OECD Arbitration in Tax Treaty Law

1. S. 190Introduction

Since 2006, the US had not updated their US Model Income Tax Convention (US Model) until 17 February 2016 when the Treasury Department of the United States launched their new US Model.

This model introduced some important changes in arbitration matters because, for three decades since the first official US Model was released in 1996, the United States (US) had been unenthusiastic about implementing a mandatory binding arbitration clause in their US Model, although they had previously implemented it in some of their treaties.

The US Model is important because, when the elimination of double taxation arises in cross-border trades, the treaties help to prevent non-taxation and tax evasion. Hence, the new model is an indicator of the new rules that the US will put into play as possible benefits and limitations that are applicable for taxation in cross-border situations between the US and other countries.

Now the Treasury Department has introduced the mandatory binding arbitration clause in the Mutual Agreement Procedure (MAP) into their new US Model. This includes the “last-best-offer” approach with a detailed scope and procedural rules. It is considered to be an effective ...