Taxation is more than just a tool for financing public services, it is a reflection of the deep-seated power dynamics and inequalities that shape state interactions. This text delves into the multifaceted role of taxation as both a civic duty and a means of collective investment. Yet, it also highlights that international tax cooperation is not an arena of equal footing among nations. The extensive network of bilateral and multilateral tax treaties, designed to prevent double taxation and curb evasion, often mirrors the uneven distribution of power on the global stage. From the early bilateral agreements of the nineteenth century to modern frameworks established by the OECD and the United Nations, the evolution of these treaties exposes inherent imbalances. 

Discussions on tax matters are always a good pretext for heated debate, whether at national or international level, due to the very nature and justification of the tax. At the outset, it must be borne in mind that people do not give up their assets of their own free will, without first being properly educated in this regard. Fueled by the fact that we live in society, citizens are asked to make a compulsory payment without (direct) consideration to those who govern. In fact, we are not dealing with a contractual relationship where each party is owed a service, or with a fee to be paid for a certain service. However, every citizen, when their assets are coercively reduced, naturally expects that their contribution will have (indirect) beneficial effects, which can be manifested in a “feeling of gratuitousness” in health, education, and infrastructure services. In this context, the breakdown of the social contract between the state and the taxpayer is increasingly debated, as a way of expressing the crisis of trust and the inherent tensions within the modern tax system. The challenge lies in aligning legality, efficiency, and civic participation, so that citizens can tangibly perceive the value of their tax contributions and feel that the pact between the state and the taxpayer remains legitimate and intact.

Secondly, it is important to mention the sometimes-forgotten instrumental role that tax plays in society. Analysing the tax systems of developed countries, it is possible to see one constant: “Who has the most, contributes the most”, which could be achieved by simply applying a fixed percentage tax to income, if tax were not a form of redistribution. For this reason, states end up adopting progressive systems to ensure that the wealth generated is, within a certain limit, shared by society. It is within this context that the term “fair share” emerges, increasingly prevalent in contemporary fiscal discourse, which refers to the equitable and proportionate contribution expected from an individual, corporation, or state within a given system, based on their capacity to pay, the benefits received, or the responsibilities undertaken.The subsistence of the state itself is also dependent on the revenue collected through tax, which makes it one of the main focuses of the national political and legislative agenda.

Considering these introductory notes, we realise that tax is a major issue within the borders of each country, and that its characteristics make it a delicate subject. In the international context, the elements of tax remain the same, with the addition of the complexity of relations between countries with different characteristics and cultures. If, at first, ordinary citizens do not like to see their assets diminished by the application of a tax at national level, it is to be expected that this feeling will be even more present when there is the possibility of the same income being taxed twice. As for the instrumental issue, it is clear that tax is playing an increasingly important role in the international community in terms of the market, diplomacy and economic sanctions. However, there is a caveat to be made here, as one of the main objectives of the tax has disappeared with the shift from a national to an international perspective. Indeed, the redistribution of wealth takes a back seat when the issue interferes with countries’ national interests and the collection of significant revenue. Therefore, we realise that the questions previously raised regarding the nature and objectives of the tax end up becoming even more debatable on the international scene.   

Given that states interact globally, the issue of taxation has transcended borders, necessitating international regulation. Current international tax law consists of a framework of tax treaties, which vary in structure to achieve diverse objectives. A tax treaty, as defined by Article 2(1)(a) of the Vienna Convention on the Law of Treaties, is “an international agreement concluded between States in written form and governed by international law.” Thus, a tax treaty serves to specifically address and regulate taxation-related issues between nations.

The network of treaties that make up the current international tax system has internal differences in terms of the number of contracting parties and the category of tax covered. The predominant typology is that of bilateral treaties which, as the name suggests, are drawn up between two parties, but there are also multilateral treaties, which are concluded between three or more parties. As for the tax category, we find a tendency towards treaties covering income taxes and capital taxes, generally based on the OECD and/or UN model conventions. Commonly referred to as “comprehensive tax treaties”, they usually cover a wide range of income types, including corporate, passive and labour income. On the other hand, some treaties only focus on the taxation of specific types of income, such as that from international maritime and air transport.[1]

However, the international tax system we know today is not merely an unchanging end product, but the result of constant evolution and adaptation by states to the circumstances around them. It is clear that concerns and issues have changed over the last 100 years, the shift is evident by looking at the growing digitalization of services and the erosion of tax jurisdiction, which has reduced the importance of physical borders that once played a significant role.

