Monday, May 1, 2017

Dagan on International Tax and Global Justice

Tsilly Dagan recently posted this new paper on the limitations of normative tax analysis that constrains itself to the state. Here is the abstract:
Inequality, as well as the scope of the duty of justice to reduce it, has always been a central concern of political justice. Income taxation has been seen as a key tool for redistribution and the state was the arena for discussions of justice. Globalization and the tax competition it fosters among states change the context for the discussion of distributive justice. Given the state’s fading coercive power in taxation and the decreasing power of its citizenry to co-author its collective will due to global competition, we can no longer assume that justice can be realized within the parameters of the state. 
International tax policy in an effort to retain justice often opts for cooperation as a vehicle to support distributive justice. But cooperation among states is more than a way for them to promote their aims through bargaining. Rather, it is a way for states to regain legitimacy by sustaining their very ability to ensure the collective action of their citizens and to treat them with equal respect and concern. The traditional discussion in international taxation seems to endorse a statist position — implicitly assuming that when states bargain for a multilateral deal, justice is completely mediated by the agreement of the states. 
In contrast, this Article argues that such a multilateral regime intended to provide the state with fundamental legitimacy requires independent justification. Contrary to the conventional statist position, I maintain that cooperating states have a duty to ensure that the constituents of all cooperating states are not treated unjustly because of the agreement. I argue that not only cosmopolitanism but political justice too requires that a justiciable cooperative regime must improve (or at least not worsen) the welfare of the least well-off citizens in all cooperating states. I explain that cooperation alone is no guarantee of improved welfare and that certain transfer payments between rich and poor countries might be required to ensure this.
 This is an important and provocative paper, highly recommended reading.

Tuesday, April 25, 2017

Spiro on Citizenship Overreach

The always excellent Peter Spiro has recently posted this new article on SSRN, of interest. Abstract:
This Article examines international law limitations on the ascription of citizenship in the context of U.S. taxation of non-resident citizens. U.S. citizenship practice is exceptionally generous, extending citizenship to almost all persons in its territory at the moment of birth. At the same time that it is generous at the front end, U.S. citizenship is sticky at the back. Termination of citizenship on the individual’s part involves substantial fees and tax compliance. It is difficult to shed a citizenship one may never have wanted in the first place. 
This stickiness would be inconsequential if few costs were associated with the status. But the United States taxes its citizens on a worldwide basis. The 2010 enactment of the Foreign Account Tax Compliance Act has ramped up historically lax enforcement and imposes substantial administrative burdens on even middle-earner citizens abroad. 
In this frame, U.S. birthright citizenship and expatriation regimes may violate international norms, especially with respect to those "accidental Americans" who departed the United States as children. Even in the context of extremely relaxed historical constraints on state nationality practice, there were acknowledged nineteenth century limitations on the extension of citizenship to individuals with insufficient connection to a state -- citizenship over-claiming, as it were. The article also describes the historical requirement that naturalization be volitional, a norm now appropriately applied in some cases in the context of birthright citizenship.  
To the extent the ascription of U.S. citizenship compromises individual rights, there are tax fixes and there are citizenship fixes. Citizenship fixes include opt-in and opt-out mechanisms for birthright citizenship. The better solution may lie in frictionless exit for those with nominal ties to the national community. Though reform is more likely to be accomplished through the tax regime, the moment highlights the over-inclusiveness of U.S. citizenship and the growing salience of international law to citizenship practices.
I'm less confident than Peter that reform will ever be delivered through the tax regime, but I am very glad to see this important contribution to the growing literature focusing on the citizenship/taxation link.

Tuesday, April 18, 2017

Update: The Price of Entry: Latest Research plus Infographic




* Update: I've found a couple of additional programs (e.g. France has a lower cost program, making it less of an outlier)--thank you twitterverse) and I've corrected a few currency conversion errors. This is still a work in progress as previously noted, and I expect to be revising again in the coming weeks.

----

I've been working on residence and citizenship by investment programs, and thanks to some stellar research assistance by Jake Heyka, have developed a set of data comprising what I believe is a fairly thorough look at the residence and citizenship by investment programs currently on offer around the world. I made the above infographic to show the lowest cost program per country for all countries that offer either residence or citizenship by investment.

