International Tax Law and its Influence on

National Tax Systems

Craig Elliffe

I. Introduction

International tax law has components drawn from different areas of law, some parts of which are
peculiarly domestic or sovereign in the sense that they are the exclusive decision of a state to impose
taxation.1 In contrast, other parts reside in public international law because they deal with the rules,
norms, and standards generally accepted in relations between nations. This dual dynamic is central as
to why international tax law is influential on national tax systems. States impose taxes and deal with
their citizens (or for most countries their residents) on their worldwide income, and non-residents in
respect of income sourced in their jurisdiction. It is precisely because of this residence and source taxing
matrix and the resultant double taxation that States need to deal with other States to make the interna-
tional tax regime more coherent and fair.2 In respect of public international law, most focus has been on
the part of international tax that relates to bilateral and multilateral treaties.3 In contrast, the area of law
focusing on international law from other sources, such as customary international law (CIL), receives
less consideration.4
Why is this discussion important? It is essential to understand how international laws and norms
shape national tax systems and whether they constrain domestic taxation choices? In other words, are
there limitations on States introducing domestic rules which cut across the obligations designed to make
the international tax regime coherent? Also, to achieve fundamental, consensus-driven change, such as
that in the area of the taxation of the digital economy requires significant cooperation by States. Under-
standing these parameters will inform whether, how, and why, States should get involved in the design
and structure of the international tax architecture.
This chapter initially explores what is meant by international tax law. The focus then shifts to that
part of tax law which is public international law. Clearly, bilateral and multilateral treaties have a direct
impact on the legal systems of participating States. Treaties are not the only source of international law
even though in the tax arena they clearly are by far the most important. So important that some suggest
they are “perhaps the source, of international law”.5 Other highly respected scholars suggest that CIL
has a part to play in influencing national tax systems.6 This suggestion is controversial, and the weight

1
For example, Qureshi, The Public International Law of Taxation: Text, Cases and Materials 2nd Edition (Wolters
Kluwer).
2
The principal vehicle used to reduce or eliminate double taxation is of course that of the bilateral tax treaty most
of which are based on the OECD Model Convention in its various iterations through the years.
3
A conclusion reached by Brauner, "The True Nature of Tax Treaties", Bulletin for International Taxation,
January 2020, 28.
4
Braumann, "Taxes and Customs: Tax Treaties as Evidence for Customary International Law", Journal of
International Economic Law, 2020, 23, 747 at 748.
5
Brauner, n3, at 28.
6
Avi-Yonah, International Tax as International Law (Cambridge, CUP, 2007), and the same author, "Does Cus-
tomary International Tax Law Exist?" Michigan Law, Public Law and Legal Theory Research Paper Series 640.
1
of opinion does not support the view that CIL presently creates any binding tax obligations on States.7
This chapter proposes that there is, however, an emerging system based on common understandings,
with the legal duties of cooperation and underpinning expectations of implementation which should be
recognized as creating obligations upon States even though it does not constitute CIL. In this chapter
this is described as “consensus international tax law” (CITL). CITL is highly influential on national tax
systems and is a phenomenon that recognises both the sovereignty and politics of national tax laws, as
well as the need for harmonisation and reasonableness in international dealings with other States and
their tax systems.

II. What is international tax law?

Putting together the words international and tax seems to create some controversy because in-
ternational lawyers focus on the former and tax lawyers are focused on the latter. As alluded to in the
introduction, there are scholars who believe that a State has jurisdiction to impose tax without limita-
tion.8 According to this view, the jurisdiction to tax is only limited by a State’s enforcement powers.9
Such a view, might focus too much on the concept of tax and too little on international law. According
to Gadzo, the theory of unlimited tax jurisdiction lacks valid support from the perspective of public
international law.10 The approach of unlimited jurisdiction confuses the theoretical basis for taxation
with the practical enforcement aspects of tax jurisdiction. As noted by Jeffrey: “Just because a law can-
not in practice be enforced does not in any way relate to its legality or otherwise.”11 The prevailing view
in contemporary tax scholarship is that “general international law poses limits to the substantive facet
of tax jurisdiction”.12
The right of an international jurisdiction to taxation is said13 to be founded either on the rela-
tionship to a person (described in the OECD Commentary as the taxpayers’ personal attachment to the
state)14 or on the relationship to a territory.15 This connection of the taxpayer’s residence and the

