Twilight of the Neanderthals, or Are Bilateral Double Taxation Treaty Networks Sustainable?
Taylor, C. John, Melbourne University Law Review
[The networks' of bilateral double taxation treaties that have developed since the Second Worm War are regarded by many as being very successful. Double taxation treaties had their origins in treaties entered into by continental European countries prior to the First World War. Reflecting these origins, bilateral double taxation treaties have adopted a schedular approach with different rules for different types of income. When relieving residence source double taxation using the credit method, double taxation treaties adopt a measured approach under which tax paid in the source country is relevant to the determination of the nature and extent of the relief granted by the residence country. Critics of bilateral treaties have argued that their schedular structure does not represent a principled approach to the problem and that their measured approach means that relief they provide through a credit method becomes highly complex. Through an examination of Australian practice of treaty negotiation and administration this' article identifies several practical reasons for the success' of bilateral double taxation treaties despite their allegedly less principled and arguably complex approach. The article then examines threats to the sustainability of bilateral double taxation treaty networks. Having regard to these threats to the sustainability of bilateral double taxation treaty networks the article then discusses possible responses to these threats, including unilateral adoption of a composite lax system providing notional relief and the multilateral adoption in trading blocs of such a tax system.]
CONTENTS I Introduction II The Origins and Structural Features of Modern Double Taxation Treaties A The League of Nations Committees and the Structure of Modern Double Taxation Treaties B The United States, the United Kingdom, and the Significance of Their Early Treaties C Summary III The System of Dominion Income Tax Relief A Basic Outline of the System of Dominion Income Tax Relief B Features Distinguishing Dominion Income Tax Relief from Modern Double Taxation Treaties C Summary IV Bilateral Double Taxation Treaties and Dominion Income Tax Relief: Evidence from Australian Practice A Expansion in Double Taxation Treaties B Reasons for the Demise of the Dominion Income Tax Relief System C Australian Double Taxation Treaty Practice V Threats to the Sustainability of Bilateral Double Taxation Treaty Networks A Challenges from Electronic Commerce B Challenges from Financial Engineering C Challenges from Tax Competition D Challenges from the Development of Trading Blocs E Challenges from Transfer Pricing F Time Associated with Re-Negotiating All Treaties in a Network G Summary VI A Possible Response
The title to this article possibly needs some explanation. My understanding of current research is that homo sapiens neanderthalis was a highly successful large-brained human well suited to the environment they evolved in and which dominated Eurasia for nearly 200 000 years. Then approximately 45 000 years ago their range became significantly restricted as they faced pressures from a deteriorating climate and competition from anatomically modern humans. By 30 000 years ago they seem to have disappeared entirely. There are various theories as to why they disappeared (some of which involve our species, homo sapiens sapiens, in what should probably be called genocide) but among them is that they were not able to adapt quickly enough to the combination of climatic change and competition from our ancestors. (1)
Similarly, the networks of bilateral double taxation treaties that have developed since the Second World War are regarded by many as being very successful. The form of these treaties can be traced back to treaties entered into by continental European countries prior to the First World War and to drafts developed by the League of Nations between the First and Second World Wars. …