Legal Structure of Tax Treaties

The United States has an extensive network of bilateral tax treaties. More than 50 U.S. treaties are currently in force, and the number has been increasing steadily in recent years. All of the treaties are based in large part on the model treaty and accompanying commentary prepared by the Organisation for Economic Co-operation and Development (OECD)1 or the model treaty and commentary prepared by the United Nations (UN).2 The United States published its own “model” treaty from time to time, most recently in 2006.3 These model treaties are discussed in §1.3, below. Section 1.1 discusses the basic objectives of tax treaties. Section 1.2 describes the coverage and scope of the typical U.S. tax treaty.
A tax treaty is a type of contract. The two countries that enter into a bilateral tax treaty are referred to in the treaty and elsewhere as the Contracting States. Like any treaty, a tax treaty is to be interpreted according to the provisions of international law relating to treaties. That law has been codified in the Vienna Convention on the Law of Treaties (1986). The United States is not a signatory to that convention. It has acknowledged, however, that it is bound by the convention to the extent that the convention embodies customary international law.