7
Braumann, n4, 747, at 767, where the author concludes that the behaviour of States in complying with their
double tax treaty network means that it is almost impossible to prove CIL. Garcia, "The Single Tax Principle:
Fiction or Reality in a Non-Comprehensive International Tax Regime?" WTJ, (2019), 305. See also Brauner, n4,
28 at 31 where he argues "Recently, scholars have attempted to argue that some common norms and tax treaties
have come close to the threshold of opinio juris, yet this is still a small minority opinion that is unlikely to hold at
the present."
8
Qureshi, n1,
9
Ibid, n1, at 31.
10
Gadzo, "The principle of "Nexus" or "Genuine Link" as a Keystone of International Income Tax Law: A Reap-
praisal", Intertax, Vol 43, issue 3, 194 at 199.
11
Jeffrey, The Impact of State Sovereignty on Global Trade and International Taxation, Kluwer Law International
(1999) at 43.
12
Gadzo, n 10, at 2.2.1 and 2.2.2, at 199, he discusses the limitations of Qureshi’s views and details the opposing
views held by other international tax scholars to conclude that the theory of unlimited tax jurisdiction is inferior
to the view that there needs to be a tax nexus as a prerequisite for the assertion of tax jurisdiction. Generally
speaking, where more than one State wants to exercise jurisdiction, discussions to resolve the issue will be based
around the idea of reasonableness, an underlying principle in the exercise of jurisdiction across a range of different
international law areas.
13
Avi-Yonah, International Tax as International Law (Cambridge, CP 2007) at 28, Elliffe, Taxing the Digital
Economy: Theory, Policy and Practice, (Cambridge, CUP, 2021) at 5.
14
OECD Model Tax Convention on Income and on Capital: Condensed Version 2017 (OECD Publishing,
November 2017) AT 105.
15
W Schon “Persons and Territories: on the International Allocation of Taxing Rights” (2010) 6 BTR 554 at 554.
In this article, Schon successfully sets out to show the fragility of the concepts of personal and territorial attachment
which purportedly underpin the power to tax.
2
State’s right to tax is commonly known as residence taxation. Where there is a connection between the
territory in which the income is earned and the taxpayer, this is known as source taxation. Interna-
tional tax law is primarily concerned with the taxation of this kind of cross-border income:
1. Where the resident of a jurisdiction is doing business overseas and the foreign juris-
diction concerned decides to impose source taxation (outbound investment). The resi-
dence taxation of this overseas income is sometimes complicated because the source
country’s tax laws may apply to this income and this will have consequential implica-
tions in the resident’s jurisdiction.
2. Where the government of one country taxes the business being carried out in its juris-
diction by a non-resident (inbound investment). The imposition of source taxation is
based on the nexus between the income and the taxing jurisdictions.
When countries decide that they will continue to operate on worldwide residence-based taxa-
tion in respect of outbound investment and to tax non-residents on income sourced in their jurisdiction
in respect of inbound investment then double taxation must arise. A resident of one country earning
income in another jurisdiction will be legitimately subject to tax twice: first by the source jurisdiction
where the income is earned, and secondly by the country in which they are resident.16 Double taxation
is, however, regarded as undesirable. Indeed, it was famously described as “evil” by the League of Na-
tions in the 1920s.17 To overcome, or at least to ameliorate, the consequences of double taxation in-
volves States sorting out matters between themselves. They do so by entering into treaties, historically
bilateral treaties but more recently multilateral ones.18 Such treaties normally address double taxation
by reducing domestic source taxation in respect of inbound investment.19 Treaties are very obviously
part of international law, but what other areas need to be considered?
Article 38 of the Statute of the International Court of Justice lists four areas of law within the
competence of the Court, although they are generally regarded20 as the sources of International Law:21
1. International conventions ( treaties);
2. International custom, as evidence of a general practice accepted as law;
3. The general principles of law recognized by civilized nations; and
4. Judicial decisions and the teachings of the most highly qualified publicists of the vari-
ous nations, as subsidiary means for the determination of rules of law.
International lawyers separate their field into “general international law”, the norms of which
are applied erga omnes (towards all) sometimes in circumstances where all States have standing, and
sometimes where standing to enforce may depend on the question of who is affected by the disputed

16
Elliffe, n13, at 1.2.3, at 7-9.
17
When the Financial Committee of the League of Nations asked four economists to consider the economic
consequences of double taxation (from the perspective of the equitable distribution of burdens and interfering with
the free flow of capital), they were asked to propose any general principles to remove the “evil consequences of
double taxation”. Bruins, Einaudi, Seligman and Stamp Report on Double Taxation (League of Nations Economic
and Financial Commission, Document E.F.S.73. F.19, April 1923).
18
An example is the Multilateral Instrument designed to implement the tax treaty related changes proposed by the
OECD's Base Erosion and Profit Shifting Project adopted in late 2016 and signed by the majority of countries in
2017, available at
https://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-
beps.htm
19
They also provide credits for source-based taxation to the entity in the other contracting State.
20
Brownlie, Principles of Public International Law, 9th edition (Crawford), OUP (2019) at 2.0 International Law
as Law, 3.
21
Statute of the International Court of Justice, available at https://www.icj-cij.org/en/statute
3
action, 22 and “particular” areas of international law (a smaller group of States that are consenting or
participating to a custom or treaty).23 It is suggested that the norms of general international law are
found in CIL,24 “while the norms of particular international law normally stem from the treaties”.25
In addition to the domestic taxing rules that deal with residents deriving foreign income, and
non-residents deriving locally sourced income,26 there are rules in tax treaties designed to change the
result of the domestic legislation.27 International tax law is mostly, but perhaps not exclusively, made
up of these three areas which are therefore a mixture of domestic and international law. The big ques-
tion is whether there is a fourth area of international law which can be logically included in the defini-
tion of international tax law. This chapter posits that there is, as discussed in III and IV, and that this is
CITL and not CIL.

III. Is Customary International Law Part of Interna-

tional Tax Law?
The preceding chapter in this book discusses in detail the relationship between international
tax law and CIL.28 Rather than traversing the rather contentious legal arguments29 about the nature and
scope of CIL, this chapter adopts the conclusions of the International Law Commission (the United
Nation’s expert body for international law).30 These conclusions summarise the constituent parts of
CIL defined in the draft conclusions of the International Law Commission on the topic of the Identifi-
cation of customary international law as “unwritten law deriving from practice accepted as law.”31
The International Law Commission make it clear that according to the Statute of the Interna-
tional Court of Justice,32 and consistent with the judgments of the Permanent Court of International
Justice,33 to determine a rule of CIL requires evidence of both of the following elements:34
• a general practice; and
• acceptance of that practice as law (opinio juris).

