This chapter will discuss tax treaties. The United States has just adopted a new model tax convention (2006), replacing the 1996 model. Commentary on the OECD model is updated constantly; thus, although the original current version of the OECD model dates from 1992, it is really a 2006 document because of the updated commentary.

Like any tax treaty, the U.S. model treaty is entitled “Convention Between the United States of America and Foreign Country for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income.” This title provides us with quite a bit of information. First, the model treaty was published by the United States and therefore embodies the American position. However, the model may not be similar to any treaty that the United States has ever signed, because the model treaty is just the starting point for bargaining with the United States.Second, the title states that the treaty, like all tax treaties, is for the “Avoidance of Double Taxation and the Prevention of Fiscal Evasion.” In truth, tax treaties are generally not to prevent double taxation, although they do help in borderline situations, such as cases where income source is disputed. Treaties do not always help in these instances, however. Recall the Boulez case, in which the United States thought Boulez provided services and the Germans said the money paid represented a royalty; despite the existence of a treaty, the countries could not agree, and the result was double taxation.