Sunday, May 6, 2012

Tax Treaty Interpretation: the ambulatory approach

This student note asks whether, if courts draw on OECD guidance to interpret actual tax treaties, they should consult the latest guidance regardless of the date the treaty was signed.  He concludes they should.  I'm not convinced.  Some of my reluctance to be convinced draws from my hesitancy about the use of the OECD commentaries as guidance at all; the rest because I cannot see how the parties to a treaty could possibly prospectively bind themselves to some future interpretation, but especially one that is not made by either of the treaty signatories in respect of the actual treaty they signed.

The former point is a threshhold issue--since I worry about the incremental ossification of OECD commentary via uncritical acquiescence to its murky status as law, I wish that the topic would be discussed at length in any writing about tax treaty interpretation, and I feel uneasy when this difficult question is sidestepped in pursuit of the finer point about which of such guidance should be used when.  It really is a tough threshhold, and perhaps for good reason the student chose to step past it in order to get to his main question of whether a static or ambulatory approach is appropriate.

In 1994, Hugh Ault wrote a brief comment trying to reconcile the use of OECD commentaries with the Vienna Convention; he rejected the ambulatory approach on grounds that later OECD commentary could completely reverse prior understandings of the meaning of the model convention, so could not reflect the parties intentions as the Vienna convention would require.  This 2008 brief from one treaty signatory in a tax treaty dispute cites Hugh Ault's argument to completely reject the ambulatory approach; similarly this article [pdf] by Esperanza Buitrago Díaz discusses a series of cases that reject the approach with respect to Spain's treaties with the Netherlands and Costa Rica.

It seems to me NatWest got it right, and the ambulatory approach is really hard to defend.  But I applaud the student for giving it a go--not an easy topic of law for a first stab at scholarship.

1 comment:

  1. In circumstances such as this would later "protocols" to a treaty be cause for going forward in time to a more recent commentary or only to extent that a particular protocol modifies a treaty.