Wednesday, April 26, 2006
Michael J. McIntrye (Wayne State) has posted Comments on the OECD Proposal for Secret and Mandatory Arbitration of International Tax Disputes on SSRN. Here is the abstract:
The OECD has proposed amendments to its Model Tax Convention and Commentary that would establish a system for the mandatory arbitration of tax disputes between two treaty countries when the tax officials of those countries have been unable to resolve those disputes within a two-year period. The proposal is undoubtedly well-meaning and does address a small but significant problem - the “rare cases” (OECD characterization) of potential double taxation that are unresolved through the existing tax-treaty mechanism. Nevertheless, the public policy goals of this proposed system are at best obscure, and the risks to sound administration of national tax systems are great.
The OECD proposal includes the following three features that have been on the wish lists of multinational companies for a very long time:
- A forum outside the control of the tax authorities where they can litigate tax disputes in secret;
- A club they can use to compel the tax authorities to resolve international tax disputes within very tight time deadlines (typically six months);
- Direct involvement by their legal staffs in the competent-authority process.
In these comments, I argue that these features, most importantly the secrecy feature, are inconsistent with public policy. I would require that the arbitrators to an international tax dispute be required to prepare and publish a full report that sets forth the controlling facts and explains in appropriate detail the legal basis for their decision. As the OECD has recognized in other contexts, transparency is a condition for legitimacy. An adjudicative system that lacks legitimacy is simply unacceptable in a democratic society.