A New Account of Early U.S. Tax Treaty Practice

• In Event: Coordination in International Tax

Abstract

This paper presents an account of the history of U.S. tax treaties from 1932 to 1962 based on original archival research. This formative period of U.S. treaty practice is important to study for several reasons. First, even though the League of Nations formulated model tax treaties in the late 1920s, both the U.S. and the U.K. were largely indifferent to these models, as they mostly reflected European (almost exclusively source-based) income taxation inconsistent with the American and British income tax systems. After 1932, the U.S., along with Britain, forged a new approach for tax treaties that focused on reciprocal reductions of source-country taxes, and that strongly influenced treaty practice after WWII. Second, the Treasury and the Senate played a relatively passive role in guiding the negotiation of early U.S. treaties: dissatisfaction with this process eventually led to the more formalized approach to treaty negotiations familiar today. Third, the choice between using domestic legislation or bilateral tax treaties to advance tax policy was a constant issue of contention, and a strong preference for domestic legislation emerged. Examining the early U.S. treaties highlight the secondary role tax treaties play in advancing U.S. international tax policy, a fact that became even clearer when the U.S. entered a more tumultuous period of international tax policymaking with the introduction of Subpart F in 1962.

Author

• Wei Cui, wei.cui@ubc.ca