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Beyond Legal Bindingness

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Beyond Legal Bindingness
Author
Hans Pijl [*]

1. Introduction
The human mind likes to think in binary contrasts: present and absent, light and dark, war and peace, health and sickness, sovereignty and submission, identity and division, hard and soft, Dionysian and Apollonian. [139] The first pole is sometimes connected with positive sentiments, the latter with less favourable ones. Not surprisingly, well drafted book titles, i.e. titles reflecting the essence of the universe contained in them, often embody this spirit: Jenseits von Gut und Böse (Beyond Good and Evil), Der Jasager und der Neinsager (The Yes-Sayer and the No-Sayer) and Aufstieg und Fall der Stadt Mahagonny (Rise and Fall of the City of Mahagonny). [140] Equally unsurprisingly, two of these works are by Brecht, an adept of the Marxist philosophy and its dialectical method. "Two’s company, three’s a crowd" - and where there are more related categories (the Good, the Bad and the Ugly), these are the omen of an unregulated, lawless world. We had better avoid entering into ontological discussions on the question of whether these pairs are the building blocks of reality or whether they are just our way of structuring reality: assuming, as we are children of the 20th century, that most of us have left natural law behind us and that we do not regard law as a gift from a deity, law is the creation of our own mind. The binary oppositions in this approach are products of our mind, children of our intellect that are always trying to make confusing reality understandable and manageable. We had also better avoid the question of whether the constant progress and the cohesion of international law are just a narrative, or whether the progress it seems to have made in the last 50 years after the disaster and disruptions of World War II is a mere coincidence, or a naïve and incomplete perception. The fact is that the modern phase of history is marked by a process of international integration (torn of the iron curtain and globalization), and that this factual integration goes hand in hand with an enormous expansion of international agreements. In the traditional approach, international agreements are cast in opposite terms of legal bindingness versus legal non-bindingness. This Entweder-Oder opposition fits the needs of our structuring mind: a rule is either legally binding or non-binding, and there is nothing in between. Indeed, this distinction is still the paradigm, although it is clearly not the complete picture of state agreements. In Jenseits bindingness, there is a world of instruments (or just behaviour in general) that, though not legally binding, represent a variety of politically binding agreements between states. There are many rules which states perceive as imposing strong obligations on them, even when they are not legally binding, and there are others that have a much weaker character. The question of what is on the other side of the border of this land of non-binding law has recently received more detailed attention, [141] albeit that this waste land is far from having been explored scientifically in any depth. No clear criteria have been developed to date, and no scientific analysis has been made with a view to making a taxonomy of the concept of political bindingness. Commitments and obligations in this non-legal political realm are other than legal in nature, resting on a political rather than a legal basis. There may be no legal bindingness, but there may still be an incentive of some kind, weak or strong, to follow the legally non-binding rules for a number of reasons, such as the existence of an effective monitoring mechanism or peer review. Specifically in cases where the media "blame and shame" non-compliant behaviour, or where sanctions threaten the non-compliant state, the incentive to adhere to the rules may be strong. This is especially so when the rule in force reflects generally prevailing public opinion in a state (e.g. on the issue of human rights) so that, even if no legal basis exists (assuming that the state in question is not bound by human rights treaties), non-compliant behaviour might well trigger strong internal resistance, for instance in the event that the morally compelling, political instrument of the UN Declaration on Human Rights is not taken as the norm of state behaviour. A further example: even though the views of the Human Rights Committee (HRC) are not binding, a state would not do itself any favours by not taking the Committee’s views seriously and ignoring them. Political commitments of this kind, which do not have a basis in any classical treaty and which are not eligible for classification elsewhere in the list of Art. 38 of the Statute of the ICJ, may thus force a state to act as if it were bound by a treaty; and conversely, a weakly drafted treaty may well have no impact at all. In some cases, if certain conditions are met, a political obligation may transcend from the political realm to the legal realm. For instance, a political agreement may have been made in such circumstances that it must be regarded as a legal one (as the ICJ held in Qatar v. Bahrain), or a regime may have been created which is binding on the states involved despite the absence of a legally binding rule (e.g. because of expiry of the treaty). This was the case in the ICJ’s judgement in Libya v. Chad, where the fact that the border treaty had expired was

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14/08/2013