22
Wolfrum, General International Law (Principles, Rules, and Standards), Max Planck Encyclopedias of
International Law [MPIL], Oxford Public International Law, and Tomuschat, "General International Law: A New
Source of International Law?" in Global Justice, Human Rights and the Modernization of International Law (Ed
Mazzeschi/De Sena), Springer, Switzerland (2018) at 185-204.
23
Elias, "The Relationship between General and Particular Customary International Law", African Journal of
International and Comparative Law, Vol 8, No 1, 67 at 68.
24
Tunkin, "Is General International Law Customary Law Only?" 4 EJIL (1993) 534-541.
25
Gadzo, n10, at 195.
26
Outbound and inbound investment described in 1. and 2. above.
27
Brauner, "An International Tax Regime in Crystallisation", 56 Tax L. Rev. 259 (2003) 259, at 265.
28
Garcia, "International Tax Law and Customary International Law" in The Oxford Handbook of International
Tax Law, OUP, (2022).
29
Braumann, n4, 747 at 752.
30
United Nations, Report of the International Law Commission, 73rd session, A/73/10, (2018). The International
Law Commission was established by the General Assembly in 1947, to undertake the mandate of the Assembly,
under article 13 (1) (a) of the Charter of the United Nations to "initiate studies and make recommendations for the
purposes of… encouraging the progressive development of international law and its codification".
31
Ibid, General Commentary, paragraph 66 (3), on page 122. Consistent with the American Law Institute's
Restatement of the Law (third) (Foreign Relations Law of the United States) which states that customary
international law is law that "results from a general and consistent practice of states followed by them from a sense
of legal obligation", s 102 (2) at page 24.
32
Statute of the International Court of Justice, n22, Article 38 (1) (b), which includes among the sources of public
international law that derived from "international custom, as evidence of a general practice accepted as law".
33
Discussed by Treves, Customary International Law, at paragraph 17, Max Planck Encyclopedias of International
Law [MPIL], Oxford Public International Law.
34
United Nations, n30 at conclusion 2, on page 125.
4
 A rule will only be established if there is evidence of acceptance among States that “it may be
considered to be the expression of a legal right or obligation (namely, that it is required, permitted or
prohibited as a matter of law)”.35 Practice or compliance with the rule does not meet the test without
acceptance that it is the law (opinio juris). Likewise, a belief that something is, or ought to be, the law
is insufficient unless there is evidence of practice. The International Court of Justice in the North Sea
Continental Shelf Cases36 helpfully stated, that to demonstrate CIL required actions by States:
“not only must amount to a settled practice, but they must also be such, or be carried out in such a way,
as to be evidence of a belief that this practice is rendered obligatory by the existence of the rule of law
requiring it. The need for such a belief, i.e. the existence of a subjective element, is implicit in the very
notion of the opinion iuris sive necessitatis. The states concerned must feel they are conforming to what
amounts to a legal obligation.”

Scholars have sometimes pointed to the enormous similarities in international tax rules in
many different States created by compliance with bilateral treaties negotiated in accordance with the
OECD Model Convention.37 It is a valid observation that “most rules comprising international taxation
are very close to being de facto harmonised”.38 Is the reason for this harmonisation the existence of a
huge number of similar tax treaties or a belief that States have acceptance of legal rights and obliga-
tions sufficient to constitute CIL?39
Some suggest the latter. For example, Avi-Yonah suggests that when the UK introduced their
diverted profits tax (DPT) they did so because the permanent establishment threshold is CIL. The DPT
was designed, Avi-Yonah asserts, so that it was not a corporate income tax and therefore not subject to
the treaties, or CIL.40
Such an argument needs to be approached with care. If States truly believed that an entity resi-
dent in their jurisdiction would not be subject to tax on business profits earned in another contracting
State unless the entity had a permanent establishment in that source state, they would not need to enter
into a treaty at all. In negotiating the treaty, a State surrenders their sovereign right to tax in respect of
business profits earned in their jurisdiction. There is no evidence that they believed that an absence of
a permanent establishment means they cannot impose taxation on a foreign entity. It is actually the re-
verse, the treaty rule establishes that they normally believe they can impose tax if the foreign enter-
prise earns business income in their jurisdiction without a permanent establishment.
Scholars doubt that the commonality amongst international tax systems is due to states feel-
ing as though they are obliged to conform to CIL.41 Braumann makes the point that the more States
ratify and are bound by a treaty rule, the more difficult it becomes to show that the customary rule ex-
ists independent of the treaty. This is because it must be shown that the customary rule applies, when
the treaty rule does not, and as discussed above to do so it is necessary to establish evidence of opinio

35
Ibid, Commentary (2), on page 125.
36
North Sea Continental Shelf Cases (Germany/Denmark; Germany/Netherlands) [1969] ICJ Rep 3, at para 77.
37
Avi-Yonah, "Does Customary International Tax Law Exist?, in Research Handbook on International Taxation
(Brauner Ed, Edward Elgar, 2019).
38
Brauner, n27, at 263.
39
See Schill, The Multilateralization of International Investment Law, Cambridge University Press (2009)
40
Avi-Yonah, n37, under the heading "3. The PE Threshold".
41
Braumann, n4, 747, at 769, where she suggests that there is currently insufficient evidence to suggest that the
opinio juris element is present on the features of international tax that she considered, or Brauner, n3, 28 at 31,
see the quote at n7. Earlier sceptics include Rosenbloom, "International Tax Arbitrageurs and the "International
Tax System"", 53 (2) Tax L. Rev. (2000) at 137, and Graetz, "Taxing International Income: Inadequate Principles,
Outdated Concepts, and Unsatisfactory Policies, 54 (3) Tax L. Rev. (2001) at 261.
5
juris.42 Gadzo suggests that evidence of opinio juris is more likely to be found in domestic legislation
and the documentation of international organisations involved in international tax coordination (such
as the League of Nations, OECD or UN). Domestic legislation aligned to the basic norms of tax trea-
ties could “evidence that a State believes it is obliged to abide by the norm even outside of the treaty
context because it is part of Customary International Law”.43 In Gadzo’s view, domestic law provides
evidence for a personal or territorial nexus which denotes “one rare occasion where international cus-
tomary law is relevant” in the income tax arena.44
The question is whether there is sufficient evidence to suggest that States conform to interna-
tional tax norms because of their subjective belief that these rules exist in CIL. As indicated above,
most scholars who have looked for this evidence have failed to find it. This appears to be the case
when examined through the lens of either a general or particular CIL.45
There are some other very plausible reasons for the similarity or convergence of the interna-
tional tax rules found in national tax systems. These are reasons such as the wholesale adoption of the
OECD Model as a basis for bilateral treaty negotiation, a pragmatic approach to the common sense
collection of tax, or the efficiency of copying a successful rule from another close jurisdiction (which
in the case of a rule relating to the source of income has the benefit of reducing double taxation). In
the absence of further evidence, one feels that there are other forces of law at work which may not
have yet matured into CIL, but which still significantly influence national tax systems. Let us now turn
to discuss what these are.