The lowest cost residence by investment programs are offered by Panama and Paraguay, each coming in at about USD$5,000, while the most expensive is Russia, at over USD$5 million. The average price for all residence and citizenship by investment programs that we found is about $1 million, but this number isn't perfect because some programs are based on job creation rather than investment (e.g., Portugal, Turkey, UK), some involve having entrepreneur/angel investment support rather than a direct investment (e.g. Australia, Canada), and some involve annual amounts (Italy and Switzerland).

One of the things I wondered about in looking over the programs is the inequality factor at play--that is, how much can richer/larger countries demand in terms of higher prices and more stringent requirements (such as actual residence) for entry, and how much must poorer/smaller countries be satisfied with smaller investments and fewer commitments by the applicant? The answer seems to be that there appears definitely a "rich get richer" quality to the distinctions among programs, but there are lots of details in the programs that require further thought.

The paper itself is still in progress but here is an explanation of what I am looking at:
International law and political theory scholars have long wrestled with the normative implications of commodifying citizenship and access to immigration with pay-to-play visa programs, but the analysis does not typically consider the role the tax system plays or could play in these schemes, nor how such schemes might impact the tax regime in terms of gross revenue or distributional effect.  Yet governments increasingly view their tax systems as a means of potentially increasing the value of residence and citizenship in their countries, whether intrinsically or in relation to the treatment of those who gain such status by other means.  Given the cost involved in reducing revenue from those arguably most able to pay, whether the programs actually produce the predicted outcomes is one obvious question to be asked.  Even if the programs in fact achieve their goals, a second question surely arises regarding the normative justification for using the tax system to lure the wealthy away from other countries in this manner. Does the normative case differ when applied to humans as opposed to companies? Does it differ when the luring state is richer or poorer relative to the countries of origin of prospective immigrants? To sketch out a framework for analyzing these questions requires a sense of the various competing programs on offer. This essay takes the first step by comparing national programs that use their taxing power in some manner in order to attract immigration, and highlights some of the factors that raise normative questions about the appropriate design and uses of a tax system. 
Comments welcome.

Friday, March 31, 2017

Shu Yi Oei: The Offshore Tax Enforcement Dragnet

Shu Yi Oei (Tulane) has posted an important new paper on U.S. offshore tax enforcement, of interest. Here is the abstract:

Taxpayers who hide assets abroad to evade taxes present a serious enforcement challenge for the United States. In response, the U.S. has developed a family of initiatives that punish and rehabilitate non-compliant taxpayers, raise revenues, and require widespread reporting of offshore financial information. Yet, while these initiatives help catch willful tax cheats, they have also adversely affected immigrants, Americans living abroad, and “accidental Americans.”  
This Article critiques the United States’ offshore tax enforcement initiatives, arguing that the U.S. has prioritized two problematic policy commitments in designing enforcement at the expense of competing considerations: First, the U.S. has attempted to equalize enforcement against taxpayers with solely domestic holdings and those with harder-to-detect offshore holdings by imposing harsher reporting requirements and penalties on the latter. But in doing so, it has failed to appropriately distinguish among differently situated taxpayers with offshore holdings. Second, the U.S. has focused on revenue and enforcement, ignoring the significant compliance costs and social harms that its initiatives create.  
The confluence of these two policy commitments risks creating high costs for the wrong taxpayers. While offshore tax enforcement may have been designed to catch high¬-net-worth tax cheats, it may instead impose disproportionate burdens on those immigrants and expatriates who have less ability to complain, comply, or “substitute out” of the law’s grasp. This Article argues that the U.S. should redesign its enforcement approach to minimize these risks and suggests reforms to this end.
The paper provides a thorough review of the panoply of offshore enforcement programs and mechanisms and documents the harms of their dragnet approach, especially on the most vulnerable and least likely targets. A significant contribution to the literature.



Monday, March 20, 2017

Modern Day Robin Hood? Taxpayers as Facilitators of State Level Tax Games

In an interesting twist on contemporary debates about tax planning by multinational companies, Prof. Leandra Lederman recently posted a very interesting column about how one government seems to have benefited from some clever tax planning at the expense of its own national government, with the help of a multinational company that appears to have received nothing for its trouble.

This is the strange case of Volkswagen's tax structuring involving the Spanish provinces of Navarre and Catalonia. What is strange is that, in this particular instance, Volkswagen's structure appears to have created no tax benefit for itself, but resulted in the province of Navarre effectively transferring itself a large pot of revenue from the national coffers.