and (ii) custom. in terms of legal doctrine the outcome will most likely be the same. 25 of the OECD Model Tax Convention also belong to this category. [146] If this category is taken to embody lawyer’s logic (e. 38 of the Statute also refers to "international custom as evidence of a general practice accepted as law". who are generally the bodies that deal with international taxation matters. Unilateral acts.as the ICJ has held . if supported by established domestic practices and legal concepts. but consensus seems to exist that. 38 of the Statute of the International Court of Justice. In defining the formal sources of international tax law. Resolutions by the General Assembly and mutual agreements under Art. which refers only to "judicial decisions and the teachings of the most highly qualified publicists of the various nations". On the other hand. But then. there is a political commitment for states to act according to those rules. Firstly. the Commentaries under discussion cannot be considered as independent and standing alone. however.ibfd. i.g. because they do not meet the basic requirements of customary law: consistent practice and opinio juris. as an act of speech. Many of these stem from international agreements that do not constitute formal treaties and are not legally binding under the pacta sunt servanda rule of the Vienna Convention on the Law of Treaties ("Vienna Convention"). 36(2) of the Statute. be positioned? Is it to be considered only an instrument of a political nature or have the rules of the game raised the Commentaries to the realm of legally binding agreements? Apart from the legal dimension.g. they are embedded in a linguistic playing field. This aspect will be discussed in greater detail below. certain specific rules expressed in the Commentaries might be regarded as customary law or as having the potential of developing into such law. 38.Beyond Legal Bindingness Página 2 de 17 held not to have any legal effect on the borders once set. whatever the result of any examination of the non-legal aspects involved. 14/08/2013 . as a linguistic expression. [143] Thirdly. if state liability issues arise. as was the case in the ICJ’s decision in Temple of Preah Vihear. states generally do not deny that they are parties to an agreement which requires them to act in a certain way. and in practice there is not much of a difference between acts emanating from legally binding rules and acts based on rules that are not legally binding. such as good faith. as a rule for the World Court. for those who have great hopes of any judicial decision on the matter by an international court of law. the Commentaries have no place there. where should the Commentaries on the OECD Model Tax Convention. there are various aspects that should be examined in order to be able to answer this question. The Commentaries clearly do not fall under this category. It does not need much argument to disqualify the Commentaries for application under Art. a proper grasp of international law is impossible without considering social and political backgrounds: a purely legal approach will be inadequate. should be inspiring to the municipal judges. The question of whether the Commentaries on the OECD Model Tax Convention can be regarded as customary law would require an extensive study.. may be binding rules based on customary law. 36(1) or under the declarations of Art. Good faith as a general principle of law could be the formal source to elevate the Commentaries to binding rules of law. can be considered to impose a legally binding commitment on the state making the statement. their hopes are idle.e. [142] Regrettably. 38 of the Statute perhaps incomplete. bilateral tax treaties. Even though these rules are not legally binding. and normally no state ignores that commitment.g. Art.html?q=soft+hard+non. Art.org/highlight/collections/lsco/html/lsco_c06. and can only be understood in an overall linguistic context. The commitment arises from the general principle of good faith when "it is the intention of the state making the declaration that it should become bound according to its terms". the later rule or the more specific rule prevails). Is the catalogue of Art. the Commentaries’ role as a leading document in the interpretation of tax treaties cannot be underestimated. as a whole. even though they are mostly not so based (at least initially) because . [147] Resolutions by the General Assembly. Finally. behaviour expressing acceptance of a tacit rule may also make that rule binding. If the category is construed as a conceptual reference to true principles of international law. 38(1)(d) of the Statute. There is a wide variety of international rules that do not flow from the sources of law listed in Art. 38 of the Statute. and should other sources be added? Jus cogens apart (maybe not even jus cogens). clearly an instrument which is not legally binding in terms of either text or context. It is not to be expected that a taxation matter will ever be referred to the ICJ under Art. Secondly. as another example. for example. I shall discuss this specific environment in the paragraphs below and argue that it does not allow us to regard the Commentaries as legally binding instruments. the taxation of diplomats. this seems doubtful as the catalogue seems wide enough to also comprise sources not explicitly mentioned. as international law is deeply rooted in a sociological and political Umfeld. Such a difference will become visible. [145] e. certain rules of the Commentaries may be considered evidence of a general principle of tax law. [144] e. Views of the Human Rights Committee.the mere recognition http://online. 2. irrespective of the basic theoretical assumptions as regards the political or legal bindingness of the Commentaries. Although the relevant provisions do not bind domestic courts. reference may be made to Art.. Sources of international tax law Formal sources of legally binding and recognized international tax law are: (i) treaties. they cannot.