IV. Consensus International Tax Law

This chapter advances the theory that there is something additional to areas of domestic and
treaty law discussed above, but that it has not yet developed into CIL. In other words, international
tax law consists of domestic law regulating cross-border transactions, public international law consti-
tuted by treaties and CITL. CITL can create mandatory binding obligations but mostly it creates norms
of cooperation and consensus that can facilitate new international tax compromises between States.
CITL is made up of, at least, three components that exist in our international tax infrastructure. These
are the institutions, instruments and interpretation parts of the system described further below. These
components are very strongly interrelated, meaning that they overlap. There is a common theme run-
ning through these three areas. Globalisation and the impact of technology facilitate the possibility of
consensus. Bentley discussed this nearly two decades ago, when he noted:46

It is in the exploration of that technical detail by policymakers, legislators, the executive and the judici-
ary that the ready access to a wide range of instant information, communication and influence has the
potential to change dramatically the framework and the process of decision-making.

42
Braumann, n4, 747, at 755. Garcia, "The Single Tax Principle: Fiction or Reality in a Non--Comprehensive
International Tax Regime?", World Tax Journal, August 2019, 305 at 333, agrees, saying "Consequently, the
international tax regime does not rise to the level of customary international law."
43
Gadzo, n10, 194, at 202.
44
Ibid, at 208.
45
United Nations, Report of the International Law Commission, 73rd session, A/73/10, (2018), where in
Conclusion 16 (2), it states that a rule of particular customary international law (which applies to a limited number
of States) it is still necessary to ascertain whether there is a general practice among the states concerned that is
accepted by them as law (opinio juris) among themselves.
46
Bentley, "Influence from the Shadows: The OECD, the Shape of Domestic Tax Policy and Lessons for Federal
Systems" Revenue Law Journal, Vol 13, Iss 1 [2003] 128, at 129.
6
 Globalisation has led to an increase in cross-border transactions by both multinational compa-
nies and individuals and it is been suggested that it is responsible for a change in the balance between
domestic tax systems and international tax rules.47Communication has had the impact of making inter-
national tax, and more particularly the payment of tax by multinationals, a matter of domestic politics
in most countries.48 This was the background for the Base Erosion and Profit Shifting Project of the
OECD and arose from the Global Financial Crisis of 2008.49 The introduction to the original BEPS
discussion document in 2013 refers to how the media, public, civil society and NGOs were pointing to
the inadequacies of the international tax regime suggesting there was a perception that “domestic and
international rules on the taxation of cross-border profits are now broken and the taxes are only being
paid by the naïve”.50 This groundswell of public opinion transmitted into domestic politics with the
expectation that the political system in a country can deal with a tax problem. As Sadiq explains, the
generally held view that a democratically elected State can deal with a tax problem unfortunately does
not hold true in the international tax arena:51

Most importantly, these domestic rules do not generally have an international influence. However,
where a tax problem is international, there may be overriding international considerations as a gov-
ernment’s own tools to remedy the problem may prove insufficient. Ultimately, a government may
have to turn to the “international tax regime” to find a solution.

The international tax regime that governments “turn to” involve the institutions, instruments,
and interpretation of international tax which collectively make up CITL. The first component of CITL,
the rise and rise of the institutions of international tax, has been a key part of the broader international
tax regime since the 1920s,52 but in more recent times it has assumed even greater significance.

(A) THE INSTITUTIONS OF INTERNATIONAL TAX

For a variety of different reasons the current international organisations are possibly at their
most powerful and influential since the coming together and creation of the 1920s compromise by the
League of Nations.53 Mason writes of the “transformation of international tax” describing the BEPS
project as having “profound implications”.54The point she is making is that rather than viewing the

47
Valderrama, "The Interaction of Tax Systems and Tax Cultures in an International Legal Order for Taxation",
(September 1, 2008). Diritto e Pratica Tributaria Internazionale, CEDAM, Vol. 5, No. 2, pp. 841-867, 2008 ,
Available at SSRN: https://ssrn.com/abstract=1550815
48
See the excellent historical description of the events that occurred with the financial crisis of 2008,
multinational aggression on tax planning, public outrage and political hearings in the United States, United
Kingdom presented by Mason, "The Transformation of International Tax", American Journal of International
Law, Vol. 114, Iss. 3 , (2020), 353, C. Crisis and the Road to Corporation, from 365.
DOI: https://doi.org/10.1017/ajil.2020.33
49
OECD (2013), Addressing Base Erosion and Profit Shifting, OECD Publishing, Paris,
https://doi.org/10.1787/9789264192744-en.
50
Ibid, page 13.
51
Sadiq, "The Inherent International Tax Regime and its Constraints on Australia's Sovereignty", University of
Queensland Law Journal, Vol 31 (1) (2012), 131 at 139.
52
For a brief description of the 1920s compromise see Elliffe, n13, and for a more detailed discussion see Graetz
and O’Hear “The ‘Original Intent’ of US International Taxation” (1997) 46 Duke LJ 1021 at 1033.
53
Mason, n48, at 367-369 where she discusses the OECD officials receiving a "mandate" from the G 20 and the
rise of policymakers from the EU member states acting as a counterweight to the United States in international tax
relations.
54
Ibid, 354.
7
BEPS Project as just an opportunity to purely devise whole new set of anti-avoidance measures to pre-
vent multinationals shifting profits, 55 the BEPS Project really should be regarded as a fundamental
change to international tax involving new “participants, agenda, institutions, norms, and legal instru-
ments”.56
Mason is right, there has been an acceleration of change to the stage where it can be described
as transformational. The central institution in this transformation and this theory of CITL is the OECD.
The last decade or so has shifted the OECD from being what some have described as a shadowy influ-
ence57to being an actor in the spotlight on the centre stage. Hearson points to OECD staff, civil servants
of national governments and professional stakeholders being consistently described members as an “ep-
istemic community”.58 An influential group whose individuals “diagnose and prescribe policy reforms
that are informed by, and that play out within, national legal regimes”,59 knowledgeably negotiating and
“providing a forum for discussion and providing a base of expertise to structure the debate”.60 Keeping
the debate highly technical and between tax bureaucrats and business association representatives had
the effect of excluding civil society from international tax matters.61
The OECD has no formal power but it has enormous influence.62 It is unclear whether it is the
OECD, or its member states, which pressure countries to conform to such things as OECD transfer
pricing standards, or nominate countries to go on lists where they are designated to be tax havens or a
part of a harmful tax competition agenda.63 As Brauner says, when discussing the legal source for the
OECD’s influence: “These issues are simply ignored in most cases due to the power that the OECD and
its dominating members impose over the international tax regime”.64
The point is that the OECD and its powerful members, in practice, wield influence and expect
compliance, particularly from those countries that have been involved in the debate. During BEPS and
then subsequently, the OECD’s influence has grown, firstly by receiving the mandate of the G20,65 and
then subsequently through its leadership of the Inclusive Framework. Made up of 139 States, the Inclu-
sive Framework is open to those countries that commit themselves to implementing BEPS minimum
standards.66 Although the Inclusive Framework has been a key body in the implementation of BEPS
through the multilateral instrument, it is also been heavily involved in the further work in BEPS 2.0 (the