Prof. Lederman's post explains that Navarre is an "autonomous community", which, unlike Catalonia, independently administers the VAT, and therefore only issues VAT refunds when products are exported from Navarre to a buyer located outside of Spain. (Most of Spain's other provinces have a harmonized VAT system administered at the national level). If products are sold to a buyer outside of Navarre but still in Spain, such as Catalonia, Navarre does not issue a refund because there has been no export. But if the purchasing company in that other province then sells to a subsequent buyer outside of Spain, the Spanish Treasury issues a refund to the company and voilà, Navarre has transferred itself a windfall in the amount of tax it collected and Spain paid back.

Over a period of several years, Navarre reportedly collected approximately 1.5 billion Euros from the Spanish government using Volkswagen in this manner. By routing its export sales through an intermediary in Catalonia rather than directly from Navarre, Volkswagen acted as a conduit to route revenues from the state to the province. Given its own indifference to who, as between Navarre and Spain, refunds the VAT on its exports, using an intermediary in Catalonia appears like an act of pure generosity to the province of Navarre. Prof. Lederman goes through the case that brought this issue to attention and queries: what's in it for Volkswagen? She notes that nothing in the public record suggests that VW received anything in return—"it simply did Navarre a favor." That seems unlikely; certainly, as Lederman points out, Navarre would be capable of having made some other concessions. These would not necessarily be made public.

Absent concessions, is this a modern day Robin Hood story, with VW effectively taking from the state to give to the province? Navarre is not quite at the bottom of Spain's provinces economically (at least according to wikipedia) but neither is it near the top spot in terms of gross regional product (it is, however, near the top in terms of purchasing power parity, as well as in other factors such as employment rates). Should we cheer or disparage the tax trickery that resulted in an ongoing transfer of wealth from Spain to Navarre?

Also curious is why Spain wouldn't have anticipated this problem far in advance of this situation arising. It seems that the government proposes to resolve the issue by renegotiating the Convenio Econ√≥mico Navarra-Estado (Navarra-State Economic Agreement), which governs the VAT administration among other matters. I am no VAT expert but it seems to me that having designed a destination based VAT system and having agreed to independent administration of that system by one or more of its provinces, the state might have immediately recognized that revenue transfers from itself to the non-harmonized province(s) would be likely unless there was some mechanism requiring the VAT-collecting province to be the VAT-refunding province in the case of ultimate exports.

Like Prof. Lederman, I would be curious to know whether this sort of situation has arisen in other contexts--do sub-national governments routinely look for ways to transfer state revenues to themselves using taxpayers as conduits? Should we liken the province's passively benefiting from a system not solely of its own making as acceptable tax planning or harmful tax competition? Likewise, should we view the taxpayer's willingness to facilitate the transfer (for apparently no reason but its good nature and general willingness to cooperate) as a victory or a failing in the taxpayer-state relationship?

Monday, March 13, 2017

Gribnau & Vording on The Birth of Tax Law as an Academic Discipline

Hans Gribnau and Henk Vording recently posted an interesting paper on SSRN. Here is the introduction:
The academic discipline of tax law as we know it today has its roots in the late nineteenth century. In the Netherlands, it emerged out of a confrontation between (predominantly British) classical political economy and German Staatslehre (theory of the state). This contribution analyses the impact of the relevant ideas on Dutch theorizing about taxes. It is argued that tax law as a legal discipline is heavily indebted to the German tradition. This may help to explain why it has proven difficult to develop meaningful communication between tax lawyers and tax economists.  
The paper focuses on the development of tax doctrine in the Netherlands over the nineteenth century, but the paper's thoughtful analysis of the evolution of tax goals and priorities, the conceptualization of the taxpayer-state relationship, the complex interaction on tax policy of political and economic theory, and the impact of rule of law theory on tax policy are of general interest.


