the latter treaty. Such Indian concession to the OECD countries freezes its power
to negotiate on bilateral basis different withholding rates at source. Hence, in the power dynamics
narrative discussed in the next section, this multilateral layer in Indian bilateral treaties supports
the hegemonic position of OECD countries, which misbalances an equal treaty negotiation
position between them and India and favours residence taxation. The amending Protocol to the
DTC between Brazil and Argentina also enforced a MFN provision in relation to the taxation
on capital.11
Unilateral form of governance could also trigger bilateral and multilateral forms in the same
policy area. For instance, the US Foreign Account Tax Compliance Act (FATCA) unilateral
6
See Weiler, above fn.5, 554.
7
T. Rixen and I. Rohling, “The Political Economy of Bilateralism and Multilateralism: Institutional Choice in
International Trade and Taxation” (2005) University of Bremen, TranState Working Paper No.31.
8
T. Rixen, “Bilateralism or multilateralism? The political economy of avoiding international double taxation” (2010)
16(4) European Journal of International Relations 589–614.
9
See the Protocol of the Double Tax Treaty India–Switzerland Income Tax Treaty (1994) (as amended through 2010)
(1 April 2012), Tax Treaties IBFD; the Protocol of the Double Tax Treaty India–France Income and Capital Tax
Treaty (1992) (as amended through 2000), Tax Treaties IBFD; the Protocol of the Double Tax Treaty India–Finland
Income Tax Treaty (2010), Tax Treaties IBFD.
10
Further on the MFN in double tax treaties, see my previous contribution, R. García Antón, “The 21st Century
Multilateralism in International Taxation: The Emperor’s New Clothes?” (2016) 8(2) World Tax Journal 147–192.
11
See Article 10 of the Protocol signed on 21 July 2017, entered into force on 29 July 2018 and effective as of 1
January 2019 of the Double Tax Treaty Argentina–Brazil Income and Capital Tax Treaty (1980) (as amended through
2017), Treaties IBFD.

regulation requiring foreign financial institutions to gather and disclose information regarding
the foreign financial assets of US residents pushed the worldwide implementation of the automatic
exchange of information (AEOI) standard.12 The entrenchment of the AEOI as a global standard
benefits in the first place developed countries with highly modernised tax administrations to the
detriment of low-income countries, which lack the resources to implement it correctly.13 As
Section 4 of this article will show, in the MLI, the overlapping of bilateralism and multilateralism
is per se its hallmark.
2.2. Power dynamics in the overlapping of layers

In the field of international relations, the co-existence and overlapping of different forms of
governance find a plausible normative explanation in the so-called “contested multilateralism”
by Keohane and Morse.14 These authors argue that forms of international governance always
co-exist and are simultaneously challenged by other multilateral, bilateral and unilateral
arrangements. The powerful states are dissatisfied with the status quo of a multilateral organisation
such as the UN, for example, and shift the focus of its activity to a challenging institution with
different rules and practices.15 Frequently the disaffection is channelled through a new multilateral
institution rather than recourse being had to bilateral or unilateral practices. These new multilateral
institutions are not always synonymous with more democratic and pluralist international
decision-making. Contested multilateralism generally reflects a “Club Model” of governance in
which the decision-making is still in the hands of a few powerful countries, thereby neglecting
the majority of the world’s population and developing countries’ voices from political processes.16
NATO’s use of force against Serbia in the Kosovo conflict sidestepped the UN Security Council
as regards the use of the force. The Ottawa Convention on Landmines (1997) replaced the weak
provisions on the prohibition of landmines envisaged by the UN Convention on Certain
Conventional Weapons.
In the field of international taxation, the Club Model of governance has been adopted by the
OECD, which in turn has itself recently become “the informal world tax organization”, as dubbed
by Cockfield.17 In his seminal contribution on the tax responses to the challenges of e-commerce
in the late 1990s, Cockfield pointed out how the informal non-binding mechanisms put forward
by the OECD (promotion of guiding principles, consultation and consensual deliberation) triggered
a global tax co-operation between states.18 The states simply abide by the OECD consensual
12
See Pistone, above fn.1.
13
On the need to foster revenue-sharing systems between developed and non-developed countries to foster compliance
with the standards, see A. Turina, Information Based Administrative Tax Cooperation: Consolidating Standards,
Emerging Actors and Evolutionary Perspectives (Doctoral Thesis, Bocconi University Milan, 2013). On the general
issue of redistribution between poor and rich on a global scale, see M. Stewart, “Redistribution between rich and poor
countries” (2018) 72(4/5) Bulletin for International Taxation 297–309.
14
J. Morse and R.O. Keohane, “Contested Multilateralism” (2014) 9 Review of International Organizations 385–409.
15
Morse and Keohane, above fn.14, 388.
16
On the criticisms to the Club Model of governance due to the democratic deficit, see for instance R.O. Keohane
and J.S. Nye, “The Club Model of Multilateral Cooperation and Problems of Democratic Legitimacy” in R.O. Keohane
(ed.), Power and Governance in a Partially Globalized World (New York: Routledge, 2002).
17
A.J. Cockfield, “The rise of the OECD as informal ‘world tax organization’ through national responses to e-commerce
tax challenges” (2006) 8(1) Yale Journal of Law and Technology 136–187.
18
Cockfield, above fn.17, 166.

views. The OECD’s successful informal role fosters tax co-operation without the need to plead
for a formal world tax organisation, which could bind the participant states into lengthy and
formal decision-making process. The BEPS Project, driven by the OECD under the G20 mandate,
reproduces these informal mechanics, as already pointed out in relation to e-commerce, and
informally compels the states to translate the soft law of the BEPS 15 Actions into legal binding
norms in a truly global co-ordination.
However, the fact that the OECD remains a “rich countries’ club” has led to a new global
hegemonic governance platform in tax matters, in which the interests of developing countries
are under-represented.19 The recent Global Anti-Base Erosion proposal (GLoBE) is a perfect
example of such OECD’s modus operandi.20 This proposal, which introduces an “effective
international minimum taxation”,21 seeks to address the remaining BEPS risks of profit shifting
to entities subject to no or very low taxation. Whilst GLoBE aims to combat the perils of the
current “race to the bottom” and protect the taxable bases of the residence state, it could jeopardise
the developing country’s tax policy, which would seek traditionally to compete to attract and
retain foreign direct investment by introducing tax holidays and incentives. Although the GLoBE
proposal is still at an early stage of negotiation, developing countries could be worse off under
the OECD’s current Club Model of governance.
The overlapping of different forms of governance is not innocuous and mirrors the complex
power dynamics which exist in international settings. In line with the contested multilateralism
discourse, the multilateral layer, which can be represented in international taxation by the
non-binding OECD MC, attempts to introduce a hegemonic position of the powerful countries
running the international scene. In the early 1920s work of the League of Nations, the
disagreement on how to allocate taxing rights on certain types of income (interest and royalties)
triggered bilateral solutions as the preferred outcome.22 However, the initial non-binding model
treaties (Mexico and London Bilateral Tax Conventions 1943–194623) served as an intended
pattern to give uniformity in framing the negotiations of bilateral treaties, albeit reproducing the
tensions between taxation at source and taxation in residence. The multilateral layers currently
represented by the OECD and UN Model Conventions overlap with a network of bilateral treaties,
19
On the process of exclusion from the decision-making in the global tax governance, see T. Diniz Magalhães, “What
Is Really Wrong with Global Tax Governance and How to Properly Fix It” (2018) 10(4) World Tax Journal 499–536.
20
OECD Inclusive Framework, Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising
from the Digitalisation of the Economy (Paris: OECD Publishing, 2019)
21
For further comments on the GLoBE proposal, see J. Englisch and J. Becker, “International Effective Minimum
Taxation – The GLOBE Proposal” (11 April 2019), available at SSRN: https://ssrn.com/abstract=3370532 or http:/
/dx.doi.org/10.2139/ssrn.3370532 [Accessed 13 August 2019].
22
On the efforts to conclude a multilateral treaty within the history of tax treaties, see D. Broekhuijsen, A Multilateral
Tax Treaty: Designing an Instrument to Modernise International Tax Law (Alphen aan den Rijn: Kluwer, 2018).
23
League of Nations Fiscal Committee, London and Mexico Model Tax Conventions (Geneva, 1946).