55
Ibid, at 353 where she asserts that many academics have characterised the BEPS project as "a mere technical
project to close tax loopholes" but this characterisation underestimates the enormous transformational changes that
have occurred in international tax in recent times.
56
Ibid, at 354.
57
Bentley, n46.
58
Hearsen, "Transnational Expertise and the Expansion of the International Tax Regime: Imposing "Acceptable"
Standards", Review of International Political Economy, 25:5, 637 at 651.
59
Christians, "Networks, Norms and National Tax Policy", Washington University Global Studies Law Review,
(2010), 9 (1), 1, at 22.
60
Ring, "Who is making international tax policy?" Boston College Law School Faculty papers number 264 (2010),
at 681.
61
Rixon, "Politicisation and Institutional (non-) change in International Taxation" (WCB discussion paper, SP IV
(2008) -306 at 13.
62
Brauner, n3, 28 at 32. See also the general proposition that the Australian government adopts voluntarily
international norms promulgated by the OECD as well as specific examples in the area of transfer pricing given
by Sadiq, n51, at 139.
63
Brauner, n3, 28 at 32.
64
Ibid at 32
65
As noted by Mason, n 48, the thirty-seven members of the OECD added a further eight countries through the
imprimatur of the G20, but importantly in addition to having a population collectively of 3.5 billion these countries
include really important developing countries.
66
139 countries were members as at February 2021. For further information see
https://www.oecd.org/tax/beps/beps-about.htm/
8
proposals to reform the taxation of the digital economy and the global anti-avoidance plans for minimum
corporate taxation).
The BEPS Project has been an enormous catalyst for multilateralism, with the OECD and its
officials at the heart of the international tax agenda setting, but there are other institutions involved in
CITL. For example, the United Nations operates their Tax Committee, made up of 25 experts nominated
by Governments,67 and this body is responsible for maintaining the UN Model Double Taxation Con-
vention between Developed and Developing Countries as well as its associated Manual. Many countries
will have some reference to the UN Model in their treaty network (to a greater or lesser extent). 68 The
contribution made by the UN and their tax committee is significant in their key constituency: developing
countries, but they also have made a contribution in areas such as technical services and taxation of the
digital economy. 69Increasingly, organisations such as the African Tax Administration Forum (ATAF)
have become a significant force in these institutions particularly representing developing countries.70
Completing the picture are non-governmental organisations (NGOs), tax watchdog groups (such as the
Tax Justice Network) and even journalists who have been very active in reporting on global corporate
tax avoidance and evasion.71

(B) THE INSTRUMENTS OF INTERNATIONAL TAX

As indicated above in the introduction to IV, there is a great deal of overlap between the insti-
tutions and the instruments of international tax. There are numerous instruments of international taxa-
tion. They include OECD, UN, and G20 Reports and Recommendations,72 administrative agreements
between governments,73 the OECD Model and its associated Commentary,74the UN model and its as-
sociated Commentary,75 but undeniably the most important instrument of international tax is the tax
treaty. Brauner, when evaluating the sources of international law concludes that, “treaties are, there-
fore, the key component of the international tax regime and the primary reason for its success.”76
Most countries use the OECD Model as a basis for their international double tax agree-
ments,77 and the importance of the Model can be seen by the fact that not only are the substantive and

