| ||Some Things That Multilateral Tax Treaties Might Usefully Do|
Richard L. Reinhold*
*Partner, Willkie Farr & Gallagher LLP, New York, New York. Cornell University, A.B. 1973; State University of New York at Buffalo School of Law, J.D. 1976. The author wishes to express his gratitude to Ariel Assa and Natalie Tal for their substantial assistance in the preparation of this paper, and to Catherine Harrington for her comments on prior drafts. Errors are the author's alone. An earlier version of this paper was presented to the Tax Forum in November 2003.
The basic pattern of international taxation has been in place for upwards of 80 years at this point. Although this regime served reasonably well for many years, addressing in more or less appropriate fashion the transaction formats that were current during that period, cracks have appeared in the foundation and seem to be widening.1 The causes are easily identified: increased mobility of capital (and people), the continuous de-construction and re-assembly of transaction forms, and the evolution of commerce from transactions in tangible goods to services and electronic-based (or at least electronically-acquired) products. All have contributed to increasing dissonance in international tax results.
This paper does not attempt any sort of comprehensive re-thinking of the existing rules for taxing international transactions. Rather, its object is the much more modest one of suggesting consideration of a mechanism-a multilateral tax treaty, in certain discrete settings-that might address some difficult international tax problems, which have come to the fore. Two such contexts will be considered here: (i) multi-national service partnerships and (ii) international electronic commerce ("e-commerce") transactions. The two topics seem to have nothing to do with each other, but each presents a potentially interesting test case for a single-subject multilateral tax treaty. It may be the case that multilateral tax treaties could be useful in other settings, and perhaps the successful implementation of one or more limited treaties could create a favorable climate for more multilateral tax agreements.
Part I of this paper briefly describes the framework of international tax law, how we got here and to some degree where we are. It continues with an overview of the situation of multilateral tax treaties: few exist today, but there is a clear trend towards multilateral cooperation by governments in tax matters. Part II summarizes the tax treatment of multinational service partnerships, and then outlines the possibility of a multilateral tax treaty to achieve significant simplification for both taxpayers and governments, as well as other benefits.
Part III begins by providing some background regarding electronic commerce transactions, and the many intractable international tax issues that arise from these transactions. It then examines briefly the closely parallel issues being confronted by the U.S. states and the European Union (EU), both of which have focused carefully on the issue of sellers who are remote from their buyers, and, in particular, in the case of the EU, on the issue of "electronically supplied services." It concludes by examining in part III.D several interesting proposals that have been made to date to respond to the international tax issues presented by electronic commerce.
Part IV builds on the proposals in III.D and considers whether a multilateral tax treaty that addresses electronic commerce issues might appropriately respond to concerns regarding multiple taxation, as well as issues of multiple non-taxation, and also achieve significant tax simplification.