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Brooklyn Law School




For nearly one hundred years, the international tax regime steadfastly pursued a single nemesis, double taxation. States armed themselves against this common enemy with their weapon of choice, the double tax treaty. Nearly uniform in language and approach, the treaties proliferated to more than three thousand in number,1 resulting in a secure arrangement between and among states and taxpayers.

Yet in recent years, states have had to expand the war to multiple fronts in the face of globalization, technological changes, evolving taxpayer abuses, and shifts in both domestic and international political pressures. For instance, a growing recognition that the interests of a state and its taxpayers can and do diverge has fueled the Base Erosion and Profit Shifting (BEPS) containment effort led by the Organisation for Economic Co-operation and Development (OECD), culminating in an unprecedented multilateral instrument. Acknowledging that tax havens lack some combination of the resources and the inclination to forestall tax evasion, the U.S. Congress enacted the Foreign Account Tax Compliance Act to compel financial institutions in foreign jurisdictions to step into the breach, 2 resulting in more than one hundred intergovernmental agreements implementing new reporting regimes. 3 The European Commission is currently investigating whether favorable advance transfer pricing rulings granted to corporate taxpayers by certain European countries violate the European Union bar on state aid that distorts competition.4 These state aid cases have created tension among the various jurisdictions that have a claim in taxing profits that have been shifted to tax havens and have the potential to unsettle dispute resolution procedures under bilateral tax treaties.

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