67
See the document entitled "Selection of Membership of UN Tax Committee-Frequently Asked Questions
(February 2021), available at
https://www.un.org/development/desa/financing/sites/www.un.org.development.desa.financing/files/2021-
02/FAQ%20Nominations%20Tax%20Committee_Feb2021.pdf
68
Sadiq, n50, 131, at 143, "Having said this, there are occasions when Australia also relies on the work of the
UN", this observation is also true for New Zealand.
69
One could point to Article 12A and the newly proposed 12B of the UN Model as evidence of foreshadowing the
allocation of taxing rights to the market or destination jurisdiction without the non-resident entity having a perma-
nent establishment in that source jurisdiction.
70
See further information at https://www.ataftax.org/
71
Mason, n 48, at 369, 370.
72
For example and there are many, the numerous interim and final reports of the BEPS Project.
73
Such as the Australian and New Zealand administrative agreement on dual resident companies pursuant to
Article 4 (1) of the MLI, see https://www.ato.gov.au/Business/International-tax-for-business/In-detail/MLI-
Article-4(1)-administrative-approach/
74
OECD (2019), Model Tax Convention on Income and on Capital (Full Version), OECD Publishing, available
at http://www.oecd.org/ctp/model-tax-convention-on-income-and-on-capital-full-version-9a5b369e-en.htm
75
United Nations Model Double Taxation Convention between Developed and Developing Countries (2017),
available at https://www.un.org/esa/ffd/wp-content/uploads/2018/05/MDT_2017.pdf
76
Brauner, n3, 28 at 31.
77
Bentley, n46, 128 at 131
9
administrative provisions in tax treaties based upon this Model, but they also follow its pattern and in-
corporate the major principles upon which it is based.78 Major norms of international tax such as sepa-
rate entity accounting, arm’s-length principles of profit attribution, an exemption from taxation of
business profits if there is no permanent establishment in the source state, limited source state taxation
for passive income, relief from double taxation, provisions for non-discrimination, and mutual agree-
ment and assistance procedures are therefore embedded in the many (greater than 3000)79 treaties
which are based upon this important Model.80 The use of the OECD Model can be seen as a sophisti-
cated way to achieve informally a “coordinated and networked action by governments” which can lead
to new international law and policy making “without imposing undue restrictions on national sover-
eignty”.81
The use of the Multilateral Instrument82 to achieve modifications to countries tax treaty net-
works is an excellent example of “hard”83 international law adopting consensus positions while at the
same time preserving some national sovereignty discretions. The MLI is a novel solution to update
some of the 95 signatories’ bilateral tax treaties with a collective stroke of their pens. The MLI is tar-
geted at making changes designed to prevent avoidance identified in the BEPS Project, but there is
considerable scope for countries to exercise their own sovereignty through the ability to select various
options or even completely opt out of certain changes. That said, there is a very obvious example of
direct CITL sitting in the MLI. As a combination of an institution (the Inclusive Framework), and an
instrument (the MLI) working together, countries become bound to implement certain minimum
standards. Implementing these minimum standards (primarily aimed at tax treaty abuse and dispute
resolution) are mandatory to members of the Inclusive Framework, although there may be given some
choice on how to effect the change, the requirement to make the change is binding.84 There are some
important specific examples here of the operation of these mandatory requirements. Most countries
that are part of the Inclusive Framework elected to adopt the Principal Purpose Test (a treaty based
general anti-avoidance rule), rather than the limitation of benefits clause, but either or both were per-
missible.85
The OECD Model Treaty, the resultant bilateral treaties, and the variations to these treaties
created by the MLI are only a part of the story. Certainly the treaties, in their various forms bilateral or
multilateral, become actual law once incorporated into a nation’s legal system. Other than these direct
sources of law, some instruments of CITL play an important but indirect role in influencing and shap-
ing domestic tax rules. These instruments, such as the OECD Model Commentary, OECD Reports
(such as the BEPS action reports), the Explanatory Statement to the MLI, the transfer pricing guide-
lines, for example, are often known as “soft law”. There is significant crossover between the role that
these instruments have and their effect in influencing interpretation. Commentators, such as Brauner

78
Ibid.
79
Over 3000 is the number referred to by Brauner, n4, 28.
80
See Chapter 1, the General Report in "The Impact of the OECD and Un Model Conventions on Bilateral Tax
Treaties" Edited by Michael Lang, Pasquale Pistone, Josef Schuch and Claus Staringer, Cambridge University
Press (2012) at 1-36.
81
Cockfield, "The Rise of the OECD as Informal "World Tax Organisation" Through National Responses to E-
Commerce Tax Challenges (2006) Spring Yale Law Journal 137, at 167.
82
Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting,
available at https://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-
to-prevent-beps.htm (referred to as "Multilateral Instrument" or "MLI").
83
As opposed to "soft" law. They can also be viewed as a direct source of law as opposed to indirect.
84
This is discussed in the FAQ section of the OECD MLI website where it is noted at question 12 that there is no
flexibility in the MLI for certain amendments, see https://www.oecd.org/tax/treaties/MLI-frequently-asked-ques-
tions.pdf
85
Elliffe,"The Meaning of the Principal Purpose Test: One Ring to Bind Them All?", World Tax Journal, February
2019, 47 at 50.
10
point to the use of soft law as a “coordination solution”. By this he means that countries were prepared
to agree on certain principles for international tax (such as the exchange of taxpayer information and
the elimination of double taxation) enshrined in the 1920s compromise because they would lead to
greater standardisation and coordination, but they would not agree to a formal harmonisation of inter-
national tax laws.86 Soft law is a very important component of CITL, because it leads to the develop-
ment “of a sort of international common law that is a notch below customary law since not all coun-
tries agree to be bound by it, but which countries that believe in the benefit of more cooperation could
support in the hope that the sovereignty cost of increased cooperation would be more than paid for by
its benefits even if they could not reduce it to formal agreements.”87 This can lead to soft law being
influential, for example, when a state decides to formally adopt law. This phenomenon was discussed
by Sidiq, when she pointed to the wording of a press release when Australia adopted the OECD’s
Transfer Pricing Guidelines in order to be “more in line with international best practice”.88 A country
adopting an international regime developed by the OECD as a “best practice” norm makes sense from
a coordinated and integrated international tax perspective, but as Sidiq observes, it is an example of
the institutions and instruments of international tax influencing domestic tax policy:89
In essence, as the November Press Release suggests, Australia is turning to what it considers to be inter-
national best practice through the work of the OECD on transfer pricing thereby proactively electing to
adopt and be constrained by what could be seen as part of the international tax regime. (Emphasis
added)

The second reason why soft law in its various forms is greatly utilised in CITL is because of
its flexibility. Hardwired tax treaties are generally thought of as being difficult, or time-consuming and
costly to amend. In comparison changes to the OECD Model Commentary might be comparatively ef-
ficient since they potentially apply to all treaties that use terms which are described in the Commen-
tary in an ambulatory way. It seems highly likely that the OECD Commentary is not binding, but that
does not remove their importance as an interpretive tool, a point which is discussed in the next section
(C). The point is that revisions to the instruments of international tax law, such as the OECD Model
Commentary, allow the epistemic group of the OECD Secretariat and the revenue officials of Working
Party 1 to make changes without amending the Model or bilateral treaties. Whatever else this is, it is
most certainly influential and a key part of CITL.

