OECD Arbitration in Tax Treaty Law

1. S. 569Introduction

The growing scope of international trade contributes to cross-border disputes, including in tax matters. The application of the vast network of income tax treaties (tax treaties), together with domestic tax systems, can often be a source of uncertainty and doubt regarding the proper interpretation thereof. Therefore, the resolution of tax disputes, including cross-border tax disputes, has an vital role to play.

To address these concerns, the OECD introduced a mutual agreement procedure (MAP) into Article 25 of the OECD Model which was later strengthened with the introduction of an arbitration clause (Article 25(5)) in 2008. The arbitration clause is expected to improve certainty in interpretation and application of tax treaties and to eliminate double taxation (which is the primary goal of the OECD Model).

To make this possible, the MAP, including arbitration, must be effective. This means that the award resulting from this procedure must be recognized by the contracting parties and implemented at the domestic level.

This chapter will examine the legal nature of arbitral awards obtainable under the MAP, identify potential weaknesses of existing instruments that could pr...