Wednesday, September 07, 2005

U.S. Tax Treaty Policy and the European Court of Justice

Once again the issue of the effect of EC Law on the US tax treaty policy is addressed in this blog. The readers will remember that in May we reported that the National Foreign Trade Council (NFTC) of the United States issued on May 26 a report suggesting the U.S. government should begin to develop a negotiating strategy on the assumption that a multilateral income tax treaty with the European Union may become a practical necessity in the not-too-distant future. The report, produced by the NFTC Tax Treaty Project, also urged the U.S. business community to identify the practical and policy issues that would arise if such a treaty were to become a reality.

Ruth Mason from NYU goes one step ahead in a very detailed paper called "U.S. Tax Treaty Policy and the European Court of Justice". The issue is challenging and it is evident that the discussion is growing from both sides of the Atlantic. From the European side, still a lot of water has to pass the bridge of the ECJ concerning the relationship of EU Law with third countries. I call upon the attention of various pending cases dealing with this same issue.

Here is an abstract of the paper:

The discussion is framed by the controversy over the legality of tax treaty limitation on benefits clauses (LOBs) in the wake of recent ECJ decisions. The Article argues that the United States and the EU Member States should take positive action to conform their treaties with EC law. Such voluntary harmonization would allow the countries to take a more flexible approach to EC law compliance than they could after an adverse judgment by the European Court of Justice (ECJ). Moreover, voluntary alignment of tax treaties with EC law would help reduce the risk of further encroachment on Member State direct tax sovereignty by the ECJ. By curing EC law conflicts present in current bilateral treaties, the Member States reduce the risk that their treaties will be reviewed by the ECJ, a court hostile to both national revenue needs and Member State direct tax competence. The proposed method of alignment of tax treaties with EC law is a 26-country multilateral tax treaty between the United States and the EU Member States.


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