(C) THE INTERPRETATION OF INTERNATIONAL TAX

The principal instrument of international tax law, a treaty, shall be interpreted in good faith in
accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the
light of its object and purpose.90 In most legal systems this is led to a focus, firstly, on the clear mean-
ing of the words used in the treaty. Subsequently, the focus on the text is combined with due consider-
ation of the purpose of the particular article in the treaty as a whole.91 As the Supreme Court of the
United Kingdom instructs: treaty interpretation requires establishing, in an objective and rational way

86
Brauner, n3, 28 at 33.
87
Ibid, at 34, Brauner acknowledges Guzman and Meyer, "International Soft Law", Journal of Legal Analysis
(2010) Vol 2, No. 1, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1353444#
88
The Hon Bill Shorten MP, Press Release number 145, 11 November 2011 announcing the Australian adoption
of new transfer pricing rules.
89
Sadiq, n51, 131, at 139.
90
VCLT, Art 31 (1).
91
Baker (ed) Double Taxation Conventions (Looseleaf ed, Sweet and Maxwell) at ch E: The Interpretation of
Double Taxation Conventions.
11
“the common intention of the parties”.92 In common law jurisdictions, at least, courts have generally
taken the view that it is not a narrow domestic view of the words that are required, but rather a broad
purposive interpretation of the goals and objects of the Convention.93 Such a purposive interpretation
is likely to involve tax administrations, taxpayers, and most importantly courts primarily examining
the OECD Commentaries, but also other instruments of international tax referred to above in (B). As
observed by the Committee on Fiscal Affairs (in the Commentary) “in many decisions, the Commen-
taries have been extensively quoted and analysed, and have frequently played a key role in the judge’s
deliberations.”94
It is hard for tax lawyers to discern how much weight to give the Commentaries, but they can
never be read literally in the same way as tax legislation and they certainly are not binding.95 The key
question is whether the new Commentary amends, changes or “clarifies”. It is clear that generally
courts96 accept that later Commentaries (Commentaries amended and promulgated after the conclusion
of the treaty), can be of some considerable assistance in the interpretation of the treaty provided they
clarify or amplify the previous Commentary.97
Overall the interpretation process which utilises the Commentary and other instruments of
CITL is useful, but it must be recognised that there are risks associated with the “casual, reflective re-
liance on them and other, less formal soft law instruments in the interpretation of tax treaties.”98 Oc-
cassionally the process of “clarifying” represents the ultimate in dramatic finessing. An unacceptable
court decision (in the eyes of the OECD) might be effectively reversed on the basis that an interpreta-
tion by the Court was not what was intended.99

92
Anson v Commissioners for Her Majesty's Revenue and Customs [2015] UKSC 44, per Lord Reed.
93
See R v Crown Forest Industries Ltd (1995) D.T.C 5,389, at 5,393 (per Iacobucci J) for the Canadian Supreme
Court, United Dominions Trust Ltd v CIR (1973) 1 NZTC 61,028, at 61,031 (per McCarthy P) for the New Zealand
Court of Appeal, Thiel v FCT (1990) 90 ATC 4717 at 4720 (per Mason CJ, Brennan and Gaudron JJ) for the High
Court of Australia. See also KJ Keith Interpreting Treaties, Statutes and Contracts (Occasional Paper No 19, New
Zealand Centre for Public Law, Wellington, 2009).
94
OECD (2015), Model Tax Convention on Income and on Capital 2014 (Full Version), OECD Publishing.
http://dx.doi.org/10.1787/9789264239081-en, Introduction at 29.3, I-9.
95
Avery Jones, Treaty Interpretation - Global Tax Treaty Commentaries, IBFD, at 1.1.2.1:
"It would clearly not be possible for the OECD Commentaries to be binding, both because of the variety of material
that they contain and because this would inhibit their development, as states would have to be very careful about
what they contained."
96
Most recent cases in common law jurisdictions take the view that the ambulatory use of later Commentaries are
widely accepted guide to the interpretation and application of bilateral conventions, provided they represent a fair
interpretation of the Model Convention and do not conflict with the Commentary in existence at the time the
convention was entered into. Of course, neither treaty partner should have registered an objection to the new
Commentary, see for example the approach of the Canadian Federal Court of Appeal in R v Prevost Car Inc [2009]
FCA 57, [2010] 2 FCR 65. It is also appropriate to observe that many academic writers do not accept this approach,
preferring the view that static interpretation is required so that only the Commentary available at the time the
Contracting States negotiated the treaty is relevant, and that subsequent Commentary should be "seen in a different
light". See Lang and Brugger, "The role of the OECD Commentary in tax treaty interpretation", (2008) 23
Australian Tax Forum, 95 at 107.
97
For a discussion on the various academic views and the approach of high level courts, see Elliffe, "Cross Border
Tax Avoidance: Applying the 2003 OECD Commentary to Pre-2003 Treaties", (2012) BTR, Iss 3, 307, at 322-
324.
98
Brauner, n3, 28 at 36, where he discusses the significant problems in Treaty interpretation posed by the use of
soft law.
99
Although it is ancient history, the New Zealand Court of Appeal decision in CIR v JFP Energy Inc [1990] 3
NZLR 536 (CA), is such a case, with the Court deciding that the "borne by" found in Article 15 (2) necessitated a
requirement that the expense be made in the accounts of the non-resident entity operating in the source jurisdiction.
Subsequently, the OECD Commentary made it clear (currently contained in paragraph 7.1 of the OECD
Commentary, n94, on Article 15, at C-15, 11) that the term would also apply even in circumstances where the
expense was not part of the accounts of the non-resident.
12
 In addition to this reliance on the instruments of CITL (such as the Commentary) in judicial
decisions, there is an increasing tendency for courts in one country to use the judgments of another.
Baistrocchi’s analysis of 27 jurisdictions suggested that tax disputes were consistently patterned, no
doubt reflecting the enormous similarity of the international tax regime created through the consistent
use of the OECD Model.100 Klaus Vogel notes that common interpretation is necessary in order to con-
sistently apply and allocate tax claims between contracting states.101 Vogel points to numerous in-
stances where the courts of one jurisdiction have referred to the decision of another whilst noting that
“common interpretation” does not mean that the case law of the other state must be accepted without
review.102 Convergence in the interpretation of terms found in international treaties is a desirable ob-
jective, so the Commentaries, and reference to relevant foreign judgements can play an important part
in international conformity, “given that the underlying objective of such international treaties and
model laws is to achieve uniformity across jurisdictions”.103

