Hastings International and Comparative Law Review


One of the goals of bilateral tax conventions is mitigating instances of double taxation for each state's taxpayers. Tax conventions include a Mutual Agreement Procedure (MAP) to handle disputes brought by a taxpayer of one state claiming double taxation by his home country and the other state party to the convention. Once a claim is initiated, each state designates competent authorities to resolve the issue through MAP. MAP's three main weaknesses include the length of time it takes competent authorities to agree, the possibility that competent authorities will not reach an agreement, and that the taxpayer who brought the dispute is not involved in the process.

To address these problems, countries began including arbitration provisions in MAP clauses. Mandatory binding arbitration helps "fix" the first two weaknesses of competent authority time management and agreement, but does little to include the taxpayer in the process. This paper suggests that mandatory binding arbitration of international tax disputes be included in tax conventions independently of MAP. Countries including arbitration clauses should look to established international commercial arbitration norms as a model of a successful, widely used system. As a separate dispute resolution mechanism, international tax arbitration encourages competent authority agreement in a timely manner, and can be drafted to include taxpayer participation. Arbitration as a state-state-taxpayer process will be most effective at resolving international tax disputes, thereby limiting double taxation and encouraging world wide economic activity.