The Limits of Administrative Guidance in the Interpretation of Tax Treaties
In an increasingly global economy, the question of how to tax international transactions is complex. Tax treaties are important in deciding these issues. These treaties are entered into between two nations in order to address how transactions will be taxed and to share information to combat tax fraud. Despite the treaties' utility, a major difficulty arises: as tax law develops the treaties must be updated.
Rather than constantly renegotiating the treaties administrative agencies issue new interpretations of the existing treaties. However, these are unilateral interpretations of a bilaterally negotiated treaty. This naturally creates tension, which Michael Kirsch explores in this article. Kirsch begins by explaining the formation and interpretation of tax treaties in the United States. He acknowledges the appeal of issuing interpretive guidance, but also elaborates on some of the obstacles to its use. After a brief discussion of the role of interpretive guidance under the Vienna Convention, Kirsch turns to examine how U.S. courts have treated the Treasury's interpretive guidance.
First, he examines the standard that courts use to determine whether to look beyond the text of the treaty. While the standard articulated by the U.S. Supreme Court varies somewhat, it is generally consistent with the Vienna Convention standards. In addition, Kirsch looks at the different forms of guidance U.S. courts use in the interpretation of tax treaties, including the Senate materials, other tax legislation, and administrative guidance. Kirsch then applies the treaty interpretation principles to determine how much weight should be given to the Treasury's technical explanations. He compares the Treasury guidance to the commentaries offered in conjunction with the OECD model treaties. Ultimately, Kirsch concludes that the Treasury's post-treaty interpretive guidance should not be given significant weight, but also identifies certain situations where it may be helpful.
