L O C AT I N G A N

“ I N T E R N A T I O N A L T A X L AW ”
B Y B H A R AT H P O T T E K K AT A N D V E D D E VA I A H
W H AT A R E W E AT T E M P T I N G T O
L O C AT E ?
INT’L LAW GOVERNS THE ACTIONS
OF STATES AND INT’L ACTORS

DIVIDED INTO SUBSETS BASED ON

THE SUBJECT MATTER

DOES TAX LAW FORM SUCH A

SUBSET?
W H Y A R E W E AT T E M P T I N G T O
L O C AT E T H I S ?

WHY?
INTERNATIONAL
TAX ARBITRAGE

TREATY
SHOPPING
I N T E R N AT I O N A L TA X A R B I T R A G E
WHAT IS IT?
• EXPLOITING DIFFERENTIAL TAX RATES IN COUNTRIES TO PAY LESS
TAX
WHAT IS AN EXAMPLE?
• IF COUNTRY A’S TAX RATE IS 20% AND COUNTRY B’S TAX RATE IS 40%,
COMPANIES WOULD RECOGNISE THEIR EXPENSES IN COUNTRY B AND
INCOME IN COUNTRY A
WHAT IS ITS COST?
• 500-600 BILLION USD
 T R E AT Y S H O P P I N G
WHAT IS IT?
• EXPOLITING THE BENEFITS OF A TAX TREATY BY A COMPANY WHICH IS
NOT ENTITLED TO SUCH BENEFITS
WHAT IS AN EXAMPLE?
• A COMPANY IS RESIDENT IN COUNTRY A AND EARNS INCOME IN COUNTRY
B.
• COUNTRIES B AND C HAVE A TAX TREATY, BUT COUNTRIES A AND B DO
NOT
• THE COMPANY CREATES ANOTHER CORPORATION IN COUNTRY C AND
TRANSFERS DIVIDENDS FROM COUNTRY B TO C
WHAT IS ITS COST?
• 200 BILLION USD
 WHY DOES THIS HAPPEN?

COMPANIES
DIFFERENT LOOK FOR LEGITIMATE TAX
THESE BECOME
COUNTRIES HAVE COUNTRIES WITH PAYMENT IS
“TAX HAVENS”
DIFFERENT LAWS A FAVOURABLE AVOIDED
TAX REGIME
T H E S I S S TAT E M E N T

IS THERE AN
“INTERNATIONAL
TAX LAW” THAT
STATES MUST
FOLLOW?
S O U R C E S O F I N T E R N AT I O N A L
L AW
 C U S T O M A R Y I N T E R N AT I O N A L
L AW
“AN INDISPENSABLE REQUIREMENT WOULD BE
THAT WITHIN THE PERIOD IN QUESTION, SHORT
THOUGH IT MIGHT BE, STATE PRACTICE […]
SHOULD HAVE BEEN BOTH EXTENSIVE AND
VIRTUALLY UNIFORM IN THE SENSE OF THE
PROVISION INVOKED; AND SHOULD MOREOVER
HAVE OCCURRED IN SUCH A WAY AS TO SHOW A
GENERAL RECOGNITION THAT A RULE OF LAW
OR LRGAL OBLIGATION IS INVOLVED”

INTERNATIONAL LAW COMMISSION, INTERNATIONAL COURT OF JUSTICE, NORTH

DRAFT CONCLUSIONS ON SEA CONTINENTAL SHELF CASE (PARA 74)

IDENTIFICATION OF CUSTOMARY
INTERNATIONAL LAW (2018)
C U S T O M A R Y I N T E R N AT I O N A L
T A X L AW ?
AN ANALYSIS OF 4052
MOST BILATERAL BILATERAL
OECD MODEL TAX TAX TREATIES TREATIES REVEALED
TREATY REFLECT THESE SEVERAL
PROVISIONS LINGUISTIC
SIMILARITIES

OECD MODEL
IMPACTS TREATIES ARE THESE
BETWEEN STATES SIMILARITIES
NOT PARTY TO THE ENOUGH?
OECD AS WELL
 C U S T O M A R Y I N T E R N AT I O N A L
T A X L AW

MATERIAL SCOPE
NOT AS DEFINED A
CERTAIN PRINCIPLES MUST BE DEVISED
FIELD OF
IN THE OECD MODEL THROUGH A
INTERNATIONAL
TREATY ARE A PART DETAILED ANALYSIS
LAW AS OTHER
OF CIL OF MULTIPLE
FIELDS
TREATIES
 ON THE OTHER HAND…
INTERNATIONAL TAX LAW
INTERPRETATION OF TREATIES
GOVERNED BY OECD COMMENTARY
PRIMARILY BILATERAL TREATIES
NO INTERNATIONAL OR REGIONAL
JUDICIAL BODY
OTHER FIELDS OF INT’L LAW
INTERPRETATION OF TREATIES
GOVERNED BY THE VCLT
USUALLY GOVERNED BY UNIVERSAL
(AT LEAST, WIDELY ACCEPTED)
TREATIES
INTERNATIONAL AND/OR REGIONAL
BODIES APPLY THE LAW
 CONCLUSION

ARGUMENTS
AGAINST CAN BE URGENT NEED TO CREATION OF AN
EXPLAINED AS A DEVELOP MATERIAL INTERNATIONAL TAX
PRODUCT OF A LACK SCOPE REGIME
OF RECOGNITION