Art. Making regulations exclusively by means of treaties would seriously overburden the offices of Foreign Affairs and would disengage the monitoring function of parliament. The growing process of internationalization and interdependence manifests itself in the explosion of newly created legally binding treaties between states on every new aspect of life. What is the complete story. The rationale behind non-binding instruments Under the paradigm of state sovereignty. and the wish to give all of those instruments a legally binding character (or not) is an understandable one.Beyond Legal Bindingness Página 3 de 17 of certain rules by states does not in itself create international customary law. international law was even subject to domestic law. There can be no doubt. declarations and recommendations of many international organizations. In this vein. the European codes of conduct. and legal attunement helps create a well-functioning world order. the possibility of relying on international law is limited: under the Constitution. states have an interest in regulating their interaction with other states in order to protect their own interests as states per se. The complicated domestic procedures required to bring international law into the domestic hemisphere form a serious impediment to balancing international relationships in a wide variety of fields ranging from peace. On the one hand. even jus cogens can be considered as falling under customary law (see. international law does not have the position it deserves and is subject to a range of limitations. (One of the doctrinal positions on the legal dimensions of the relevant Accords is that they may develop over time into something more than a moral obligation.html?q=soft+hard+non. for instance.g. and if we then take a cosmopolitan view of international law. human rights treaties). life would be much easier if all international instruments could be considered as either legally binding or not. If we consider the international collection of states as a real "world community" and take the responsibilities ensuing therefrom seriously. however. and the guidelines. 14/08/2013 . this paradigm still reigns. To put it differently: on the one hand. which means that it must at least be sufficiently specific. [151]) To mention a few other instruments that are not legally binding: the 1948 UN Declaration of Human Rights. that the classical list of Art. [150] The constitutional systems of democratic states in which proposed international law is subject to parliamentary approval are a reflection of those individual interests.. 53 of the Vienna Convention).position to domestic law.g. on the other hand. Politically binding instruments such as the Commentaries might also be considered as containing binding rules. e. international law made slow progress in its relative .importantly . they involve interests of the state’s nationals [149] (e. [148] It seems. This has led to a system that . with the state being an absolute power and primarily bound to nothing but itself. And even nowadays. The sovereignty concept still positions states as fully independent international persons. namely when they are considered to fall under customary law or when good faith promotes them to the realm of legally binding rules. the 1970 Declaration on the Principles of Friendly Relationships Among States. This phenomenon has not left international tax law untouched. In the more nationalistic phases of history (Moser. that in the current phase of international law the whole story has not yet been told. the Council of Europe. and that customary law and general principles are sufficient. for instance. Perhaps. 38 of the Statute is well suited to respond to modern developments. we must conclude that we cannot accept that legal obligations arise where the will of the state (the people) is absent. Yet. and if this were the whole story.nowadays mostly superior . subject to no rules other than those created by themselves and those accepted in their interaction with other states. In the context of the OECD and the United Nations. whether in the field of human law or on a more worldly level in the area of taxation. unwieldy instruments to regulate the details of international interaction. taxation and cooperation. aviation and human rights to money laundering.g. boundary treaties). and we are still living in a world where the will of the state forms the basis for the commitments assumed (voluntarism. Treaties are cumbersome. the informal Commentaries [152] were developed to foster unity in the conduct of states in international taxation matters. This was all the more necessary as the "hard" law of double tax treaties is open to http://online.org/highlight/collections/lsco/html/lsco_c06. the environment. The binary approach is the lawyer’s condition humaine. therefore. and parliaments will most certainly make use of this power if they believe the area of regulation to be sufficiently important.still allows parliaments to subject their state’s international policy to their