Interpretation Conflicts Of International Tax Treaty And Their Resolutions

In the context of globalization,the cross-border flow of trade become more and more frequent.As a result,the tax jurisdiction of countries on cross-border taxable income are prone to overlap,which in turn leads to double taxation.The main purpose of tax treaties is to eliminating double taxation without creating opportunities for nontaxation or reduced taxation.The precondition for tax treaties to work effectively is that they are interpreted and applied in an appropriate manner.Conversely,if there are conflicts of interpretation of tax treaties that are difficult to coordinate,tax treaties cannot be applied consistently between the two contracting states and will result in double taxation or double non-taxation,which is harmful for the achievement of tax treaties purposes.Therefore,studying the causes of conflicts in the interpretation of tax treaties and their solutions are of great significance for achieving the purpose of tax treaties.Consequently,this article takes the tax treaties interpretation conflicts and their solutions as the theme of research.Firstly,this article will discuss the unique unilateral interpretation feature of the interpretation rules of tax treaties,which will lead to the conflicts of interpretation.Then,an in-depth analysis will be made in this article to analyze different methods which aim at resolving conflicts of interpretation.Finally,this article will attempt to propose improvement to the resolution of interpretation conflicts of Chinese tax treaties.The first part of this article is to introduce the interpretation rules of tax treaties and the interpretation conflicts they created.It firstly come into the introduction of the interpretation rules of tax treaties,including the general interpretation rules of the Vienna Convention on the Law of Treaties(VCLT)and the specific interpretation rules of OECD Model Tax Convention.It should be mentioned that the later are the special rules of interpretation in relation to the general rules governing interpretation of tax treaties and as such take precedence over the former.According to the specific interpretation rules,as regards the application of a tax treaty by a contracting state,any term not defined in the treaty shall have the meaning that it has under the domestic law of that state.Such a unilateral interpretation feature makes it possible for a country to interpret a bilateral tax treaty with its domestic law,which will cause serious conflicts of interpretation and therefore obstacle the achievement of the purpose of tax treaties.Therefore,in order to apply and interpret tax treaties effectively,the conflicts of interpretation shall be resolved properly.The second part of this article deals with two traditional methods used in the resolution of interpretation conflicts of tax treaties,which are the principle of common interpretation proclaimed by international taxation scholars and the doctrine of categorizing under the law of source state proclaimed by OECD.According to the principle of common interpretation,an interpretation should be sought which is made by reference to the interpretation of the other contracting state.The aim of the principle of common interpretation is to interpret tax treaties consistently.However,there is no clear and consistent application system of common interpretation,which makes its application often mere formalities.Meanwhile,due to language barriers,differences in legal backgrounds and conflicts of national taxation sovereignty,common interpretation has difficulty in application.In 2000,OECD introduced the doctrine of categorizing under the law of source state in the OECD tax model convention,proclaiming the priority of the interpretation of source country over the interpretation of residence country.However,this method may deprive the resident state of its tax sovereignty to a certain extent,so that many states are unwilling to adopt it.What’s worse,the scope of this method is limited,which means that it is unable to resolve all interpretation conflicts.The third part of this article discusses the new development of resolution to tax treaty interpretation conflicts.Because the traditional methods of resolving tax treaty interpretation conflicts have their theoretical flaws and application limitations,they cannot completely resolve tax treaty interpretation conflicts.In the context of the reform of the international tax system represented by the BEPS action plan,international tax law scholars proposed to use BEPS Multilateral Convention(the Convention)to achieve a unified multilateral interpretation of tax treaties.This is a new development in the way to resolve conflicts in tax treaty interpretation.Firstly,this part introduces the background of the formulation of the Convention and indicates that its purpose is to make unified revisions to all tax treaties in order to quickly implement BPES action plan.Then,this part introduces the application mechanism of the Convention,especial the interpretation mechanism.The Convention contains substantive clauses and instrumental clauses.In particular,the substantive clauses are amendments to bilateral tax treaties so their application and interpretation will have an important impact on tax treaties.Regarding the interpretation of the substantive clauses,the Convention provides special interpretation rules.In accordance to these rules,the interpretation of substantive clauses should rely on the bilateral or even unilateral interpretation conclusion of tax treaties,which eliminates the multilateral nature of substantive clauses.This part finally discusses the multilateral interpretation impact of the Convention on tax treaties.It should be pointed out that the application and interpretation of the Convention rely to a large extent on the application and interpretation of tax treaties.Therefore,the multilateral interpretation method based on the Convention has not yet been fully realized.The last part of this article discusses the enlightenment for China to resolve the conflicts of interpretation of tax treaties.This part firstly analyzes the interpretation status and interpretation issues of Chinese tax treaties.Since all Chinese tax treaties adopt the special interpretation rules of OECD Model Tax Convention,Chinese tax treaties are suffered with interpretation conflicts.At the same time,since most of Chinese domestic laws on tax treaties interpretation are based on unilateral basis,and since Chinese courts often ignore to apply the special interpretation rules of tax treaties while directly apply domestic law in interpreting tax treaties,the interpretation of Chinese tax treaties made by Chinese courts may be impossible to be recognized and accepted by the other contracting state.Based on the current status of legislation and practice in Chinese interpretation of tax treaties,this section combines the content of the previous discussion to propose two suggestions for resolving interpretation conflicts of Chinese tax treaties.The first suggestion is to clarify the provisions of Chinese tax treaties to avoid interpretation conflicts.The second suggestion is to apply the principle of common interpretation,the doctrine of categorizing under the law of source state and the Convention’s multilateral interpretation influence on tax treaties case by case.