Thursday, March 9, 2017

Lederman: Death, Taxes and a Beach Read

Over at Surly Subgroup, Leandra Lederman has posted Death, Taxes, and a Beach Read, a review of a series of novels by Diane Kelly, a former CPA and tax attorney turned romance novelist who "had the pleasure of working with a partner later convicted of tax shelter fraud [and] served a stint as an Assistant Attorney General for the State of Texas under an AG who pled guilty to criminal charges related to the tobacco company lawsuits." Leandra told me about these books last week when I was in Bloomington, and I have never heard of them before, so it is fun to see her write them up. From her post:
It never occurred to me to blog about [the series] until I read the first page of “Death, Taxes, and Cheap Sunglasses” while on a plane, and saw a link with tax issues I frequently write about. The opening paragraph reads:
“I slid my gun into my purse, grabbed my briefcase, and headed out to my car. Yep, tax season was in full swing once again, honest people scrambling to round up their receipts, hoping for a refund or at least to break even. As a taxpayer myself, I felt for them. But as far as tax cheats were concerned, I had no sympathy. The most recent annual report indicated that American individuals and corporations had underpaid their taxes by $450 billion. Not exactly chump change. That’s where I came in.” 
I had just presented my latest tax compliance article, “Does Enforcement Crowd Out Voluntary Tax Compliance?” and here were tax gap figures showing up in a novel! ...
Leandra notes that of course the novel simplifies, referring to “underpaid”taxes: official tax gap measurements by the IRS (see e.g. 2006; 2012) include late payment and filing/reporting failures. Leandra continues:
The heroine of this "romantic mystery series" is CPA Tara Holloway, who's described as "kicking ass, taking social security numbers, and keeping the world safe for honest taxpayers." She's a Special Agent with the IRS's Criminal Investigation Division.... 
Diane Kelly takes a few liberties with what Tara can get away with. The acknowledgments in “Death, Taxes, and Peach Sangria” include the following statement: “To the IRS special agents, thank you for sharing your fascinating world with me and for all you do on behalf of honest taxpayers. Please forgive Tara for being such a naughty agent and breaking the rules.” 
Leandra recommends readers start with the first novel in the series, Death, Taxes, and a French Manicure. But if Tara's mission is to close the tax gap, is it ok to buy the book on Amazon?

Tuesday, February 28, 2017

Some Recent Scholarship on Tax and Human Rights

I've posted on SSRN a new work in progress and two recently published works on the topic of taxation and human rights:

Human Rights at the Borders of Tax Sovereignty
Tax scholarship typically presumes the state’s power to tax and therefore rarely concerns itself with analyzing which relationships between a government and a potential taxpayer normatively justify taxation, and which do not. This paper presents the case for undertaking such an analysis as a matter of the state’s obligation to observe and protect fundamental human rights. It begins by examining existing frameworks for understanding how a taxpayer population is and ought to be defined. It then analyzes potential harms created by an improperly expansive taxpayer category, and those created by excluding from consideration those beyond the polity even if directly impacted by the tax regime. It concludes that a modified membership principle is a more acceptable framework for normative analysis of the jurisdiction to tax, even while acknowledging the overwhelming weight of existing perceptions about the bounds of the polity and the state-citizen relationship as significant barriers to acceptance.
Taxpayer Rights in Canada
Canada is one of many countries where taxpayer rights are becoming an increasingly common topic of discourse among policymakers, practitioners, and the public. Especially in light of recent developments regarding the global expansion of taxpayer information exchange, the role of taxpayer privacy and confidentiality rights have emerged as significant legal issues. This chapter surveys the contemporary theoretical, legal, and political landscape of taxpayer rights in Canada. Part I outlines the theoretical and legal sources from which taxpayers may be said to have rights. Part II examines Canada’s Taxpayer Bill of Rights and considers some of the historical, legal, and political issues that give rise to their core principles. Part III focuses in on the taxpayer’s right to privacy and confidentiality in the context of evolving global trends surrounding the use and exchange of taxpayer information. The Chapter concludes with some observations about where taxpayer rights may be headed in Canada.
Taxpayer Rights in the United States
Despite abundant sources of legal and quasi-legal protection against abuses of individual rights and freedoms, there are areas of contention regarding respect for taxpayer rights in the United States. This chapter lays out the framework of taxpayer rights and considers their meaning by considering a contemporary case, namely, the recent expansion of citizenship-based taxation through globally enforced financial asset reporting and information exchange. Part I outlines the theoretical and legal sources from which taxpayers may be said to have rights. Part II examines the US Taxpayer Bill of Rights and considers some of the historical, legal, and political issues that give rise to their core principles. Part III focuses in on the taxpayer’s right to be informed in the context of citizenship-based taxation in a globalized world. The Chapter concludes with some observations about where taxpayer rights may be headed in the United States.