scrutiny.. consensualism). the last 50 years have shown a proliferation of legally non-binding instruments. such as the International Atomic Energy Agency. the participating countries apparently did not want a final document that was more than just morally compelling. resolutions. states as collectives of individuals (including legal entities for the present purpose) should make their actions subject to individual needs. We have seen this same development in many more or less important fields of law. Hegel). this will-based system has surpassed its efficiency in this globalizing world. the FATP.ibfd. international law will only prevail over domestic law if the rule in question is apt to have direct effect. then? 3. In legal terms. on the other hand. As regards the Helsinki Final Act of 1975. the OECD and the UN General Assembly. in many constitutional systems. these treaties concern the interests of states as organizations per se (e. In the open Dutch system. Despite the growing process of internationalization and the increased complexities of the 21st century. with states circumventing onerous treaty procedures and making unofficial agreements to regulate interactions in a practical manner and avoid legal commitments which would require parliamentary approval.

Beyond Legal Bindingness Página 4 de 17 interpretation and "soft" in its meaning. Legal practice and also the judiciary have recognized this in the importance they give to the Commentaries. As international taxation is usually regulated in bilateral treaties. this is an effective way of coordinating international state behaviour. the legal bindingness or non-bindingness of international tax law depends on the will of the state. which generally participates in supranational committees in that context. the onerous ratification process is often overcome in such cases by a format whereby the parliamentary route is avoided (using instruments that do not require parliamentary approval). where parliaments are less keen to waive their prerogatives and refer the matter to simplified procedures. the time is not ripe for the specifics of a treaty.. as the consequences of non-compliance are less serious and no issues of state responsibility will arise. are generally seen as not having the effect of bringing themselves within the radius of legal commitment. and leaves many issues to later adjudication. when there is not sufficient domestic political support for a certain rule. these legally non-binding instruments are also used where. however. however. The judiciary contributes to this process by consistently characterizing the Commentaries as "very important" to the interpretation of tax treaties. Therefore. in a multilateral context. a non-binding instrument serves its purposes just as well as a binding treaty would do. a state whose executive (the government. as is the case with the Commentaries: where the interpretational scope of the Commentaries also covers the past. From an international cohesion perspective.) has agreed to the Commentaries cannot be held liable if a domestic court of law interprets the treaty differently from the Commentaries. In practice. no uniform norm can be said to have developed and where the soft codification of that norm in a political instrument (even if the norm is only accepted by a small majority of countries) can contribute to the progressive development of uniformity in the long run. If an instrument politically binds governments to implement a specific law. Moreover. which facilitates the unification of international behaviour. this would lead to a confusing jungle of bilateral agreements. (2) (3) (4) (5) (6) (7) http://online. but politically binding instruments are a manifestation of international support and uniformity. That is not to say that the Commentaries do not have a normative impact on states or that states would be allowed to just disregard them in good faith. Instead of passively waiting for domestic judges to adjudicate international cases in the varying contexts of their differing domestic fiscal traditions and to actively bring uniformity to treaty application and interpretation. Parliaments specifically do this when the amendments concerned are regarded as less meaningful.4. parliaments are prepared to give up their prerogatives regarding treaty amendments and to leave certain changes to the executive branch of government. and is thus an efficient form of dealing with limited human resources. it is not easy to withdraw from that commitment. Therefore. Changing a multilateral treaty with this frequency (the OECD Model Convention was originally intended to be a multilateral instrument) would lead to an awkward and complex variety in the bilateral relationships with numerous reservations by states which do not accept certain proposed changes. Legally non-binding.] and to extend the existing network of such conventions". the temporal scope of such changes is usually wider... e. contributed to a more consistent worldwide understanding of tax treaties by explaining what they