The Subsidiarity of International Treaties Against Double Taxation Critical Analysis of French Jurisprudence

Abstract

The application of tax treaties by national courts around the world is not uniform. Depending on the country where a given taxpayer raised a conflict between the provisions of the national tax rules and the regime provided by a tax treaty, the interpretation of the tax treaty might vary. The result can lead to a situation of double taxation, contrary to the aim of tax treaties. The contribution is about a particular principle of law that the Administrative French Supreme Court, i.e., the “Conseil d’Etat”, follows to apply tax treaties according to which a previous characterization of the income and of the taxpayer at issue are to be made solely based on the domestic law. Once that these characterizations are made, based on them, the court applies the treaty. This method is called “principle of subsidiarity” of tax treaties. In our point of view, this method results on the breach of tax treaties because it disallows autonomous characterizations of income and of taxpayers by tax treaties even though the domestic law of each signatory state is not identical at all and could result on different characterizations (I), it may deny the benefit of tax treaties to taxpayers that would benefit from it if the application test was made solely based on the provisions of the tax treaty (ii), it creates a room for treaty dodging that is far too large (iii). In fact, if the domestic law of a given country calls cats as dogs, the article of the tax treaty on dogs will apply, even though the element is a cat. Given that the other jurisdiction that may tax will not follow the same characterization of income because its domestic law is different, double taxation situation may still happen.