Tax Treaty Case Law around the Globe 2017

S. 3Germany: Consequences of a Treaty Override?

Alexander Rust

1. S. 5Introduction

The OECD Committee on Fiscal Affairs (CFA) defines treaty override in its recommendation of 2 October 1989 as “the enactment of domestic legislation which is intended to nullify unilaterally the application of international treaty obligations”. The OECD discourages its Member countries from enacting legislation which would have effects that are in clear contradiction to international treaty obligations.

A treaty override constitutes a clear violation of the pacta sunt servanda principle enshrined in article 26 of the Vienna Convention on the Law of Treaties (VCLT) which states that “[e]very treaty in force is binding upon the parties to it and must be performed by them in good faith.” According to article 60(1) of the VCLT, a material breach of a bilateral treaty by one of the parties entitles the other to invoke the breach as a ground for terminating the treaty or suspending its operation in whole or in part.

Although a country which enacts treaty overriding legislation clearly violates its public international law obligation such violation does not automatically lead to the invalidity of the legislation. Each c...