Wednesday, February 22, 2017

Heyka on Tax Treaty Arbitration and A World Tax Court

Last fall I via twitter I shouted out two of my students who won the Tax Analysts Student Writing Competition, in the international category:
I posted about the first paper long ago but I inadvertently neglected to post the second.  Correcting that oversight, here it is, available at Tax Analysts: A World Tax Court: The Solution to Tax Treaty Arbitration, by Jake Heyka. Here is the brief abstract by TA:
Jake Heyka examines tax treaty arbitration standards while demonstrating that as a matter of fundamental justice, arbitration should be revamped. He proposes the creation of a world tax court.
Heyka begins by observing that "[t]he institution of international tax treaty arbitration (ITTA) is hotly debated in international business and tax law. While the process is helpful because it pressures governments to resolve contested tax decisions, opponents have called it 'secret and evil.'"
He then makes the provocative observation that "the use of ITTA ultimately frustrates the resolution of tax disputes and should be supplanted by a world tax court." In support of his proposal, Heyka lays out the history and critique of tax treaty arbitration (including by me) and concludes:
Standardizing ITTA will create some procedural certainty but does not guarantee consistent use of those procedures, allow the public to see whether the process is fair, or establish reliable precedent. As Lindencrona and Mattson suggested over 30 years ago, ITTA should be a stepping stone to what the world ultimately needs: a world tax court.
As radical as it may seem, the idea is not far-fetched. World courts exist in many commercial and noncommercial contexts, and those that deal with money rather than crime are followed by many countries and used quite often. Moreover, state authority is regularly ceded to resolve disputes between commercial parties in arbitration courts such as the Permanent Court of Arbitration in The Hague, the London Court of International Arbitration, and many other arbitration institutes. A world tax court would merely serve as a place to resolve tax disputes in a similar manner while sustaining the public nature of tax law.
While I am late to post it, Heyka's article remains timely as the inclusion of arbitration in the recently released MLI is sure to keep the issue front and center in international tax discourse. Congrats Jake, and sorry for the delay in posting your accomplishment.

Wednesday, January 18, 2017

Idiot's Guide to DBCFT, Ryan Style

I've been fielding several "what is is this DBCFT idea" kinds of questions so I thought it might be helpful to present the six basic features of the DBCFT as proposed (in very general form) by Paul Ryan and a very simple chart to explain how the DBCFT would "work" if it was enacted as described in Ryan's "Better Way" plan.*

Accordingly, based on that proposal, the six main features of the DBCFT would be:

  1. domestic sales are included
  2. foreign sales are excluded
  3. dividends from foreign subsidiaries are exempt
  4. all foreign costs are non-deductible
  5. net interest is non-deductible
  6. allowable domestic costs are immediately deductible (expensed)

Obviously these are oversimplifications and I'm ignoring transition rules and so on, but these are the basic building blocks. The Ryan plan proposes a tax rate of 20%. 

So what happens if these building blocks are put in place via legislation, assuming away all transition issues etc., and that a tax imposed is a tax collected?** If we imagine a product that will sell for $125, and costs $100 to produce (in materials and labour), this is what happens:


Box 1: MAGA ideal: made in America, by Americans, for Americans. Tax will be collected on profits earned by selling goods produced & sold domestically. The DBCFT most resembles an income tax in this scenario (though expensing and non-deductibility of interest still moves it toward a consumption base); it will also be the easiest to collect.

Box 2: Exports. Tax exemption for sales abroad will create (possibly permanent) NOLs to carry forward indefinitely. This will require deciding on loss-shifting policy. This is obviously not an income tax but it not a VAT either.

Box 3: Imports. Sales in the US of goods produced abroad are taxed on a gross basis, more like an excise tax (or yes, a tariff). With an estimated $1.2 trillion trade deficit, this part of the DBCFT is expected to raise the most revenue but the success of that strategy depends to some degree (maybe a large degree) on remote sellers collecting tax (that’s complicated--see Europe).

Box 4: Foreign Sales of Foreign Products. Neither costs nor revenues are counted for goods produced and sold abroad, even if produced and sold by a US-based company. This part of the DBCFT would be more or less consistent with either a VAT or territorial income tax.

That, in a nutshell, is the basic skeleton of the DBCFT as proposed in the Ryan plan. It will be interesting to see what, if any, of this ends up enacted IRL.

* There is absolutely zero chance that the proposal will be enacted as described. Still, it is helpful to understand the basic vision. I do not claim to be an expert on the DBCFT and offer here no analysis or predictions about the incidence of the tax, or the impact such a tax would have on US or world capital flows, investment, consumption, economic growth, or international relations. This paper by Wei Cui, or this one by Wolfgang Schoen are helpful in addressing many of these issues.
** A tax imposed is never a tax collected. There is always a gap between a great idea (or for that matter a not so great idea) and something that can actually be carried out: tax administration is tax policy.