understood the treaty provisions to entail.g. e. Similarly to international law in general. There have been seven changes to the Commentaries up to and including the year 1992. This is because the treaties in question touch on the very existence of the state itself or have a direct impact on the state’s individuals. On the other hand. the states. practically speaking. In many situations. which is clearly at odds with the proclaimed aim of the OECD "to harmonize existing bilateral conventions [. united in the United Nations and the OECD. In practice. The domestic constitutional systems usually provide for a simplified approval procedure in respect of such treaties. the Commentaries are inversely proportional to these treaties in matters of interpretation. 14/08/2013 . such as defence and taxation. The scope of a political commitment based on politically obliging instruments cannot go further than the circumstances dictate. see for the importance of the distinction between government and state 5. and are an invitation to practitioners to review their standards. but a state would be able to defend its failure to pass the bill through parliament by making its parliamentary system an excuse for breaching its soft commitment (even though it may then be subject to peer pressure and "blaming and shaming"). The norm may result in bringing the dissenting states to exhibit conduct that is more in coherence with that norm. Equally. Reasons (sometimes overlapping) for entering into legally non-binding agreements include the following: (1) It is easier to reach agreement on instruments that are not legally binding.html?q=soft+hard+non.. Legally non-binding instruments are flexible and can easily be changed. because of their highly technical and complex nature (as is often the case in matters of aviation. the dynamics in those fields would be seriously hampered if only instruments subject to parliamentary approval were used on a detail level. atomic energy and the environment).g.org/highlight/collections/lsco/html/lsco_c06.ibfd. [153] a new treaty text typically applies to the future and has very limited retroactive effect. but is also a matter of appreciation of facts and circumstances. [154] In the modern world of growing internationalization and interdependence. [155] There are also other fields. this development can only be applauded. The Commentaries. Where treaties are hard in terms of bindingness and soft (thus: manifold) in terms of meaning.

namely when uniform application of the rule has created a generally accepted standard worldwide. (10) Confidentiality [157] also plays a role in the choice of non-treaties over treaties.received a procedural tool to make their rights effective by taking action directly against the defaulting state without having to rely on diplomatic intervention by their home state. which can well serve to accomplish coordinated behaviour until the time is ripe to lay the rules down in legally binding instruments. By that same token. individuals were merely objects. [164] but. In the Netherlands. She proposed abandoning the dichotomy between subject and object of international law and regarding the position of individuals and that of the state on an equal footing. Rather than considering the state as the only relevant stakeholder in international law. [161] This view changed in the 20th century. states do take a passive attitude in taxation matters and do not pick up possible breaches of a tax treaty under diplomatic protection. breaches of treaties. flexible and dynamic. circumstances and perceptions evolve. personal treatment and fairness in cross-border business transactions). [156] (8) One of the important effects of standardization by international organizations such as the OECD is that the standards created reach beyond the limited group of Member countries. In fact. for example. on the basis of the participant concept. legally binding instruments are often preceded by a legally non-binding instrument. standardization can contribute to the creation of a level playing field. The doctrine recognized. and the language of treaties granting rights to individuals needed to be reconciled with the doctrine’s self-perceived prima facie concept: "Although such treaties mostly speak of rights which individuals shall have as derived from the treaties themselves.. and only a summary of their contents was made known through ministerial decrees. international law has an open texture." [160]. and other treaties typically aiming at individual stakeholders) primarily confer rights on individuals. signs of OECD influence can be found in the UN’s Model Double Taxation Convention and Commentaries. In http://online. human rights law. Individuals in international law. treaties pivoting around individuals (tax treaties.html?q=soft+hard+non. as the latter category usually requires publication. Memorandums of Understanding on taxation) were never published in their original format. human rights treaties. (9) If international rules cannot be laid down in the form of hard rules. 