thereby introducing a sort of standardisation in relation to bilateral treaty negotiations,24 “a focal

point” in Rixen’s terminology.25
Nevertheless, the solutions provided by these multilateral models are clearly aligned within
a policy output. In this regard, Hearson argues that the OECD MC embodies a consensus of
“club members” on “how to tax cross border income and capital that transcends the original
double taxation problem and provides the international tax community with a compelling ongoing
claim to authority”.26 In this co-existence of bilateral treaties with multilateral patterns, the OECD
Model layer represents the hegemonic voices of the most developed countries and therefore aims
to curtail the negotiating power of states, namely the less-developed countries, in bilateral settings.
As Martín Jiménez demonstrates, the OECD Commentaries have progressively restricted the
contours of the notion of royalties and the permanent establishment in favour of taxation in the
resident state.27 In his analysis of the expansion of double treaties signed by the UK in the 1970s
with developing countries, Hearson challenged the traditional narrative which claimed that driver
for such expansion was the need to stimulate investment flows in these developing countries.28
Instead, there were rarely any double taxation problems to resolve, and the UK’s only concern
was to impose the OECD standards in favour of exporting countries:
“More than eliminating double taxation, the aim was to constrain other countries’ ability
to tax inward investment. This long term project required a disciplined focus on establishing
the hegemonic position of OECD standards, even if this meant abandoning negotiations
that British businesses were lobbying for, but which could only be concluded at the cost of
the purity of the OECD standards.”29
Whilst the multilateral layer represented by the OECD MC serves to reinforce residence
taxation in support of the hegemonic position of developed countries, bilateral treaties could
lead to solutions which are more in line with the policy goals of developing countries in order
to increase source taxation. Since its inception in 1980,30 the UN Model has served to grant more
taxation rights to the source state or capital-importing country than has the OECD Model and,
therefore, it has been the multilateral pattern employed by developing countries in negotiating
bilateral treaties with developed countries. To the extent that bilateral treaties are the products
24
Further analysis on the standardisation of tax treaties through the OECD and UN Model, see M. Lang, P. Pistone
and J. Schuch, The Impact of the OECD and UN Model Conventions on Bilateral Tax Treaties (Cambridge: CUP,
2012); on the influence of the UN Model in bilateral treaty negotiations, see W.F.G. Wijnen and J.J.P. de Goede,
“The UN Model in Practice 1997–2013” (2014) 68(3) Bulletin International Taxation 118–146; On the role displayed
by the OECD Commentaries in bilateral treaties interpretation, see C. West, “References to the OECD commentaries
in tax treaties: a steady march from ‘soft’ law to ‘hard’ law?” (2017) 9(1) World Tax Journal 117–159.
25
Rixen, above fn.8.
26
M. Hearson, “Transnational expertise and the expansion of the international tax regime: imposing ‘acceptable’
standards” (2018) 25(5) Review of International Political Economy 653.
27
A.J. Martín Jiménez, “Article 12: Royalties – Global Tax Treaty Commentaries” Global Tax Treaty Commentaries
(IBFD), s.1.1.2.3; A.J Martín Jiménez, “Preventing the Artificial Avoidance of PE Status”, UN Papers on Selected
Topics in Protecting the Tax Base of Developing Countries (New York: United Nations Publications, 2014), available
at: http://www.un.org/esa/ffd/wp-content/uploads/2014/09/20140923_Paper_PE_Status.pdf. [Accessed 13 August
2019].
28
Hearson, above fn.26.
29
Hearson, above fn.26, 665.
30
See Introduction to the UN Model Convention (2017) para.8.

of political bargaining, the outcome could include some demands from developing countries to
increase their source taxing rights. A good example of this is that 703 of the 825 tax treaties
signed between an OECD member and an UN member in the period 1997–2013 deviated from
the OECD MC to include Article 12(1) and (2) of the UN Model, which provides for the sharing
of taxing rights on royalty payments.31 Source taxation on royalty payments prevailed over
residence taxation in these bilateral treaty negotiations.
3. The symbolical aspiration of a multilateral treaty

The simultaneous interaction of layers, wherein bilateralism and multilateralism are not mutually
exclusive, contrasts strikingly with the narrative of the shift pointed out by several tax scholars
in the light of the OECD developments.32 What is behind this narrative? What is the real meaning
of the shift in international taxation?
In the author’s view, the shift does not entail the replacement of the network of bilateral
treaties by a multilateral treaty. This idea is unlikely to be implemented due to the lack of
international consensus on how to allocate taxing rights, despite the pretended benefits of a
multilateral treaty over bilateral treaties.33 Perhaps, the narrative of the shift contributes to insufflate
legitimacy to the OECD as the leading architect of international tax governance and overcome
the critics based on the lack of participatory legitimacy and democratic accountability.34
However, in the author’s view, the shift narrative mainly illustrates the symbolical aspiration
of any multilateral treaty to achieve universal and binding norms for the international community.
Such an aspiration to achieve binding norms responds to the interests of the residence states to
the detriment of source states, reproducing the power dynamics already outlined in the previous
section.
As already stated by Blum, despite there being no material or normative difference between
a bilateral treaty and a multilateral treaty in the Vienna Convention on the Law of Treaties
(VCLT), “multilateral treaties invite the international community at large to join them, and thus,
at least in aspiration, aim at universal participation”.35 Under this symbolical function, multilateral
treaties plead for equal and uniform obligations and rights for all the parties thereby overcoming
31
W.F.G. Wijnen and J.J.P. de Goede, “The UN Model in Practice 1997–2013” (2014) 68(3) Bulletin for International
Taxation 118–146.
32
See above fn.1.
33
R. Vann, “A Model Tax Treaty for the Asian-Pacific Region? (Part I)” (1991) 45(4) Bulletin for International
Taxation 100; K. Brooks, “The Potential of Multilateral Tax Treaties” in M. Lang, et al. (eds), Tax Treaties: Building
Bridges between Law and Economics (Amsterdam: IBFD, 2010); V. Thruronyi, “International Tax Cooperation and
a Multilateral Treaty” (2001) 26 Brooklyn Journal of International Law 1675–1680; H. Loukota, “Multilateral Tax
Treaty Versus Bilateral Tax Treaty Network” in M. Lang (ed.), Multilateral Tax Treaties (The Hague: Kluwer, 1997),
90–91.
34
On the role of the OECD informal world tax organisation, see Cockfield, above fn.17. On the critics to the democratic
deficit of the current tax governance model and the need to step forward into a more democratic international tax
regime, see Diniz Magalhães, above fn.19.
35
Vienna Convention on the Law of Treaties 1969. G. Blum, “Bilateralism, Multilateralism, and the Architecture of
International Law” (2008) 49(2) Harvard International Law Journal 329. In this article, the author shows a preference
for bilateral treaties instead of multilateral treaties, as the former are tailored to the specific needs and specificities of
the countries involved and are better structured to face the problems of fragmentation, competing values, and cultural
diversity. Likewise, in bilateral negotiations, the bargaining power of weaker countries is bigger than in multilateral
settings.

partial and fragmentary concessions in bilateral arrangements. The Law of the Sea offers a perfect
example of the symbolical aspiration of any multilateral treaty to achieve global consensus on
normative principles of conduct (section 3.1 of this article), which need to be shielded against
unilateral and bilateral interferences from the states (section 3.2 of this article).
3.1. Multilateralism as normative principles of conduct (“modern customs”)

In the field of international relations, rather than co-ordinating tax policies, multilateralism entails
the emergence of substantive norms.36 From the early 1990s until now, scholars of international
relations have made a clear attempt to conceptualise multilateralism as a persistent and connected
set of rules that prescribe behaviours.37 Keohane defined it as “a practice of co-ordinating national
policies in groups of three or more states, through ad hoc arrangements or by means of
institutions”.38 Ruggie referred to multilateralism as co-ordination under generalised principles
of conduct (common patterns of conduct among the stakeholders).39
This institutional multilateralism must be clearly distinguished from multilateral organisations.40
Whilst multilateral organisations are primarily identified by permanent locations, headquarters,
staff and secretariats, the institution of multilateralism simply entails an organisational principle
in order to manage transnational problems grounded in common norms. The institution of
multilateralism, either reflected in a treaty or in soft law (that is, OECD models), entails widely
accepted normative principles, a sort of transnational consensus.41
A substantive dimension is underpinned under the labels “set of rules/general principles of
conduct”. As an example, the UN Convention on the Prevention and Punishment of the Crime
of Genocide (the 1948 Convention)42 is multilateral not only because 149 signatories have ratified
it, but also because it lays down a normative definition of genocide in Article 2, which is actually
an enforceable norm. Therein lies the major achievement associated with the 1948 Convention:
the legal commitment of all the parties to eradicate and struggle against any “intent to destroy,
in whole or in part, a national, ethnical, racial or religious group”.43
These normative principles of conduct aspire to become binding norms for the international
community. This aspiration translated into the public international language undoubtedly leads
to customary international law. Pursuant to Article 38(1)(b) of the Statute of the International
Court of Justice, “customary international law” means a consistent practice of states following
36
In this contribution, the author has decided to narrow down the international relations scholarship to the literature
discussing the meaning of multilateralism. However, international relations theory has quite a rich variety of theoretical
traditions debating the choice of institutional form. See for instance on the “international regime complexity” theory,
V. Arel-Bundock, “The Unintended Consequences of Bilateralism: Treaty Shopping and International Tax Policy”
(2017) 71(2) International Organization 349–371.
37
For a detailed account of these authors’ view, see R. García Antón, “The 21st Century Multilateralism in International
Taxation: The Emperor’s New Clothes?” (2016) 8(2) World Tax Journal 147–192.
38
R. Keohane, “Multilateralism: An Agenda for Research” (1990) 45(4) International Journal 731.
39
J.G. Ruggie, “Multilateralism: The Anatomy of an Institution” (1992) 46(3) International Organization 561–598.
40
J. Caporaso, “International Relations Theory and Multilateralism: The Search for Foundations” (1992) 46(3)
International Organization 599–632.
41
Hearson, above fn.26.
42
UN, General Assembly, Convention on the Prevention and Punishment of the Crime of Genocide (UN Convention
on the Prevention and Punishment of the Crime of Genocide) (New York, 1948).
43
UN Convention on the Prevention and Punishment of the Crime of Genocide, above fn.42, Art.II.

