Justice, Third-Party Funding, and Tax Treaty Arbitration

Abstract

Resolving tax treaty disputes and improving dispute resolution mechanisms for tax treaty disputes have been important topics for international tax for decades, but it has not been an easy journey for the international tax community including policymakers, international bodies, and academics to come up with a clear solution. Similar to other global policies that require a multilateralagreement, a multilateral approach to a global tax policy cannot be easy as relations among the states with different backgrounds need to be coordinated and it involves critical issues relevant to national interests such as tax sovereignty, revenue, conflicts with domestic laws, and financial resources. That being said, the current global approach to resolve unsuccessful Mutual Agreement Procedure (“MAP”) cases of a tax treaty seems fairly straightforward under both the Organization for Economic Co-operation and Development and the United Nations’ Model Tax Conventions as both simply suggest arbitration to step in to render a final decision for the unsuccessful MAP cases. However, due to the factors mentioned earlier, the vast majority of the bilateral tax treaties do notcontain the arbitration clause, and it seems quite clear that an approach needs to be made from both within and outside the boundaries of international tax, tackling sub-issue by sub-issue, in order to improve dispute resolution mechanism for tax treaty disputes. This Article aims to highlight the importance of having the arbitration clause in a tax treaty, and focusing on the financial aspects of tax treaty arbitration, examines whether third-party funding (“TPF”), which has become more mainstream in traditional international arbitration proceedings, could be utilized in tax treaty arbitration to remove certain financial barriers as in other traditional arbitration proceedings by analyzing (i) any legal barriers, (ii) benefits from a justice perspective, and (iii) investment merit from a funder perspective. For the analysis, the Article specifically discusses (a) the current issues and the status quo of the MAP and tax treaty arbitration, (b) how TPF has been utilized in international arbitration and helping parties without orinsufficient financial resources, (c) differences and similarities between tax treaty arbitration and other types of international arbitration i.e., international commercial arbitration, investor-state arbitration, and state-state arbitration, and (d) TPF from both the taxpayer claimant and the funder perspective.