Between the late 19th and early 20th centuries, early bilateral tax treaties emerged, notably starting with the Prussia-Austria-Hungary treaty in 1899 and Austria-Hungary in 1909. However, only a few treaties were made before World War I. Post-war, the League of Nations significantly advanced tax treaty standardization, beginning in 1921 with models to tackle double taxation, which hindered foreign investment. This resulted in a 1923 report and the 1928 Model Bilateral Convention for Double Taxation. The Fiscal Committee, established in 1929, refined these efforts, producing key drafts, including the Mexico Draft and the 1946 London Draft, favouring capital-exporting nations while recognizing source-based taxation’s value. After World War II, tax treaty responsibilities shifted. The UN ECOSOC attempted reforms, but conflicting interests stalled progress by 1954. The OEEC, later the OECD (1961), assumed leadership, publishing a residence-based taxation model in 1963, which evolved into the influential 1977 OECD Model, later updated in 1992 and 2017. Meanwhile, the UN developed its own framework focused more on developing countries, leading to the 1980 UN Model, revised in 2017.[2]

This historical background provides an essential context for understanding the evolution of international tax treaties, highlighting how successive models have adapted to the changing economic and administrative challenges of cross-border taxation, as well as understanding the main players and international tax instruments. Following the same line of reasoning, we traditionally identify two main objectives: avoiding double taxation, especially when double taxation results from taxation at source and at residence, and preventing tax evasion. These objectives are pointed out in the OECD Model, which makes express reference to them in its introductory text.[3] In addition to these, other functions deserve to be highlighted, such as playing a key role in prohibiting discriminatory tax practices, including those based on nationality, which can sometimes influence national tax legislation, providing non-resident taxpayers with benefits that would otherwise not be available. Furthermore, these treaties promote stronger economic ties between states by protecting foreign investors from discriminatory treatment and offering mechanisms, such as the mutual agreement procedure, for resolving cross-border tax disputes. Their inherent stability, resulting from the difficulty of changing treaty provisions without exhaustive renegotiation, ensures a predictable legal framework that increases the security of international commercial activities.[4]

Although we can see the existence of an internationally interconnected tax system, there is an essential detail to demarcate. The starting point for interpreting international tax issues is still national legislation, which emphasises the sovereignty of countries in these matters. If we analyse EU activity, there is integration between member states at different levels, such as the single market, monetary policy, competition and strategic sectors, but in tax matters, integration is much more limited which makes it clear that tax policy remains largely a national competence.

It is a fact that each country has its own characteristics, which leads to very different tax systems and tax policies. The relationship between domestic law and international law is typically characterised by one of two systems: monist and dualist. In monist countries, such as Portugal, the Constitution itself admits that international rules form an integral part of national law and that those contained in regularly ratified or approved international conventions are in force in the domestic order after their official publication and for as long as they are internationally binding on the Portuguese state.[5] On the other hand, in dualist countries there is no immediate and direct entry into the national legal order, and there is a need to transpose the content of the international norm into a national norm in order to produce the desired legal effects, which generally occurs through the legislative body. This particularity of dual systems ends up reinforcing national sovereignty and fragmentation between different systems, since the very act of transposition ends up working at different speeds.

In a reflection, it is difficult to conceive of a new international tax system based on a purely equal co-operation, when history and the present moment point to significant contrasts between states. Co-operation will always be an integral part of the international tax system, not least because it is one of the fundamental pillars of international law itself. From the outset, the strength and legal certainty that this pillar presents to the international community is questionable, whether due to the lack of a coercive mechanism or supervisory body for applying the rules of international law, or the pressure exerted by developed countries on developing countries to follow their guidelines.

The discussion around equal co-operation between states brings up the opposition between the OECD and the UN models, which has become increasingly relevant. As a common element between the two, the OECD model and the UN model are not conventions as such under international law and are not legally binding, although they play an important role in tax convention policy. This means that it is not compulsory for countries that are members of these organisations to adopt this type of model.

The OECD Model aims to create a fair tax structure that balances the rights of residence and source countries, focusing on avoiding double taxation. It emphasizes taxing income where it is received, prioritizing the taxpayer’s country of residence while limiting exceptions to source taxation. This model, prevalent in developed nations, promotes international trade and investment neutrality, minimizing tax disputes. Conversely, the UN Model was designed to address the unique needs of developing countries, which often struggle to tax income generated within their borders. It prioritizes source taxation, allowing these nations to capture more revenue from activities like royalties and corporate profits. This framework aims to enhance the fiscal capabilities of developing countries, fostering economic and social benefits from foreign investments. By encouraging foreign investment while considering developing nations economic realities, the UN Model seeks a greater equitable distribution of taxing rights in the global economy.[6]

These two different perspectives on the issue end up reflecting different degrees of co-operation between states, which is why equal co-operation can be attributed to the UN’s actions, while in the OECD this does not seem to be the main objective of the world’s major economies.