a rule (state practice) and the sense of legal obligation (opinio juris). Yet, based on social-legal
studies, the notion of international customs has recently undergone important transformations
in the field of public international law.44 The recent scholarship speaks about “modern customs”
which “[seek] to de-emphasize state practice in exchange for a heightened reliance on opinio
juris, and in this sense is more deductive in its logical reasoning where ‘traditional custom’ is
more inductive”.45 The modern approach to customary international law tallies with the concepts
raised in the field of international relations such as “the general principles of conduct”, “persistent
set of rules”, which are reflections of a consensus among the stakeholders, namely states, on
particular norms. Since the focus is on the opinio juris, modern customs always reflect an ideal,
a normative aspiration to a particular standard of conduct.46
As a “highly demanding institutional form”,47 multilateralism simply means consensus by
states on the norms to be applicable. As the International Court of Justice (ICJ) has stated, the
genocide definition laid down in the 1948 Convention must be considered today as customary
international law and, therefore, binding for states who did not ratify the 1948 Convention.48
Unfortunately genocide still exists, but the norm in the 1948 Convention aspires to eradicate it
by imposing a clear standard of conduct.
In the author’s view, multilateral conventions and customary international law are
interconnected as channels to convey global consensus on norms. Under the “modern custom
notion”, whilst the state practice is seen as something vague and imprecise, opinio juris is much
easier to detect as “it can be deduced from multilateral treaties”.49 Rather than focussing on which
source prevails over the other,50 the debate must be framed in completely different terms: what
is the degree of consensus reached by the international community on certain norms. Either a
multilateral treaty codifies customary international law, or it aspires to become customary
international law in the long term. The ICJ is the body in charge of ascertaining whether or not
such a degree of consensus has been achieved.51
44
On the new meaning of “customs”, see R. Roozbeh and B. Baker, “Customary International Law: A
Reconceptualization” (2016) 41 Brook. J. Int’l L. 439–489; A.E. Roberts, “Traditional and Modern Approaches to
Customary International Law: A Reconciliation” (2001) 95 American Journal of International Law 757–791.
45
Roozbeh and Baker, above fn.44, 446.
46
Roberts, above fn.44, 769.
47
Ruggie, above fn.39, 12.
48
Judgment of the ICJ, Application of the Convention on the Prevention and Punishment of the Crime of Genocide,
(Bosnia and Herzegovina v Serbia and Montenegro) Reports 2007, 110–111, [161]–[162]; judgment of the ICJ,
Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Croatia v Serbia) Reports
2015, 45, [95]: “A State which is not yet party to the Convention when acts of genocide take place might well be in
breach of its obligation under customary international law to prevent those acts from occurring but the fact that it
subsequently becomes party to the Convention does not place it under an additional treaty obligation to have prevented
those acts from taking place”.
49
Roberts, above fn.44, 758.
50
There is long standing debate in public international law on which source of public international law prevails over
the other. On one side, some scholars stress that customary international law prevails over multilateral treaties in
cases of conflict: P. Malanczuk, Akehurst’s Modern Introduction to International Law (New York: Routledge, 2002);
J. Pauwelyn, “The Role of Public International Law in the WTO: How Far Can We Go?” (2001) 95(3) The American
Journal of International Law 535–578. On the other side, namely in the area of WTO, the prevalence lies on the
multilateral treaty. Compare with O. McGinnis, “The Appropriate Hierarchy of Global Multilateralism and Customary
International Law: The Example of the WTO” (2003) 44 Va. J. Int’l L. 229–283.
51
The discussion on whether certain provisions within a multilateral treaty are Customary International Law are
difficult tasks to be ascertained by the ICJ. On Art.6 UNCLOS, see judgment of the ICJ, North Sea Continental Shelf

Hence, in every multilateral treaty the consensus is not yet uniform. Multilateral treaties are
not as equal and binding as they intend to be since its inception. The Law of the Sea52—the United
Nations Convention on the Law of the Sea (UNCLOS) is currently in force for 168 states53—offers
a realistic picture of how the aspiration for customary international law coexists with a certain
degree of consensus. While certain UNCLOS provisions codify customary international law,
others reflect new norms which aspire to become binding for the entire international community.
Article 2 UNCLOS defines the territorial sea as the adjacent belt of water in which the
sovereign power of the coastal state is recognised. Although the concept was coined in the 18th
century, there was no general consensus on its breadth.54 In the 19th and early 20th centuries,
three nautical miles was the limit most frequently adopted by countries (that is, the UK, the US
and France). But countries also opted for several limits ranging from four miles (Denmark,
Sweden) to 12 miles (Russia, Venezuela, Guatemala).55 Finally, in Article 3 UNCLOS, the states
reached an agreement on a maximum of 12 nautical miles that has been commonly accepted as
customary international law.56 The UNCLOS also codified the legal regime of the territorial sea
which implies a “completeness and exclusivity of the state’s authority on this zone”, only limited
by the duties and rights of other states imposed by international law, namely navigational rights
of foreign flag vessels (“innocent passage” through those waters).57
In Part V UNCLOS, the exclusive economic zone (EEZ) is defined as a zone not beyond 200
nautical miles from the coast wherein the coastal states have mainly sovereign rights “for the
purpose of exploring, conserving and managing the natural resources”58, but without restricting
the navigational rights of other states. Prior to the UNCLOS, the concept of EEZ was already
considered customary international law.59 After the entry into force of the UNCLOS, “it can be
asserted that the rights of the coastal States provided by the LOSC within the EEZ have become
part of customary international law, although there is still the possibility of a divergence with
State Practice on specific provisions. Concerning the obligations of coastal States within the
EEZ, it is much more difficult to ascertain whether, and if so to what extent, they acquired a
customary nature”.60
Cases (Germany v Denmark) Reports 1969, 39, [63]; judgment of the ICJ, Military and Paramilitary Activities in
and against Nicaragua (Nicaragua v United States of America), Reports 1986, 94, [175]–[176].
52
The Law of the Sea presents a long-standing interaction between the national sovereignty on one side and, on the
other side, the need to reach common agreements to divide among States the exploitation of the sea’s resources, on
the other side. See T. Treves, “Historical Development of the Law of the Sea”, in R. Rothwell, et al. (eds), The Oxford
Handbook of the Law of the Sea, (Oxford: OUP, 2015), 2.
53
The United Nations Convention on the Law of the Sea (UNCLOS) entered into force in 1994. See Status of the
UNCLOS, available at: https://treaties.un.org/Pages/ViewDetailsIII.aspx?src=IND&mtdsg_no=XXI-6&chapter=21
&Temp=mtdsg3&clang=_en#4 [Accessed 13 August 2019].
54
Treves, above fn.52, 4–5.
55
Treves, above fn.52, 4–5.
56
J. Noyes, “The Territorial Sea and Contiguous Zone” in Rothwell, et al., above fn.52, 95: “As December 2011, over
140 States claimed a territorial sea up to 12 miles, and only seven States maintained broader claims. In the light of
this consistent practice, the International Court of Justice and scholars have asserted that the 12-nautical-mile maximum
is a rule of customary international law”.
57
UNCLOS Section 3. Noyes, above fn.56, 97.
58
UNCLOS Art.56(1)(a).
59
G. Andreone, “The Exclusive Economic Zone” in Rothwell, et al. (eds), above fn.52, 162.
60
Andreone, above fn.60, 162.