25 of the OECD Model Tax Convention (i. and they develop and change as time passes and as facts. however. rights and duties granted to individuals in treaties were granted under the municipal law of the states..e. the Law of Nations. not of nationals. able to protect the interests of all. [162] and regarded diplomatic protection as a tool for the benefit of the individual rather than the state. [159] to quote one of the followers of this doctrine. Under this perception of international law. as may already be inferred from the then colloquial word for this branch of law. In the modern view. until a few years ago.ibfd. Lauterpacht saw this procedural development as confirmation of the substantive rights individuals always had. and at the level of international law. This applies to any subject of international law: the recognition of states. that non-binding form shall be the form the instrument shall have. Whether this can be taken so far that the state is not a participant in such matters at all falls outside the scope of this article. Where a rule of international law was to have an impact on the individuals of a state. only constituted a breach against the state. investment treaties.Beyond Legal Bindingness Página 5 de 17 Internationally. individuals were generally excluded from the group of addressees of international law. the latter two subjects being of importance to the theme of this article. as the sole subject of international law. the Commentaries on the treaty provisions might help to overcome that problem. In the 19th century view on international law. which is important to areas like money laundering or taxation in order to avoid an all too easy selection of states that apply the most relaxed international standards. domestic law would have to intervene. and when individuals gradually . including where they clash. Individuals in international law Rules of international law are pragmatic. Rosalyn Higgins [163] took this one step further. this is nothing more than an inaccuracy of language. Where lack of local capacity (typical to many developing countries) may disenable non-Member countries to develop their own understanding of bilateral tax treaties. Reference is made in this regard to the International Atomic Energy Agency (IAEA): the Nuclear Safety Convention and the Joint Convention on the Safety of Spent Fuel and Radioactive Waste Management were originally non-binding safety standards issued by the Agency. that the concept was marked by an internal tension. irrespective of the treaty area covered. The Law of Nations was "a law for the international conduct of states. state sovereignty. and any damage done is primarily individual damage and not state damage. a certain number of interpretative mutual agreements under Art. a distinction at the international level should be made between typical state interests (in areas like boundary questions and sea law) and typical individual interests (protection of property. the position of individuals in international law or the bindingness of international instruments.1. In 19th century philosophy.albeit still only in part . It is the instrument’s function that determines its form: if efficient coordination can only be reached by legally non-binding instruments. but they impose the duty upon the contracting states to call these rights into existence by their Municipal Laws. that is. which was law of nations. [158] 4. 14/08/2013 . such treaties do not create these rights. In her view (which is indeed quite helpful). when treaties were deemed capable of granting rights to individuals directly (the individual beside the state as a subject of international law). and not of their citizens". in actual practice. constitution 4.org/highlight/collections/lsco/html/lsco_c06.

but also for its individuals/taxpayers as stakeholders. and taxpayers normally address the courts of the other state instead of filing action in their own state and asking that state to intervene. Where an individual’s act in this hybrid system is typically directed at defending his or her own interest. direct interest for the state as a participant in this system. however. For instance. sovereignty is unlimited (Lotus principle). The Commentaries can well give rise to a waiver of rights at state level. can be bound by an agreement that puts the interests of the state first.. they must be interpreted narrowly.g. 4. the state’s reaction is potentially ambiguous. that position will have to be regarded as a statement made in the interest of the states as such. therefore.org/highlight/collections/lsco/html/lsco_c06. states as such have an interest in protecting their taxation power (e. that latter instrument cannot become binding on the individual participants. In an international participant system. in cases where improper tax planning may lead to an inequitable result). 