In fact, the OECD Model turns out to be by far the most widely used, serving as the basis for most of the more than 3,000 bilateral double taxation treaties in force around the world.[7] Its widespread adoption is due to the fact that the OECD directly influences international tax policies, being adopted not only by its 38 member countries, but also by many other nations that follow its guidelines for attracting investment and avoiding double taxation. With the constant adaptation that international tax law needs to present, the OECD decided to take a step forward with the adoption of the Multilateral Instrument. Historically, it was not the first multilateral treaty of its kind, having been preceded by international examples such as The Multilateral Convention on Mutual Administrative Assistance in Tax Matters, developed jointly by the OECD and the Council of Europe (1988, amended in 2010), and, at the regional level, by the Nordic Convention (1983). However, the MLI had a profound and transformative impact on tax law by making it possible to update and modernise bilateral double taxation treaties, incorporating measures to combat tax base erosion and profit shifting, and promoting the harmonisation of international tax rules. By allowing the simultaneous implementation of significant changes without the need to renegotiate each treaty individually, the MLI accelerates the introduction of anti-avoidance measures and encourages countries to review and adapt their domestic legislation to align with global standards, responding in an agile manner to modern economic challenges such as digital transformation and technological innovations. In contrast, the UN has not developed a multilateral instrument equivalent to the MLI, capable of collectively modernising existing agreements. Nevertheless, it should be noted that the updating of agreements is dependent on both contracting states adhering to the MLI, so in practice the updating of bilateral conventions occurs through a comparison of the options and reservations made by the respective states upon their adherence to the MLI and not “automatically”. However, the innovative position of the OECD should be emphasised, as it is better prepared to embrace the new challenges of the future.

Today, the rivalry between the OECD and the UN is more intense than ever, largely due to the position adopted by the UN in challenging the dominance of the world’s major economies through the United Nations Framework Convention on International Tax Cooperation (UN FCITC). This initiative broadly aims to turn a new page—functioning as a constitution for a new UN-led tax body—setting out the fundamental principles for future international tax cooperation, including its objectives, key principles, and governance structure. Strongly supported by those who feel oppressed by the OECD’s position and its alleged neglect of social and democratic values, developing countries now place their hopes in a new model that could provide them with a voice equal in reach to that of other nations. Naturally, this emerging framework comes into conflict with what has been proposed by the OECD, raising questions, if the UN Convention is ultimately approved, about how leadership will be distributed between the two bodies. The first issue to consider is whether we are heading toward a scenario of replacement, or rather an attempt at complementarity, in which the UN FCITC remains subject to the groundwork already laid by the OECD. In the short term, it seems unrealistic to assume that this new framework will become dominant, especially given the OECD’s proven technical capacity and the existence of globally progressing projects that should not be abandoned mid-course. As for the long-term future, ever more unpredictable in this ongoing climate of political tension, it is difficult to provide a definitive answer. On one hand, we may be facing an opportunity to redefine the international tax system and make it truly cooperative; on the other, there remains a lingering sense that those currently in positions of leadership are not willing to negotiate them.

As we await the next developments in upcoming rounds of negotiations within the UN, it will be interesting to observe the behaviour adopted by the most influential OECD member states. The fact that they present divergent views will put their negotiating capacity and internal cohesion to the test, under the watchful eye of the international community. Should consensus on the terms of reference prove elusive, and key points of divergence require voting, and if the Global South outvotes the Global North, this will undoubtedly trigger a further round of contestation and renewed votes in the General Assembly regarding those same terms. If the Global North is once again defeated, the question will arise as to whether these countries will continue to participate in drafting the framework convention based on terms of reference they opposed. Choosing to disengage would be a risky decision, subject to both internal and external scrutiny. While such a stance may keep negotiations active for the more diplomatic actors, it does not eliminate the possibility of disengagement as a valid and previously observed scenario.

All things considered, the co-operation observed in the current international tax system cannot be considered equal, with a strong overlap between the economic values and interests perpetuated by the OECD and the social and humanitarian values pursued by the UN. It is difficult to foresee a short-term change, especially as the movement towards globalisation and co-operation between states seems to be stagnating, giving way to nationalist tendencies that increasingly favour their own interests over international solidarity, as exemplified by the new US administration. Recalling the importance of collecting revenue, the conflicting nature of the tax and the significant differences between states, the international picture points to the need for co-operation, currently marked by a noticeable imbalance. Even so, what is currently on the negotiating table at the UN has the potential to shift the existing paradigm, a first indication that the problem has been acknowledged and that efforts are underway to achieve true equal co-operation.

[1]Roy Rohatgi, Roy Rohatgi on International Taxation, vol 1 (IBFD 2018) ch 4.

[2] Miranda Stewart, Tax & Government in the 21st Century (Cambridge University Press 2022) chs 1–3.

[3] OECD, Model Tax Convention on Income and on Capital: Condensed Version (OECD Publishing 2017) Introduction, 9.

[4] Roy Rohatgi, Roy Rohatgi on International Taxation, vol 1 (IBFD 2018) ch 5.

[5] Constituição da República Portuguesa (Portugal) art 9.

[6] Roy Rohatgi, Roy Rohatgi on International Taxation, vol 1 (IBFD 2018) ch 5.

[7] OECD, “Tax Treaties” (OECD, 2025) https://www.oecd.org/tax/treaties/ accessed 13 March 2025.

Raphaël Bugalho

July 2025

This article is adapted from an academic assignment originally submitted for the “International Business Tax Law” module at Trinity College Dublin during the 2024/2025 academic year.