Double taxation treaties play a vital part in the international relations between statesregarding taxation matters. Since double taxation can occur as soon as a person hasincome in more than one state, it is very important that there can be effective remediesto the problems that can occur in these situations. Double taxation treaties arenecessary in most situations created by international trade and they are even moreimportant in such a free flowing economic co-operation such as the EU, where thetrade between the Member States is not only free but also very frequent.Most double taxation treaties are based on the Model Treaty created by the OECD.Even states not members of the organization use it as a model for their treaties. Thismeans that treaties between Member States of the EC are often rather similar, butmany times have been drafted without consideration taken to EC law. This can createproblems since the European Court of Justice (ECJ) has stated in its case law thateven though the Member States are solely competent when it comes to direct taxation,that competence must be used in accordance with EC law. Since double taxationtreaties are directed at flows of income and capital between states, it is mostprobable that they can run afoul of EC law.After some judgments of the ECJ the situation is clearer now, but there are still somepossible future problems. Examples of such problems are trailing taxes, limitations ofbenefits and the most favoured nation (MFN) principle. The latter has been beforethe Court, but there are many questions surrounding the MFN principle that has notbeen answered satisfactorily. Even if more cases are brought before the Court and itgives more guidance on how the Member States shall conclude treaties with eachother, it is still preferable with proper EC legislation on the subject. It must also bementioned that the ECJ has shown reluctance to disrupting the tax treaty networks inplace and has been reluctant to dismiss rules based on the OECD Model Treaty.Several different solutions to these problems have been put forward, ranging fromdoing almost nothing and just letting the development in the case law have its way toa complete regulation of these issues through legislation by the EC. The two most interestingsolution...