Although several provisions of the UNCLOS have achieved new political compromises within
the international community, these provisions are still far from being deemed to be international
customary law. An example relates to the contiguous zone, which Article 33 UNCLOS, states
“may not extend beyond 24 nautical miles from the baselines from which the breadth of the
territorial sea is measured”61 (12 miles beyond the territorial sea). The sovereign powers exercised
on the contiguous zone are limited to prevent infringement of customs, fiscal, immigration or
sanitary matters. During the sessions, some states objected that the contiguous zone was not
needed in the light of the new exclusive economic zone and the territorial sea.62 As the
commentators argue, the contiguous zone is the outcome of a political compromise to preserve
the navigational rights of foreign vessels by limiting the sovereign powers of the coastal states.63
The absence of security within the list of competences to be exercised by the coastal states
coupled with different practices by the states, which broadens the competences on the contiguous
zones, jeopardises the achievement of a uniform practice.64
The previous examples demonstrate that the UNCLOS is not only binding for the 168 states
who ratified the instrument, but also that several provisions provoked a rapid “chain reaction”
in the international community. Many states, such as the US, which did not ratify the UNCLOS
are bound by the Convention’s provisions, which are generally deemed to be customary
international law. Other provisions are still in the process of becoming broadly accepted by the
international community. In other words, the UNCLOS codifies general principles of conduct,
thereby fuelling a broad consensus in the international community concerning the regulations
of the Law of the Sea.
In the field of international taxation, the debate on whether customary international law exists
is not new. Avi-Yonah65 and, more recently, Gadžo66 have advocated for its existence. For
Avi-Yonah, the opinio iuris (sense of legal obligation) is easily recognised in several rules, such
as the rule not to tax non-residents directly on foreign-source income, the arm’s length standard,
the non-discrimination rules and, finally, the elimination of juridical double taxation either by
credit or exemption.67 These rules apply in the absence of a bilateral treaty as Avi-Yonah explains
following examples extracted from US practice. Following this line of thought, Gadžo argues
that “the nexus principle”—which states that a sufficient nexus between a sovereign state and a
person must be present to justify that state’s taxing right—has attained the status of international
custom.68 Unlike these authors, however, Rosenbloom denies the existence of customary
international law because normative solutions differ from country to country.69 Hence, the lack
61
UNCLOS Art.33(2).
62
Noyes, above fn.56, 109.
63
64
65
R.S. Avi-Yonah, International Tax as International Law (Cambridge: CUP, 2007).
66
S. Gadžo, Nexus Requirements for Taxation of Non-residents’ Business Income: A Normative Evaluation in the
Context of the Global Economy (Amsterdam: IBFD, 2018) and S. Gadžo, “The Principle of ‘Nexus’ or ‘Genuine
Link’ as a Keystone of International Income Tax Law: A Reappraisal” (2018) 46(3) Intertax 194–209.
67
Avi-Yonah, above fn.65, 6–7.
68
S. Gadžo, “The Principle of ‘Nexus’ or ‘Genuine Link’ as a Keystone of International Income Tax Law: A
Reappraisal”, above fn.66, 208.
69
D. Rosenbloom, “International Tax Arbitrage and the ¨International Tax System” (2000) 53(2) Tax L. Rev. 137–166;
In this line of thinking, Allison Christians argued that opinio juris is lacking in the fight against harmful tax practices

of consensus leads to “international tax arbitrage” which means that taxpayers exploit the
differences between tax regimes pointing to double non-taxation scenarios. In Section 4, this
author will discuss how several provisions of the MLI aspire to reach a global consensus in
anti-avoidance matters, while other provisions are far from conveying a consensus which is in
a clear consonance with the UNCLOS.
3.2. The shield of the normative consensus in a multilateral treaty

The fact that some multilateral treaties codify customary international law, or at least reflect
consensus, enhances this substantive perception of multilateralism. Any consensus on certain
norms or general principles of conduct which may be achieved in a multilateral treaty has to be
preserved from future interference by the national signatory parties.
3.2.1 The prohibition of reservations

Pursuant to Article 2(1)(d) VCLT, reservations are defined as unilateral statements “made by a
State, when signing, ratifying, accepting, approving or acceding to a treaty, whereby it purports
to exclude or to modify the legal effect of certain provisions of the treaty in their application to
that State”.70 In a multilateral treaty, the need to preserve the consensus impedes the introduction
of reservations which are contrary to the object and purpose of the treaty.71 To prevent this
situation, Article 19 VCLT provides that only specified reservations in the treaty are allowed72.
Allowing the states to introduce reservations to non-core consensual areas of the treaty may
increase the number of signatory states.73 Article 309 UNCLOS reproduces Article 19 VCLT,
thereby precluding reservations unless they are permitted.
Although reservations are precluded, Article 310 UNCLOS allows the states to introduce
interpretative declarations or statements which do not purport to exclude or to modify the legal
effect of the provisions of the UNCLOS. An example of this is the declaration made by Uruguay
on the residual rights to be exercised in the EEZ (uses of the sea not expressly covered by the
UNCLOS).74 On the value of these declarations, the ICJ in the case Maritime Delimitation of the
Black Sea (Romania v Ukraine) (Black Sea)75 dealt with the value of a declaration introduced by
Romania for the purposes of delimitating the EEZ and the continental shell: “the uninhabited
islands without economic life can in no way affect the delimitation of the maritime spaces
belonging to the mainland coasts of the coastal States”. The Court ruled that this declaration has
no bearing on the Court’s interpretation, which delimitates both zones between Ukraine and
Romania. In other words, this declaration is not binding for Ukraine.
in the pre-BEPS scenario. See A. Christians, “Hard Law & Soft Law in International Taxation” (2007) Legal Studies
Research Paper Series Paper No.1049 (Wisconsin: University of Wisconsin Law School).
70
VCLT Art.2(1)(d).
71
On a detailed analysis of the role of reservations in public international law and the associated literature, see R.
García Antón, “Untangling the Role of Reservations in the OECD Multilateral Instrument: The OECD Legal Hybrids”
(2017) 71(10) Bulletin for International Taxation 544–552.
72
VCLT Art.19(b).
73
See M. Shaw, International Law, 5th edn (Cambridge: CUP, 2003), 822.
74
L. D. M. Nelson, “Declarations, Statements and ‘Disguised Reservations’ with Respect to the Convention on the
Law of the Sea” (2001) 50(4) International and Comparative Law Quarterly 774.
75
Maritime Delimitation in the Black Sea (Romania v Ukraine) [2009] ICJ Reports 61, 77–78, [39]–[42].

However, in reality some declarations introduced by states conceal disguised reservations

which are contrary to the object and purpose of the treaty.76 That was the case in relation to the
reservation introduced by the Philippines which reaffirmed the country’s national sovereignty
over the archipelagic passage through its sea lanes. Several states, such as Australia and the
former USSR, objected that the Philippines had introduced an impermissible reservation, since
the UNCLOS provided foreign ships with the right to archipelagic sea lanes passage in
archipelagic waters.77
The main interpretative conundrum of the disguised reservations lies in the legal effects upon
the reserving state and the rest of the parties signing the multilateral agreement. Although the
issue is subject to fierce debate in international public law,78 in relation to the Law of the Sea,
scholars such as Nelson argue that the legal consequences of these declarations should not impact
upon the rest of the parties to the convention due to the consensual nature of the UNCLOS.79
Had the states been bound by the disguised reservations, Articles 309 and 310 UNCLOS would
have been deprived of meaning. In support of this view, the Black Sea case, referred to above,80
offers the same rationale, specifically that legal effects should not arise from disguised
reservations.
3.2.2. The binding dispute resolution mechanism

Our normative framework of substantive multilateralism requires there to be a binding dispute
resolution mechanism in order to adjudicate disputes between states. Without such a mechanism
the multilateral agreement would be devoid of legal effect in as much as states could easily run
counter to the agreed terms and conditions in the Convention without being afraid of legal
consequences. In other words, the binding dispute resolution mechanism is necessary to enforce
the rule of law in international matters.
In this regard, Article 287 UNCLOS obliges those states that become party to the Convention
to choose, by means of a written declaration, one or more of the settlement of disputes mechanisms
which are available under the Convention: the International Tribunal for the Law of the Sea
(ITLOS), the ICJ, an arbitral tribunal of Annex VII and a special arbitral tribunal constituted in
accordance with Annex VIII.81 If a party does not opt for any particular choice, it is presumed
that it has accepted arbitration under Annex VII. If the applicant and respondent have made the
same choice in their written declarations, the dispute must be submitted to this forum. If they
have submitted different choices, arbitration under Annex VII would apply. All the procedures
laid down in Article 287 UNCLOS entail a binding final resolution that has to be complied with
by both states.
76
Nelson, above fn.74, 780.
77
Nelson, above fn.74, 780–782.
78
UN General Assembly Resolution 48/31 (9 December 1993), A/RES/48/31. Further literature on the role of
reservations can be found in G. Gaja, “Unruly Treaty Reservations” in R. Ago (ed.), Etudes en l’honneur de Roberto
Ago (Milano: Giuffrè, 1987), Vol.I, 307–330; A. Aust, Modern Treaty Law and Practice, 3rd edn (Cambridge: CUP,
2013), 129; O. Corten and P. Klein, The Vienna Conventions on the Law of Treaties (Cambridge: CUP, 2011), 267.
79
Nelson, above fn.74, p.784.
80
Black Sea, above fn.75.
81
B.H. Oxman, “Courts and Tribunals: the ICJ, ITLOS and Arbitral Tribunals” in Rothwell, et al. (eds), above fn.52,
415.

