Tax Treaty Abuse: Policies and Issues
![handle is hein.journals/geojintl15 and id is 793 raw text is: TAX TREATY ABUSE:
POLICIES AND ISSUES
H. DAVID ROSENBLOOM*
The phenomenon of transnational investment poses serious policy
issues for the world's many independent taxing jurisdictions. For
decades the United States has attempted to resolve some of these issues
through its tax treaty network. In furtherance of this effort, the U.S.
Treasury Department has drafted a Model Income Tax Treaty, pro-
posed for use in U.S. treaty negotiations. United States tax treaties
generally seek to reduce double taxation on international investors,
while ensuring that no persons benefit unduly from the mechanisms that
facilitate such reduction. Focusing particularly on those treaty provi-
sions targeting the latter objective, this article is a discussion of the
many and sometimes conflicting international concerns of tax
policymakers. The author surveys the history of U.S. tax treaties and
the U.S. Model to identify the most troublesome theoretical and
technical problems of treaty drafting. He concludes with an evaluation
of the relative merits of potential solutions to these problems.
For the past several years, abuse of income tax treaties has been
a subject of intense international debate.1 Policymakers have ques-
tioned whether some persons who perhaps should not be benefiting
from such treaties are able to structure their financial arrangements
so that they become entitled to treaty benefits. The debate has
revolved around the questions of whether such abuse should be
*Member, Caplin and Drysdale, chartered. J.D., Harvard 1966. International Tax
Counsel, Treas. Dep't 1977-81.
1. The beginnings of this debate, in the United States, may be traced to congressional
hearings held in April 1979. Offshore Tax Havens, Hearings Before the Subcomm. on Oversight of the
House Comm. on Ways and Means, 96th Cong., 1st Sess. (1979). Two months later, the
Treasury Department announced its intention to investigate certain aspects of the treaty
relationship between the United States and the Netherlands Antilles, often considered to be
the most abusive tax treaty of all. Treas. Dep't News Release B-1694, June 27, 1979. See
also Hearings Before the Commerce, Consumer and Monetary Affairs Subcomm. of the House Comm. on
Governmental Operations, 98th Cong., 1st Sess. 270 (1983) (statement of John E. Chapoton,
Ass't Sec'y of the Treasury) (noting that the present treaty with the Netherlands Antilles is
subject to widespread abuse) [hereinafter cited as 1983 Hearings].](ViewImageLocal?handle=hein.journals/geojintl15 &div=31&collection=&method=preview&ext=.png&size=3)
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Tax Treaty Abuse: Policies and Issues
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