V. Conclusion
This chapter suggests that there is an international tax regime which has an enormous influ-
ence on national tax systems. The arguments do not suggest that States have the necessary “belief” to
constitute CIL, but that may happen in the future. Meanwhile, there is an existing legal ecosystem in-
volving multilateral discussions by States utilising the institutions of international law such as the
OECD, G 20, and most recently the Inclusive Framework. These institutions are responsible for indi-
rectly and on occasions, via the MLI, directly, producing the instruments of international law. These
instruments include both hard law, such as the MLI and bilateral treaties through conformity with the
OECD Model. They also produce soft law, through the OECD Commentary and numerous other re-
ports. The subsequent process of interpreting these bilateral and multilateral instruments, using the
OECD Commentary and other reports, together with reference to foreign judgements by courts from
around the world leads to the theory of CITL.
How real is this theoretical CITL concept? Let’s examine it through the lens of the BEPS Pro-
ject. The consensus cooperation in the BEPS Project 1.0 (the development and implementation of the
15 Action Plans to overcome base erosion) was ultimately undertaken by 139 countries, although it
had been begun by the OECD (with the mandate from the G20). The components of CITL worked de-
velop a significant number of legal changes to both bilateral treaties and domestic law. Ultimately this
was implemented with some mandatory clear obligations BEPS obligations, and some less certain ex-
pectations, on the countries which had voluntarily signed up to the Inclusive Framework. This is a
good example of CITL working in the area of treaty abuse and tax avoidance.
BEPS 2.0 (the taxation of highly digitalised businesses and consumer-facing businesses oper-
ated by large multinationals, together with proposals adopting a minimum tax on undertaxed income
earned by entities in the multinational group) is the ultimate test of whether CITL will work on what
might be regarded as cornerstone principles of the 1920s compromise international tax framework,
namely, separate entity accounting, the arm’s length principle for determining profits, the taxation of
business profits in the market jurisdiction only where the enterprise carries on business through a per-

100
Baistrocchi, A Global Analysis of Tax Treaty Disputes, (2017) CUP, 1455.
101
Vogel Klaus Vogel on Double Taxation Conventions: a commentary to the OECD-, UN- and US model
conventions for the avoidance of double taxation on income and capital, with particular reference to German
treaty practice (3rd ed, Kluwer Law International, London, 1997) at 73–76.
102
Ibid, at 75-76.
103
Dame Susan Glazebrook (New Zealand Supreme Court Judge) writing extra judicially in a paper “Judging in
an International World” (Inter Pacific Bar Association (IPBA) conference, Singapore, 4 May 2010).
13
manent establishment in the source country. The fundamental changes proposed to the existing inter-
national tax regime by BEPS 2.0, require the operation of CITL in design, implementation, and opera-
tion.
Seen in the light of the recent discussions on the taxation of highly digitalised businesses, it is
still unclear as to whether a consensus will emerge (the 2020s compromise utilising a new multilateral
instrument to change the allocation of profits and taxing rights away from countries of origin to mar-
ket or destination countries). If this consensus emerges, it will be further strong evidence of the exist-
ence of CITL.

Postscript

The influence of international tax law on national tax systems, views the interaction between
states and international tax law from one direction, but it is also valid to reflect on the influence of na-
tional tax systems in international tax law. The domestic tax system of the United States has had a
huge impact on the design of the international tax regime. According to Avi-Yonah, for much of the
past 100 years, the US has led international tax reforms in what he terms “constructive unilateralism”.
104
This is an example of where domestic tax policy has influenced international tax policy.
It is also possible to reflect that domestic legal systems reach into and dramatically influence
the outcomes of international tax law. Two examples might suffice to support this proposition. The
first is an example of territorial limitation, found in common law jurisdictions. Under this rule a non-
resident employer is required to have a trading presence in the United Kingdom in order to be subject
to an obligation to deduct employment tax (PAYE) at source. The principle was considered in the
1983 House of Lords decision Clark,105 relating to whether a non-UK resident company was required
to deduct income tax under the PAYE system from employment income paid to its employees working
outside the UK but in the UK sector of the continental shelf. These employees were liable to income
tax. Oceanic argued that it was not subject to the PAYE obligation because it was neither a UK resi-
dent nor did it have a taxable UK branch. The House of Lords held, by a narrow majority, that there
was an implied territorial limitation on the statute. The problem faced by the Court was that the clear
words of the statute did not have any such limitation suggesting only that a non-resident employer
making a payment of a taxable emolument is subject to the PAYE obligation notwithstanding the
place of payment, the currency in which it was made, or the residence of the payer. The majority de-
cided that the statutory obligation was impractical and could not be enforced, leading to the conclusion
that the territorial limitation was to be implied into the clear words of the section.106 The practical con-
siderations of enforceability and collection lead to an interpretation of the statute which restricts the
cross-border application of the law.
The second example is where domestic law reaches into and overrides international tax law.
This is a contentious area as to whether the override is acceptable, although in circumstances where
the taxpayer is relying on international law for tax avoidance purposes, the general view is that an im-
proper use of a tax treaty can be overridden by domestic anti-avoidance provisions.107 There are other

104
Avi-Yonah, "The interaction between unilateralism and multilateralism in international tax", in International
Tax at the Crossroads: Institutional and Policy Reform in the Error of Digitalisation, (forthcoming), Ed Elliffe,
Edward Elgar, Cheltenham, UK.
105
Clark (Inspector of Taxes) v Oceanic Contractors Inc [1983] 2 AC 130 (HL).
106
Ibid, per Lord Scarman at 148.
107
“Tax treaties and tax avoidance: application of anti-avoidance provisions” (2010) 95a International Fiscal
Association’s Cahier De Droit Fiscal International, 1 at 22. The 2010 Congress of the IFA in Rome provided a

14
situations where the national tax systems influence international tax rules but perhaps such a discus-
sion needs its own chapter?

forum to analyse the relationship between treaties and the GAAR in a number of different tax jurisdictions around
the world. As a result of the Congress, 44 country reporters considered their own country’s response to the issue.
The General Reporter, Stef van Weeghel, concluded in his summary of these reports that the vast majority of the
branch countries determined that their GAARs can be reconciled with their treaty obligations. By this he meant
that, while most countries have statutory or judge-made anti-avoidance rules (although there are a considerable
number of differences in their application), these GAARs can, and do, apply to cross-border transactions. Van
Weeghal concluded:
“Without exception the GAARs can have international effect and there is no distinction in their application
depending on the national or international effect.”
15