3.2.3. Subsequent amendments of the multilateral convention

Finally, the wide consensus reached in a multilateral instrument needs to be shielded against
unilateral or bilateral state interference which can alter the agreed status quo. Therefore, Articles
40 and 41 VCLT intend to preserve the original consensus in subsequent amendments of the
multilateral treaty.
The tough requirements in Article 40 VCLT, which governs the modification of a multilateral
treaty, includes the requirement that any proposal to amend such a treaty has to be circulated
and accepted by all the parties to the treaty,82 and the fact that the amending agreement does not
bind any state already a party to the treaty which does not become a party to the amending
agreement.83 Likewise, Article 41 VCLT enables the states to modify multilateral treaties by
bilateral treaties provided that, first, such modification is admitted in the multilateral treaty and,
secondly, it does not affect the enjoyment by the other parties of their rights under the original
treaty or the performance of their obligations. In other words, any modification of the multilateral
treaty must restore the original consensus reached.
The consensual spirit of the UNCLOS pervades the amendment procedures in Articles 312
and 313 UNCLOS, which have not been yet employed:
“The decision-making procedure applicable at the amendment conference shall be the same
as that applicable at the Third United Nations Conference on the Law of the Sea unless
otherwise decided by the conference. The conference should make every effort to reach
agreement on any amendments by way of consensus and there should be no voting on them
until all efforts at consensus have been exhausted”.
Any amendment of the UNCLOS is doomed to failure, unless consensus is reached.
To prevent the UNCLOS from becoming obsolete and from responding to current
developments in the field without engaging in the formal procedures laid down in Articles 312
and 313, “subsequent practice in the application of the treaty which establishes the agreement
of the parties regarding its interpretation” is crucial.84 However, in certain cases, it is likely that
it will be difficult to distinguish between mere treaty interpretation and acts which modify the
treaty.85 This is the case for instance in relation to Article 105 UNCLOS which grants universal
jurisdiction to prosecute pirates to the state in which the seizure of the pirate ship or aircraft took
place. Since the wording of this article employs “may”, there is a common divergent international
practice which permits that pirates arrested in one state are transferred to other state to be
prosecuted.86 While some authors challenge these practices on the grounds that they contradict
Article 105 UNCLOS, other authors justify the transfer of the pirates by referring to the particular
wording of this provision.
82
VCLT Art.40(2).
83
VCLT Art.40(4).
84
VCLT Art.31(3)(b).
85
On a detailed analysis of the subsequent practice in the UNCLOS, see I. Buga, “Between Stability and Change in
the Law of the Sea Convention” in Rothwell, et al. (eds), above fn.52, 46–68.
86
In 2012, 10 Somali pirates arrested by a Dutch frigate were handed over to Germany and prosecuted. See Buga,
above fn.85, 58.

Although limits to the subsequent practice are clearly not enough, there are red lines that
states cannot trespass upon with their practices. As stated in Article 311(6) UNCLOS, “there
shall be no amendments to the basic principle relating to the common heritage of mankind set
forth in article 136 and that they shall not be party to any agreement in derogation thereof”. It
is also possible that subsequent practice can potentially divert from the UNCLOS provisions
and become in the future. In this scenario, in the light of the lex posterior principle, customary
international law could overturn the UNCLOS provisions.
4. Polyhedral tax governance under the MLI

The two concurrent arguments within the meaning of multilateralism crystalises in the released
MLI. Not only do different layers of governance coexist in the instrument, but also the so-called
minimum standards87 vocalise the symbolical aspiration to strengthen a global consensus in
anti-avoidance matters. In this overlapping of layers within the MLI, one may wonder whether
one or other layer takes precedence over the other. Brauner has argued strongly that the bilateral
nature of the MLI prevails over its multilateral nature.88 In Brauner’s view, the MLI “supports
and fortifies the bilateral nature of tax treaties” and therefore the flexibility of the instrument
searches for enhanced co-operation and co-ordination of tax policies as the responses to the new
global challenges.89
However, in the author’s view, it is possible to build up an alternative narrative to the MLI
which mirrors postmodern visions of Public International Law.90 Postmodernity rejects the strict
19th century division between sovereign states and public international law in order to co-ordinate
the external relations of sovereigns in harmony. The global economy has blurred the limits of
sovereign powers and public international law is no longer a single and hierarchical set of rules.
As Koskenniemi and Leino pointed out, “‘international’ and ‘national’ may no longer be usefully
separated even as distinct realms of politics and government”.91 Since the boundaries between
international and national are blurred, legal pluralism accommodates better the multiple legal
sources in interaction. This postmodern vision of public international law banishes any idea of
prevalence or recourse to hierarchy in order to solve the potential conflicts between norms.
In international taxation, this postmodern discourse can be easily replicated in the MLI. Rather
than speaking about prevalence, we should instead speak about conflicts and contradictions
which exist between both competing bilateral and multilateral layers of governance, which in
turn lead to a non-coherent legal instrument. While the bilateral layer preserves the national
sovereignty, the multilateral layer introduces normative principles which aspire to become binding
in international law. As already stated, such normative principles represent the interest of
87
The MLI minimum standards are: 1. the inclusion of the preamble text in tax treaties aiming to combat tax abuse
(MLI Art.6); 2. the inclusion of PPT (MLI Art.7); and 3. the enhancement of the mutual agreement procedure (MLI
Art 16).
88
Y. Brauner, “McBEPS: The MLI – The First Multilateral Tax Treaty that Has Never Been” (2018) 46(1) Intertax
6–17.
89
Brauner, above fn.88, 6.
90
In much more detail on the postmodern approach to international public law, see M. Koskenniemi and P. Leino,
“Fragmentation of International Law? Postmodern Anxieties” (2002) 15(3) Leiden Journal of International Law
553–579.
91
Koskenniemi and Leino, above fn.90, 557.

developed countries in preserving residence-based taxation. The MLI becomes a sort of

Janus-faced instrument, in which the emerging contradictions are unlikely to be reconciled
(Section 4.1). In this long process towards customary international law in anti-avoidance, which
is still in an embryonic stage, tax competition emerges and states play on a cost/benefit basis to
maximise their strategic interest (Section 4.2).
4.1 The MLI as a Janus-faced instrument

As already mentioned, the Janus-faced MLI presents, on one side the multilateral layer
representing a high degree of consensus in the long march towards customary international law,
and on the other side, the bilateral layer introducing a high degree of flexibility. Benchmarking
the MLI with the Law of the Sea, the consensus has not yet triggered international customary
law in such a way as has occurred with the concept of territorial sea in the UNCLOS, but new
political compromises have been reached in anti-avoidance matters, in a way that is similar to
the way in which Article 33 UNCLOS came up with the contiguous zone concept. Yet, the MLI’s
consensus cannot be limited exclusively to the wording of the four minimum standards.
First, it is possible to identify a broad umbrella principle which is covered by the overall MLI
and is supported by all the signatories of the instrument. In this regard, Avi-Yonah and Xu bundle
the MLI provisions together under the single tax principle:
“The whole point of the BEPS project and the MLI is to enforce the single tax principle by
ensuring that source taxation will apply in situations where there is no residence taxation
because of tax arbitrage or the use of pass-through entities.”92
The single tax principle entails that income in cross-border transactions should be taxed no
more and no less than once, thereby preventing double taxation and double non-taxation.93
Although several authors have cast reasonable and well-grounded doubts on its meaning,
justification, boundaries, and even its feasibility as a policy goal,94 the fact that the minimum
standard in Article 6(1) MLI compels the states to eliminate double taxation without creating
opportunities for double non-taxation formally enhances the single tax principle as the consensual
umbrella under which the MLI is framed. In Avi-Yonah and Xu’s view, the entrenchment of the
single tax principle goes beyond the signatories of the MLI and may influence non-signatory
countries such as the US, which incorporated the prevention of double non-taxation within the
2016 US model.95 This broad umbrella would operate as the necessary trigger in the long march
towards customary international law.
92
R.S. Avi-Yonah and H. Xu, ”A Global Treaty Override? The New OECD Multilateral Tax Instrument and Its Limits”
(2018) 39 Michigan Journal of International Law 213.
93
The single tax principle was coined by R.S. Avi-Yonah in his landmark work: R.S. Avi-Yonah, International Tax
as International Law – An analysis of the International Tax Regime (Cambridge: CUP, 2007).
94
The analysis of the single tax principle goes beyond this contribution. See an extensive discussion on it in F. de
Lillo, “In search of Single Taxation?”, E.C.C.M. Kemmeren and F. De Lillo, “International Single Taxation: A
Misguiding Notion in Single Taxation?”, and L.E. Schoueri, “Single Taxation as a Policy Goal: Controversial Meaning,
Lack of Justification and Unfeasibility” in J.C. Wheeler (ed.), Single Taxation? (Amsterdam: IBFD, 2018).
95
See Avi-Yonah and Xu, above fn.92, 213.