5(5) of the OECD Model Tax Convention is not sufficient. One of them is a tax treaty.ibfd. the OECD Member countries have agreed on two instruments. the individual cannot be regarded as the only direct stakeholder: clearly the state itself has a direct interest as well.g. It is precisely for this reason that the Commentaries are ambiguous also: as a product of the executive alone.html?q=soft+hard+non. should be considered as being of the same category.2. and that an economic criterion should be assumed to support the rationale of that provision as well. The states have thus given up their sovereignty to a limited political extent. where a statement in the Commentaries potentially entails not only a material. but also that of its own interests. and proportionality http://online. there is no such thing as an exclusive interest of individuals that dominates the interest scale. these treaties may be called hybrid in terms of the interests involved. the proper approach in attributing interpretational force to the legally non-binding Commentaries would be a careful weighing of the interests of the state against those of the taxpayer. but not as far as the individuals are concerned. especially in light of the scope of the sovereignty of other states. the Commentaries. on their individuals as well). the state complaint procedure under human rights treaties is hardly ever invoked. which is legally binding on all parties thereto (and. equity and good faith. The other instrument. 15 as employer in a substantive sense. The state’s reactions may not be difficult to classify. [165] Noticeably. A problem does arise. is not legally binding. the Member countries have made use of every linguistic tool at their disposal to ascertain that the Commentaries are not legally binding on the states (see 5. State sovereignty In the matter of the Commentaries and the basic OECD Recommendation. the question arises as to whether the system of international law as perceived can be such that the individual. In such cases. the change made to the Commentaries in response to the Philip Morris judgements. through the interaction of the pacta sunt servanda rule and the domestic treaty approval system. in deciding when to refrain from taxation under treaties. 14/08/2013 . because its own taxation status under these treaties is concerned. if the interests of the state and those of the individuals conflict. The abuse of law paragraphs in the Commentaries. As the participant system under taxation treaties affects both state and individual directly. as was done in a number of territorial disputes. as a principal participant in this system. This question can be answered as follows. and a conflict arises. for instance. There. the interest of the state in cases of breach is also clearly present: even though the state steps back in cases where a direct loss is caused to individuals (the individual’s direct loss appears to take precedent over the state’s indirect loss). the two unlimited environments must somehow be reconciled. they are apt to take the interests of the state and those of the individuals as paramount. [167] No problems will arise if the interests of the state and the individual coincide. Under tax treaties. Where two sovereignties are brought into the equation. in which the Italian Supreme Court gave the definition of permanent establishment a scope that went beyond the normal interpretation of that term. those factors were made specific by reference to the geological situation.) and that the Recommendation only creates a political commitment which essentially only binds the executive to fulfil its obligations. they prefer to leave the solution to the individuals. the state does have a direct interest also. in the context of abuse of treaty.. And if any such restrictions exist. e.Beyond Legal Bindingness Página 6 de 17 cases where foreign taxation is perceived as unjust. As for tax treaties. Restrictions of that sovereignty can only be accepted where there is convincing evidence. or in the area of abuse of treaties. In matters of taxation. the unity of the mines. but merely creates a political agreement at executive level to interpret the tax treaty as much as possible in light of that legally non-binding instrument. as it may entail the protection of the taxpayer. which is reflected in many cases decided by the ICJ. that the freedom of the Member countries to act is more limited than follows from the Recommendation? This question essentially touches on the scope of sovereignty. This could be done by referring to overriding general principles of international law. may be regarded as a response in favour of the individual. should the Commentaries ever defend the position that legal bindingness as a criterion for the creation of an agent’s permanent establishment in Art. Then. Basically. Is it defensible under the circumstances discussed in 5. or the interpretation of employer in Art. whilst individuals have a simultaneous interest in giving the treaty the desired effect. [166] On the other hand. however. It also follows from the system of international law that its technologies (such as acquiescence and estoppel) cannot be used in such a way as to disrupt this balanced system.