Tuesday, January 17, 2017

Cockfield on Information Exchange

Arthur Cockfield has posted a paper of interest, entitled How Countries Should Share Tax Information. Here is the abstract:
There are increasing policy concerns that aggressive international tax avoidance and offshore tax evasion significantly reduce government revenues. In particular, for some low income countries the amount of capital flight (where elites move and hide monies offshore in tax havens) exceeds foreign aid. Governments struggle to enforce their tax laws to constrain these actions, but are inhibited by a lack of information concerning international capital flows. The main international policy response to these developments has been to promote global financial transparency through heightened cross-border exchanges of tax information. The paper discusses elements of optimal cross-border tax information exchange laws and policies by focusing on three key challenges: information quality, taxpayer privacy, and enforcement. Relatedly, the paper discusses how the exchange of automatic ‘big tax data’ combined with data analytics can help address the challenges.
Cockfield seeks to find a solution that balances the need of the state for extensive information in order to protect the integrity of the income tax system against the need of the individual for protection from abuse by the state. That is no easy balance to strike. From the paper:
All of [the recent information gathering and exchange] efforts seek to provide governments with more and better tax information, and reduce costs through agreement on underlying EOI rules and principles. The reforms, however, largely do not address how financial secrecy laws subvert global financial transparency initiatives. Nor do they address legal technical complexity that raises transaction costs, and makes it even harder for low and middle income countries to implement and enforce EOI. While the EOI reforms are positive steps, given an environment of high transaction costs it may be difficult to make progress in addressing key policy challenges.... 
Data availability, usefulness and verifiability are three components of high quality information that can help governments pursue their cross-border investigations and audits. In particular, transferred information should be relatable to domestic tax identification measures, and checked against third party reporting, and withholding tax disclosures. Once this is done, governments can conduct analysis to determine audit risk by focusing on issues such as taxpayer segmentation, dealings between the taxpayer and offshore service providers, and cross-indexing tax and financial information against non-tax data (e.g., insurance policy disclosures). 
Against this desire for high quality tax information stands (shrugs?) taxpayer privacy concerns. The apprehensions arise from the varied levels of domestic legal protection afforded to privacy rights, along with the risk of abuse or misuse of transferred information. Accordingly, broader multilateral agreement on privacy protections is likely a prerequisite to effective EOI. This hoped-for cooperation is hindered by the fact that many countries refuse to abolish their financial secrecy laws, which stands as one of the main barriers to optimal reform.
My view is that maintaining the integrity of the income tax system appears to require building the panopticon, and much more besides. The steady decline of support for coherent corporate income taxation makes greater and greater individual surveillance necessary, while also making personal income taxation harder. I am not sure where the point lies at which the costs and risks attendant to building the necessary compliance and enforcement infrastructure exceed the benefits of maintaining personal taxes based on income.

Thursday, January 12, 2017

Christians and Ezenagu: Kill Switches in the New US Tax Treaty

Recently published as part of the Brooklyn Law School symposium Reconsidering the Tax Treaty, this article looks at the introduction of new clauses to switch off treaty benefits where the treaty partner adopts certain kinds of tax rate or base reductions.  I think these clauses are interesting because they create a way for one country to control the future tax policy decisions of another. Whether other countries will agree to a treaty with such a provision is another story.

Here is the abstract:
The new US model income tax treaty contains an unusual addition: mechanisms for the parties to unilaterally override the negotiated treaty rates in specified circumstances. Previewed last year in proposed form — a first for Treasury — these new mechanisms work as kill-switches, partially terminating the treaty as to one or both treaty partners. The idea is to forestall a more problematic outcome, such as an enduring breach of one of the parties’ expectations, or the opposite, a complete termination of all the treaty terms in the face of such a breach. Yet embedding a kill-switch in a treaty creates distinct legal, procedural, and political pressures in the tax-treaty relationship that implicate treaty negotiation, ratification, interpretation, and dispute resolution. Kill-switches also communicate a defensive tenor in the tax treaty relationships among many countries. This Article analyzes the new kill-switch provisions and concludes that their introduction in the U.S. Model reflects the steady deterioration of tax treaties from essentially diplomatic documents premised on the good faith of the parties to detailed contracts drafted in anticipation of the opposite.