Secondly, the consensus heralded in the MLI is also reflected in the OECD Inclusive
Framework,96 driven by the OECD with the aim of monitoring the implementation of BEPS
Actions 5, 6, 13 and 14 beyond the OECD Member Countries. The peer-review process applicable
to the current 125 members of the OECD Inclusive Framework legally enforces the consensus
reached in the BEPS Project. In other words, the content of the minimum standards in Articles
6, 7 and 16 of the MLI will be evaluated in countries which are not MLI signatories, but which
opted in for the purposes of being part of the OECD Inclusive Framework. The consensus is
extended beyond the MLI boundaries in the clear aspiration of becoming binding normative
principles for the international community.
On the other side of the coin, the announced flexibility of the MLI strengthens its bilateral
layer. The bilateralism is explicit in its DNA, since the MLI’s intention is to implement BEPS
standards as fast as possible, without modifying bilateral treaties on a one-by-one basis.97 The
flexibility operates in three different fields.98 First, the parties to the Convention only apply the
MLI to the bilateral agreements which are specifically listed in their MLI’s positions. This occurs,
for example, in relation to the DTC between Colombia and Switzerland,99 which is not a covered
tax agreement under the MLI since Switzerland does not include it, but Colombia does. Secondly,
while the parties are only allowed to opt out from the minimum standards when the covered tax
agreement of one of the party’s has already met that minimum standard, the latter standard can
be satisfied in multiple alternative ways. For instance, Article 7(15)(a) MLI requires both parties
to a tax treaty to find a mutual solution that complies with the minimum standard to prevent
treaty abuse in case one of the signatory country intends to adopt a detailed limitation on benefits
(LOB) provision and either rules to address conduit financing structures or a principal purpose
test (PPT). Thirdly, the parties are given the possibility of opting out of certain provisions entirely
and choosing optional or alternative provisions. For instance, a party can opt out entirely of Part
VI, on arbitration, of the MLI, and hence, it does not apply to its covered tax agreements.
Following our postmodern reading of the MLI, the outcome between both competing bilateral
and multilateral layers at stake results in certain contradictions, which are unlikely to be reconciled.
These contradictions could be easily recognised in relation to the reservations and the provisions
regulating the “MLI aftermath”, namely Articles 30 and 37 MLI.
4.1.1 Reservations
Article 19 VCLT is endorsed in Article 309 UNCLOS, wherein reservations are prohibited unless
expressly permitted by other Articles of this Convention. The joint reading of Article 2(1)(d)
and Article 22 VCLT precludes the introduction of late reservations by the signatory states.
Reservations made after ratification are not allowed and only the states are entitled to withdraw
96
See, for further information, OECD/G20 Base Erosion and Profit Shifting Project, BEPS: Inclusive Framework on
Base Erosion and Profit Shifting (Paris: OECD Publishing), available at: http://www.oecd.org/tax/beps/beps-about
.htm [Accessed 13 August 2019].
97
See the OECD/G20 Base Erosion and Profit Shifting Project, Explanatory Statement to the MLI (Explanatory
Statement) (Paris: OECD Publishing), para.4: “The sheer number of bilateral treaties (more than 3000) would make
bilateral updates to the treaty network burdensome and time-consuming, limiting the effectiveness of multilateral
efforts”.
98
See Explanatory Statement, above fn.97, at para.14.
99
Double Tax Treaty Colombia–Switzerland Income and Capital Tax Treaty (2007).

them.100 In a multilateral treaty, the effect of reservations provided in Article 21 VCLT is always
symmetrical. Hence, the reservation introduced by a state modifies the multilateral treaty between
the reserving state and the party that has not objected to it, and for the other parties, the treaty
remains unchanged.101
In the MLI, in a clear correspondence with the VCLT, the multilateral layer is safeguarded
in a closed list of reservations in Article 28(1) MLI. The symmetrical effect of reservations laid
down in the VCLT is reproduced in Article 28(3) MLI. Together with the “numerus clauses”
and the symmetrical effects, Article 28(5) only entitles the parties to introduce reservations until
the time of signature or when depositing the instrument of ratification, acceptance or approval.
Late reservations are expressly prohibited in Article 28(9) VCLT in as much as parties can
exclusively withdraw them or replace them with reservations which are more limited scope. In
other words, the MLI is not an exception to the VCLT and Article 28 MLI aims to preserve the
consensus on the normative principles embedded in the Convention.
Nevertheless, the bilateral layer burst into the MLI system of reservations in a clear clash
with the multilateral layer inherited from the VCLT. This leads to a “sui generis” MLI reservation
system.102 Examples of this system include the asymmetrical effects of reservations provided by
certain provisions of the MLI. To prevent potential abuses of the exemption method that led to
double non-taxation, Option C in Article 5 MLI allows the parties to completely replace the
exemption method by the credit method in their covered tax agreements. The reservation in
Article 5(9) MLI operates as a power of veto, thereby restricting the sovereign right of the
counterparty to apply Option C to a double tax treaty between both states. The Explanatory
Statement justifies this power of veto on the grounds that a complete switchover clause introduces
significant changes that must be approved through bilateral negotiation.103
A second example of the asymmetrical effect of a reservation is provided, for example, in
Article 19(11) MLI: a party has the right to replace the two-year period of mutual agreement
procedure with a three-year period, before the arbitration starts. In the Explanatory Statement,
the OECD points out that where a party chooses to make this reservation, the other party is also
bound to the new three-year period.104 In the covered tax agreement between Spain and Portugal,105
Portugal made this three-year reservation to start the arbitration procedure, and therefore, Spain
100
On the issue of late reservations, the UN practice since April 2000 exceptionally admits late reservations if no
objection is received within 12 months of the date of the circulation of the reservation, provided the treaty does not
prohibit reservations to particular provisions or the late reservation is authorised by the treaty. See Aust, above
fn.78,137.
101
See Shaw, above fn.73, 822; Aust, above fn.78, 129; and Corten and Klein, above fn.71, 267.
102
In a previous contribution, this author has argued that there is not a perfect match between the MLI and the VCLT
regarding the typology and legal effects of reservations. See García Antón, above fn.72, 551: “The reservations in
the MLI encourage states to disclose their preferred treaty policy. This modus operandi undoubtedly resembles the
role of the reservations in the Commentaries to the OECD Model; however, in the case of the MLI, the state’s preferred
options are binding. In the MLI, reservations are no longer an expression of disagreement with non-core provisions
of a multilateral treaty as stated by the VCLT, but rather an expression of preferred treaty options. It seems the OECD
has maintained the role of the reservations in the Commentaries to the OECD Model and upgraded them by giving
them binding effect, thereby creating a hybrid legal category of reservations completely unknown in public international
law that will have uncertain consequences.”
103
104
105
Double Tax Treaty Portugal–Spain Income Tax Treaty (1993).

became bound by the new period, despite not introducing a similar reservation in its MLI position.
This asymmetrical effect is conveyed in the OECD MLI match-database, albeit some authors
defend a divergent opinion based on the symmetrical effect of Article 19(11) MLI.106
4.1.2 The MLI aftermath provisions

