The Evolutionary Process of Tax Treaties and Its Interplay with EU Law: A Critical Analysis

Although the existing network of double tax agreements, the Model Tax Information Exchange Agreement (‘TIEA’), and the Multilateral Instrument (‘MLI’) co-exist, they indicate that the evolutionary process of tax treaties is heading towards different directions. Today, more than 3000 double tax treaties exist, most of which follow either the Organisation for Economic Co-operation and Development (‘OECD’) or United Nations (‘UN’) Model Tax Convention. Traditionally, the system of international taxation consists of a network of tax agreements, which are bilateral in nature. Thus, the current framework of the double tax agreements represents the status quo. Despite the widely known advantages of the multilateral approach in the evolution of tax treaties, the first noticeable development took place in 2016 with the adoption of the MLI as a result of the Base Erosion and Profit Shifting (‘BEPS’) project. Although the MLI is the first step, it is a beacon to a shift towards multilateralism. From the point of reference of the current network of bilateral double tax agreements, the adoption of the MLI is a step forward. In 2002, following the OECD’s efforts to address harmful tax practices, the OECD formulated the Model TIEA. In contrast to bilateral double taxation agreements—which govern the taxation of various aspects of cross-border transactions—tax information exchange agreements regulate the aspect of the exchange of information only. They are special agreements with a limited scope. The existence of TIEAs is justifiable; however, from the point of reference of the current network of bilateral double tax agreements, they represent a step backward. This chapter also analyses the bilateralism versus multilateralism dichotomy in the light of recent European Union (‘EU’) transfer pricing case law. The chapter, in particular, refers to the Apple case. The EU courts have used treaty law to solve matters related to EU law. Their approach creates an opening to a fertile dialogue between the EU and third countries. It also results in the recognition and incorporation of some internationally accepted principles into positive law. The next step towards multilateralism is to incorporate these principles as binding parts of the MLI.