OECD Arbitration in Tax Treaty Law

1. S. 471Introduction

There is some criticism regarding the undeniable defects of the mutual agreement procedure (e.g., competent authority procedure, lack of enforcement mechanism over different jurisdictions, time limits). This necessitates resolving the international tax disputes between the two parties more effectively and efficiently. Therefore, multilateral organizations, such as the Organisation for Economic Co-operation and Development (The OECD) and the United Nations (The UN) introduced a binding mandatory arbitration as an alternative means for resolving treaty-related disputes with the view that such a binding arbitration could overcome the weaknesses of the existing Mutual Agreement Procedure (hereinafter: MAP).

The arbitration clause has been put forward to be included in Article 25(5) of the Organisation for Economic Co-operation and Development Model Tax Convention on Income and on Capital (hereinafter: OECD Model Tax Convention) which provides for mandatory arbitration and was adopted in 2008 whereas two alternative provisions of the MAP, Article 25A and Article 25B, were added in the United Nations Model Double Taxation Convention between Developed and Developing Countrie...