While the asymmetrical effect of reservations demonstrate the Janus-faced nature of the MLI,
the MLI aftermath provisions, namely Article 30 MLI on the subsequent modification of the
covered tax agreements, and Article 37 MLI on the withdrawal from the Convention, present
both irreconcilable layers of governance in a clear manner. According to the VCLT, the original
consensus reached in a multilateral convention has to be preserved in forthcoming amendments.
First, any amendment of the multilateral treaty requires the consensus of all the parties (Article
40 VCLT) and, secondly, the potential subsequent bilateral treaty amending the content of a
previous multilateral treaty cannot be incompatible with the object and purpose of the multilateral
treaty as a whole (Article 41 VCLT).
Following the logic of Article 40 VCLT, Articles 31 and 33 MLI provide for a conference
of the parties to amend the MLI, thereby guaranteeing the original consensus arisen on the
signature of the MLI on 24 November 2016. However, Article 30 MLI diverts from Article 41
VCLT, thereby responding to a clear bilateral layer. Pursuant to Article 30 MLI: “the provisions
in this Convention are without prejudice to subsequent modifications to a Covered Tax
Agreement.” The Explanatory Statement justifies the provision on the grounds that the MLI’s
intention is not to freeze the Convention in time, and allows the Contracting States to amend the
bilateral treaty after it has been modified.107 On a literal interpretation, Article 30 MLI would
allow two Contracting States to abolish a PPT provision as applicable directly from the MLI to
their bilateral treaty in a subsequent bilateral treaty they negotiate. Such an interpretation would
even run counter to the commitment to adopt the BEPS minimum standards within the OECD
Inclusive Framework, if both countries are also members. Since this outcome triggers perplexity,
several authors have already tried to shed light on a suitable interpretation.
Brauner distinguished between the minimum standards and the rest of the provisions.108 In
relation to the latter, both parties are allowed to renegotiate a treaty and eliminate, for instance,
the anti-contract splitting provision if they consider that the economic circumstances and the
cross-border investment have changed since both parties ratified the MLI. A third country cannot
demand the same treatment and ask one of the former two countries to renegotiate their bilateral
tax treaty and eliminate the same provision on a good faith basis. Since this MLI provision,
specifically the anti-contract splitting rule, was not a minimum standard, states can easily replace
such a provision in further bilateral negotiations. Yet, in relation to the minimum standards,
Brauner casts more doubts upon them, although the wording of Article 30 MLI does not draw
106
See H.M. Pit, “Arbitration under the OECD Multilateral Instrument: Reservations, Options and Choices”, (2017)
71(10) Bulletin International Taxation 574: “article 19(11) of the MLI permits such states to reserve the right to
replace the two-year period with a three-year period. As noted in the Explanatory Statement, which follows from the
approach adopted in the MLI, such a reservation has effect only if both states have listed their tax treaty as a CTA to
which the reservation applies.”
107
108
Brauner, above fn.88, 13.

any distinction between minimum standards and the rest of the MLI provisions. In Brauner’s
view, a more contextual interpretation of Article 30 MLI, within the meaning of the BEPS
commitments and on the basis of the good faith principle, could permit going beyond a literal
interpretation of the article’s wording in order to freeze the minimum standards and keep these
unchanged as far as potential future bilateral negotiations might be concerned.
Regardless of the type of MLI provision, Bravo has proposed a non-literal interpretation of
Article 30 MLI to preserve “the common interest in eliminating the BEPS”.109 Based on the
prohibition of late reservations and the replacement of a reservation with other that has broader
scope in Article 28(8) MLI, together with Article 37 MLI, which states that the withdrawal of
a party of the MLI does not alter the covered tax agreements as modified by the MLI, she argues
that the states can subsequently on a bilateral treaty modify the provisions already derived from
the MLI as long as they increase their scope in the fight against BEPS practices. In other words,
the initial commitment of the states cannot be undermined by a subsequent amendment in a
bilateral treaty. Bravo’s alternative interpretation therefore protects the initial multilateral
consensus of the MLI as a whole.
In the author’s view, Article 30 MLI is an obvious product of the tensions derived from the
simultaneous interaction between existing bilateral and multilateral layers. Going beyond the
literal wording of Article 30 MLI implicitly acknowledges a multilateral layer—a consensus
achieved—that cannot be discarded in future renegotiations of covered tax agreements. The issue
here is to determine to what extent this consensus is robust enough to protect the MLI
compromises against bilateral interferences. If it is agreed that the MLI as a whole responds to
the so-called umbrella single tax principle, it may be possible to argue that, in line with Bravo’s
argument, the MLI Contracting States cannot reduce the level of commitment they reached in
their instruments of ratification when subsequently amending bilateral treaties.
With regard to Article 37 MLI, unilateral withdrawal from the MLI does not reverse the
modifications already made to the covered tax agreement by the MLI. In the Explanatory
Statement, the OECD justifies the survival of the commitments on the grounds of the protocols
to the double tax conventions: “this approach replicates the approach taken in amending protocols
to bilateral tax treaties in which the bilaterally agreed amendments cannot be unilaterally reversed
by means of withdrawal from the protocol”.110 Comparing the MLI with a protocol to a bilateral
tax treaty may support the argument that the MLI is merely a procedural treaty111 to swiftly
implement BEPS measures swiftly. However, another explanation anchored in the preservation
of the multilateral layer can be provided. The commitments survive and a new bilateral treaty
is required to modify them. Unless the consensus reached does not entail customary international
law, a unilateral withdrawal from the MLI would make it possible for that a particular country
to renegotiate bilateral treaties in completely different terms.
Such a reading of both Articles 30 and 37 MLI not only illustrates the tensions and
contradictions which exist within the text relating to the two layers of governance, but also shows
the emerging consensus on binding principles towards customary international law.
109
N. Bravo, “Future Changes to Covered Tax Agreements and the MLI”, in M. Lang, et al. (eds), The OECD
Multilateral Instrument for Tax Treaties (Alphen aan den Rijn: Kluwer, 2018), 243–248.
110
111
See Brauner, above fn.88, 12.

4.2 It’s good fishing in troubled waters

Benchmarking the Law of the Sea with the MLI, one may conclude that the shield provided by
the MLI is much weaker than the shield provided by the Law of the Sea. The flexibility associated
with the MLI coupled with the literal wording of Article 30 MLI enhances the bilateral layer.
Likewise, the improvements made to the mutual agreement procedure in Article 16 MLI are still
quite distant as far as achieving the mandatory dispute resolution mechanisms, as laid down in
Article 287 UNCLOS are concerned.
The weak consensus achieved in the MLI has triggered the taking of a realpolitik approach
by the MLI signatory states. From a pragmatic point of view, under a pure cost-benefit analysis,
it is better to make the major number of reservations as allowed by the MLI at the moment of
signature and then wait to see the reactions of the rest of the signatory states.112 Since the definitive
position, acceptance or approval of the MLI, for each jurisdiction will be provided upon deposit
of that jurisdiction’s instrument of ratification, states have enough time to assess the commitments
of other jurisdictions. Recent studies tracking MLI compliance show the general reluctance of
states, for instance, to endorse the permanent establishment threshold provisions derived from
BEPS Action 7 (Articles 12, 13, 14 and 15 MLI).113 Schoueri and Galdino demonstrate
convincingly that the commitments in Articles 3, 4 and 5 MLI on hybrid mismatches derived
from BEPS Action 2 have not been widely assumed by the states, thereby jeopardising the
co-ordination efforts pursued by the BEPS project.114
Instead of steering the multilateral layer, the pragmatic approach followed by the signatory
states at the moment of submitting their preliminary MLI positions could be easily spelled out
within a tax competition climate. Although tax competition enables multiple profiles (low rates,
loopholes, bank secrecy, ring-fencing regimes, etc.), the common denominator is that states
interact in a non-co-operative strategic way when targeting foreign capital.115 In relation to the
impact of tax competition, which goes beyond the scope of this article, the mainstream scholarship
identifies a clear race to the bottom reducing the fiscal autonomy of states and increasing the
level of inequalities both of which are at odds with a conception of global justice.116 To put it
simply, the implementation of anti-avoidance mechanisms contained in the MLI, such as, for
example, those related to the permanent establishment threshold or to the anti-hybrid mismatches,
could reduce the level of tax revenue dramatically. Multinationals may shift activities to other
112
See Brauner, above fn.88, 13.
113
See the MLI track provided by PwC Tax Policy Bulletin, Multilateral instrument coming into force to change many
tax treaties from 1 January 2019 (14 May 2018), available at: https://www.pwc.com/gx/en/tax/newsletters/tax-policy
-bulletin/assets/pwc-multilateral-instrument-coming-into-force-changes-treaties.pdf [Accessed 13 August 2019].
114
L.E. Schoueri and G. Galdino, “Action 2 and the Multilateral Instrument: Is the Reservation Power Putting
Coordination at Stake?” (2018) 46(2) Intertax 104–114. In the authors’ view, the lack of debate in the BEPS project
on whether to allocate taxing rights thwarts the coordination effect of the anti-hybrid mismatches rules: “In a few
words, Action 2 requires States to address tax arbitrage on hybrids without taking into account which one ‘has “lost”
tax revenue under the arrangement’. If Action 2 seeks to split a pie over which there is no certain criterion for division,
it is symptomatic the lack of discussion regarding the allocation of the taxing rights. This may be one of the reasons
why the reservation power is being highly used by MLI signatories.”
115
On this definition of tax competition, see P. Dietsch, “The state and tax competition: A normative perspective” in
M. O’Neill and S. Orr (eds), Taxation: Philosophical perspectives (Oxford: OUP, 2018).
116
See P. Dietsch and T. Rixen, “Tax competition and global background justice” (2014) 22(2) The Journal of Political
Philosophy 150–177; P. Dietsch, Catching capital. The ethics of tax competition (Oxford: OUP, 2015).

