The 2003 revisions to the commentary to the OECD model on tax treaties and GAARs: a mistaken starting point

Abstract

In January 2003 the OECD issued an important revision to the Commentary to the OECD Model concerning the improper use of tax treaties. Based upon the idea that GAARs are rules set by domestic tax laws for determining which facts give raise to a tax liability, no conflict may arise with tax treaties. Our contribution tries to prove several weaknesses of this argument: 1) It is legally inconsistent and encourages confusion between sham and avoidance in the tax field. 2) Moves away from the real solution of the issue which requires an in deep analysis on the existence of a universal law-application theory (e.g. concepts of interpretation and analogy). According to this, we demonstrate that many treaty shopping cases might be faced by a mere interpretation of the attribution rules set up by domestic tax laws. 3) The guiding principle elaborated by the OECD Commentaries also merits criticism as it might encourage the application of a domestic GAAR to non-artificial transactions generating thereby also serious concerns from a European Law perspective.