Thinking Outside the (Tax) Treaty

While the legal literature contains numerous discussions on how to increase cooperation and resolve disputes in trade, investment, environment, intellectual property, and other areas, there has been remarkably little written on how to utilize these mechanisms to increase multinational cooperation for tax purposes. Rather, the debate has tended to devolve into two competing and irreconcilable camps: those supporting worldwide harmonization based on the network of bilateral tax treaties and those invoking the right to tax sovereignty to oppose any efforts at harmonization or cooperation. The primary thesis of this Article is that the fundamental problem with cooperation in the modern international tax regime is that it builds on the tax treaty model, thus effectively excluding countries which have not entered into tax treaties — mostly small, poorer countries. Reconsidering international tax in this light leads to a potentially surprising conclusion: that the move towards institutionalizing the web of bilateral tax treaties — which has dominated the modern international tax debate — may actually be counter to its stated goal of encouraging broader worldwide tax cooperation across all nations of the world. Instead, this Article proposes the creation of a tax cooperation mechanism specifically geared towards non-treaty member countries, conceding certain disputes in exchange for increased cooperation more generally. Such an approach could effectively replicate some of the benefits of a tax treaty, but with non-treaty member countries, without needing to overcome the obstacles which have prevented full treaties from being entered among such countries to date. Building a tax cooperation mechanism specifically around the premise of incentivizing cooperation of the least cooperative states in this manner could harness the same forces that led to the emergence of the modern international tax regime in the early twentieth century to address the fiscal crisis facing the early twenty-first century.