host countries in which these anti-avoidance mechanisms are not in place. MLI signatory states
may therefore prefer to compete rather than to endorse multilateral commitments, which would
eventually damage their tax collection.
Contrary, however, to the previous findings that tax competition is unjust and harmful, Dagan’s
recent contribution supports a divergent thesis.117 The current post-BEPS landscape depicts, on
one side, a taxpayer as cherry-picking the most convenient jurisdiction in order to pay less taxes
by means of exploiting the loopholes (“tax arbitrage”) and, on the other side, the states competing
to offer the “best deal” to attract investment. In Dagan’s view, tax competition among states
should be fostered and, simultaneously, market failures should be prevented. To accomplish
these goals, Dagan strives for three alternative solutions: elaboration of an international tax
standard to prevent free-riding and reduce transaction costs; the creation of an interstate antitrust
agency to counter anti-competitive strategies by states; and the creation and enhancement of an
efficient information-sharing system.118 Such solutions may inevitably face up the same problems
that the current international tax regime presents, since they require more co-ordination and a
global consensus to be generally enforced. In other words, these three solutions cannot be
implemented autonomously by the states, regardless of a worldwide co-ordinated approach.
Whether in the context of the competition argument proposed by Dagan or the traditional
co-operation argument, consensus in international taxation is needed.119
In the author’s view, tax competition justifies the tax policy choices followed by the states
in the MLI, until customary international law is reached in anti-avoidance matters. The BEPS
Inclusive Framework could accelerate this process by means of monitoring the implementation
of the minimum standards, but we are still in an embryonic stage. However, before reaching
customary international law, a high degree of consensus in areas such as the PPT provision, for
example, does not necessarily means that the multilateral layer prevails over the bilateral one.
An insightful learning output thereof can be found out in the failure, among the Member States
of the OECD, of the Multilateral Agreement of Investment (MAI) from 1995 to 1998.
The main reasons underpinning the failure of the MAI negotiations have traditionally been
regarded as being the lack of transparency in the negotiation process, the absence of the NGOs
and the strong mass media opposition to the OECD’s efforts towards liberalising investment
law.120 However, another reason which has been pointed out in the existing literature is that the
consensus in certain areas covered in bilateral investment treaties (that is, taxation carve-out,
the MFN principle, protection against expropriation) was so great, that the OECD participants
had little to gain.121 Hence, the focus shifted to that which the states would be conceding, so under
a cost/benefit analysis it was better to continue regulating investment law on a bilateral basis.
117
T. Dagan, International tax policy: between competition and cooperation (Cambridge: CUP, 2018).
118
See Dagan, above fn.117, 213.
119
On this remark, see also E. Traversa and A.-G. Kleczewski, “Literature review: Tsilly Dagan, International Tax
Policy: Between Competition and Cooperation” (2018) 46(3) Intertax 261–263.
120
See for instance J. Kurtz, “NGOs, the Internet and International Economic Policy Making: The Failure of the OECD
Multilateral Agreement on Investment” (2002) 3 Melbourne Journal of International Law 213–245; UNCTAD,
Lessons from the MAI (1999) UNCTAD Series on issues in international investment agreements
121
K. Vandevelde, “A Brief History of International Investment Agreements” in K.P. Sauvant and L.E. Sachs (eds),
The Effect of Treaties on Foreign Direct Investment (Oxford: OUP, 2009), 1–37; E. M. Graham, Fighting the Wrong
Enemy: Antiglobal Activists and Multinational Enterprises (Peterson Institute for International Economics, 2000).

The United Nations Conference on Trade and Development (UNCTAD) expressly recognised
that high consensus does not necessarily trigger multilateral solutions: “…the existence of a
network of BITs cannot be assumed to signal the preparedness of countries to move to another
level, in spite of a convergence of perspectives in certain substantive areas as signified by existing
BITs”.122 As already stated, a multilateral treaty always reflects the aspiration to enforce customary
international law, which does not always fulfil the states’ policy goal.
The MAI experience is crucial to an understanding of current international taxation practice.
The high consensus in areas of anti-avoidance does not mean that states have renounced competing
for tax revenue. Until the consensus becomes customary international law, tax competition and
its detrimental effects for developing countries will be the response.
5. Conclusion
This article attempts to shed light on the two correlated arguments which are rooted in the
meaning of multilateralism. On one side, multilateralism becomes a layer of governance which
overlaps simultaneously with bilateralism and unilateralism. In international taxation, the OECD
Model serves as multilateral layer that standardises bilateral treaty negotiation, but at the same
time reflects the policy options of developed countries. On the other side, rather than co-ordination,
multilateralism advocates for the global enforcement of normative principles in favour of residence
taxation to the detriment of source taxation with a clear aspiration to become customary
international law.
Examples in the field of public international law, namely in the Law of the Sea, show the
precise interaction between a multilateral treaty and customary international law, either by
codification of the latter or by the introduction of norms in a symbolical aspiration to become
such law. Such a strong consensus when encapsulated in a multilateral treaty must be protected
from national interferences. Therefore, a shield emerges to prevent reservations to the core areas,
to articulate mandatory dispute resolution mechanisms and, finally, to restore the original
consensus in case an amendment to the treaty is needed.
Benchmarking the MLI with the previous theoretical framework derived from public
international law and international relations reveals common patterns. In a postmodern narrative,
the “mixity” of layers of governance is the MLI’s hallmark. The MLI’s four minimum standards
when put in context with the OECD’s Inclusive Framework and under the umbrella of the single
tax principle constitute an embryonic stage in the evolution of customary international law in
anti-avoidance. The tensions between both layers of governance are quite obvious (that is,
reservations, Articles 37 and 30 MLI) and the contradictions are difficult to reconcile.
The consensus is still weak as proven by the commitment of the MLI signatory states to the
endorsement of the non-mandatory minimum standards (that is, the permanent establishment
threshold and hybrid mismatches). The realpolitik approach asks that signatory states “wait and
sit” the reactions of other states. Since tax competition is the reality in which states operate to
catch tax revenue, states are reluctant to introduce MLI anti-avoidance mechanisms that could
dramatically reduce tax collection. Broad consensus in this matter is not enough to tackle
anti-avoidance. The MAI’s experience shows that states prefer bilateral negotiations rather than
122
See UNCTAD, above fn.120, 28.

multilateral commitments. Unless customary international law is reached, tax competition justifies
the current polyhedral tax governance.
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Multilateral Dynamics in Bilateral Settings: Back

2019 BTR, No.4 © 2019 Thomson Reuters and Contributors 483

2019 BTR, No.4 © 2019 Thomson Reuters and Contributors

2. Multilateralism as a form of governance

2.1. The overlapping geological strata

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than speaking about transformation or shift, international law is composed of superimposed

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2.2. Power dynamics in the overlapping of layers

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2019 BTR, No.4 © 2019 Thomson Reuters and Contributors

thereby introducing a sort of standardisation in relation to bilateral treaty negotiations,24 “a focal

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3. The symbolical aspiration of a multilateral treaty

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3.1. Multilateralism as normative principles of conduct (“modern customs”)

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2019 BTR, No.4 © 2019 Thomson Reuters and Contributors

2019 BTR, No.4 © 2019 Thomson Reuters and Contributors

2019 BTR, No.4 © 2019 Thomson Reuters and Contributors

3.2. The shield of the normative consensus in a multilateral treaty

3.2.1 The prohibition of reservations

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However, in reality some declarations introduced by states conceal disguised reservations

3.2.2. The binding dispute resolution mechanism

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3.2.3. Subsequent amendments of the multilateral convention

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4. Polyhedral tax governance under the MLI

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developed countries in preserving residence-based taxation. The MLI becomes a sort of

4.1 The MLI as a Janus-faced instrument

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2019 BTR, No.4 © 2019 Thomson Reuters and Contributors

2019 BTR, No.4 © 2019 Thomson Reuters and Contributors

4.1.2 The MLI aftermath provisions

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2019 BTR, No.4 © 2019 Thomson Reuters and Contributors

4.2 It’s good fishing in troubled waters

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