Non-Discrimination in International Tax Law

International business is restricted by numerous discriminatory rules in national tax laws which provide for a different treatment based on nationality or residence of the entrepreneur. In order to eliminate negative effects of discrimination and to promote international commerce, worldwide more than 3,000 bilateral double taxation conventions with non-discrimination provisions are in force. These non-discrimination provisions prohibit, among other things, discrimination by reason of nationality and discrimination in the case of permanent establishments belonging to treaty partner residents. Even though these non-discrimination provisions are of paramount importance in international business, their exact scope remains unclear. Currently, there is a substantial lack of fundamental research on the concept of non-discrimination in international tax law. It is the aim of this research project to offer an in-depth and fundamental analysis of the concept of non- discrimination in international tax law. For this purpose, the concept of non-discrimination will be analysed in a broader context, namely in the light of the non-discrimination provisions of international conventions not only concerning taxation issues. Thus, for this interdisciplinary task, the systematic similarities and differences of the non-discrimination or equal treatment concepts in EU law (e.g. fundamental freedoms, State aid rules), WTO law and human rights law (e.g. ECHR) will be carefully carved out. Furthermore, the conceptual background of non- discrimination will be put in the specific context of the non-discrimination provisions in double taxation conventions and the following fundamental questions will be answered: What is the relationship between the different non-discrimination provisions regarding nationality, cases of permanent establishments belonging to treaty partner residents, etc.? What is the relevant benchmark for the comparability test? What are the prohibited grounds of discrimination and are similar criteria covered? Are there any justifications for discrimination (or could certain justifications in effect be examined at the level of the comparability test)? If there are justifications, what is the benchmark for the proportionality test? With this research project it will be possible to intensively contribute to further discussion on the non- discrimination provisions in double taxation conventions as well as to their further application and development. Without doubt, the future of non-discrimination in international tax law depends on research yet to be done. In this regard, this research project will be a substantial contribution and an essential milestone in achieving tax non- discrimination in international business and, in the end, in promoting global welfare.

More than 3,000 double taxation conventions prevent double taxation of the same income or capital in the hands of taxpayers who are active in a cross-border context, that is, in more than one country. By contributing to a free flow of goods, capital and persons, double taxation conventions constitute a pillar of a globalized economy. In addition, they contain provisions against discrimination in tax matters, which prevent disadvantageous tax treatment due to certain characteristics. The project of the Austrian Science Fund (FWF), conducted by Univ.-Prof. Dr. Dr. h.c. Michael Lang at the Institute for Austrian and International Tax Law of WU, analysed the scope of these non-discrimination provisions.For this purpose the concept of non-discrimination for tax treaty purposes was compared to the concepts of non-discrimination in European law and world trade law. Major differences exist between these concepts: With double taxation conventions only the question of comparability arises. If two taxpayers are in a comparable situation, they cannot be treated differently. No justifications for different treatment are available. In contrast, justifications are available in other areas of law. Discriminatory treatment can therefore be justified. The reasons for these differences were determined in the course of the project. This analysis showed that comparability for tax treaty purposes may exist only under very strict conditions, which lessens a need for justifications. At the same time, this approach tries to prevent value judgments. Nevertheless, it was submitted that value judgments cannot be completely avoided. With selected examples it was illustrated that the current approach to non-discrimination under double taxation conventions comparability, no justifications is not always leading to definite results. It was thus suggested to openly deal with value judgments. Non-discrimination provisions in double taxation conventions have a major impact on the tax treatment of cross-border transactions. Taxpayers can be detained by discriminatory tax treatment from becoming active in another country. With this project a major contribution was made to the interpretation of these non-discrimination provisions. This allows taxpayers to better know the tax consequences of their cross-border activities and to make better use of their right of not being discriminated against.