although this is not required in legal terms. "rights". i. Whether or not an instrument is a treaty depends on the intention of the states. and if the will to be only politically bound is present. In several cases (Qatar v. but practice accords them great moral force as representing the political will of Member Countries and there is an expectation that Member Countries will do their utmost to fully implement a Recommendation.Beyond Legal Bindingness Página 7 de 17 between the continental shelves allocated to the contesting parties (North Sea Continental Shelf cases) or to the "equitable result" (Tunisia-Libya Continental Shelf case and the Libya-Malta Continental Shelf case). [173] which elsewhere confirms: Recommendations are not legally binding. this will should be the starting point. The point is that in light of the existing constitutional systems (facts for international law). The Commentaries are a Recommendation. [174] As to other verbal http://online. [169] the State Secretary instead explained that the Commentaries served as a guideline only (Dutch richtsnoer) in the interpretation of treaties. 4. but the question arose as to whether the conduct of states (through an act or omission) could be such that they could not justifiably claim that they were not legally bound (Temple of Preah Vihear). the tax administration) "as well as" the Dutch judiciary attach "great importance" to the Commentaries. In these exceptional cases. termination. 2. cannot be correct.org/highlight/collections/lsco/html/lsco_c06. This was confirmed in the same paragraph of the Policy Paper: the "Netherlands" (in light of the subsequent reference to the judiciary. "agree". Aegean Sea). and other domestic courts also give the Commentaries only "great importance". there was clarity about the instrument’s status as not legally binding. a state cannot defend itself against a violation of international obligations by referring to its domestic law (Art. (b) make recommendations to Members. [170] As far as I know. As to the language. other states (Executives) take the same approach of the Commentaries being guidelines. and the state concerned could not claim that it was not bound. The Recommendation and the annexed Commentaries 5. which implies a breach of the constitutional systems. except as otherwise provided. The Recommendation as a legally non-binding instrument A treaty (Art.3.e. which is a legally non-binding instrument. Recommendations and other types of OECD instruments in force are available on the OECD website.2 of the General Tax Treaties Policy Paper. in the Netherlands. these rather special cases do not detract from the general rule that consensus is the basis for legal bonds between states. Member Countries which do not intend to do so usually abstain when a Recommendation is adopted. Elevating an instrument of this type to the sphere of legal obligations must have a solid evidential basis. 3 of the Articles on the Responsibility of States for Internationally Wrongful Acts). 2(1)(a) of the Vienna Convention) is legally binding on a state (Art. the basic issue was whether the disputed instrument should be considered as legally binding upon the states. and where the states themselves agree on a mutual delimitation of the rights and duties they have created with the Commentaries. Bahrain. Where no claim is made in that respect. the disputed instrument was regarded as legally binding. it also approved the fact that the treaty should be read in the vein of the Commentaries. Thus. the interpretation of the Recommendation as an instrument creating legally binding obligations. In any case. 27 of the Vienna Convention and Art.. state responsibility. financial contribution and obligating terminology like "shall". shall be binding on all the Members. In Para. which can be inferred from certain structural and linguistic characteristics given to the treaty. This follows from Art. and (c) enter into agreements with Members. it would be contrary to the basic democratic system of the OECD Member countries if we were to accept that rules not approved by parliament would be binding on the population. the Minister of Finance never briefed parliament that in approving the treaty. however. Of course.html?q=soft+hard+non. The binding nature of instruments generally follows from facts and the language used. limitations to sovereignty are necessary when the sovereignty of State A collides with the sovereignty of State B.. however. However. 26 of the Vienna Convention). All of this involves a balancing act between the conflicting claims of the states involved. without claiming that the Commentaries had the status of an instrument entailing heavier obligations for the Netherlands. [168] In cases as described above. "obligations". 5 of the Convention on the Organisation for Economic Co-operation and Development: [172] In order to achieve its aims. importance can be attached to provisions regarding entry into force. [171] There is no clear-cut line. non-member States and international organisations. The rule of law and domestic practices It would be contrary to many constitutional systems for a state to be granted power to conclude tax treaties or other legally binding agreements without having consulted parliament or having obtained parliamentary approval. 14/08/2013 . the Organisation may: (a) take decisions which. If there is no such consensus. the concept of sovereignty would be limited unduly and without precedent if the states themselves have reached agreement on the scope of the political commitment they have assumed. this is obviously the executive. The specific Decisions.1. But this is a completely different issue that will not be discussed here. 5. In some other cases.ibfd. Assuming that similar rules exist elsewhere.

2. but as a working hypothesis. Noting that the changes which had occurred in the international economy in recent years called for more ambitious objectives. with a view to establishing closer cooperation based on a binding act. concerning the application of procedural machinery for notification and consultation which the Member States have used on several occasions. 5. or that it is not legally binding. as it had been the expressed wish of the Commission to conclude a legally binding instrument.html?q=soft+hard+non. etc. and there was no doubt on this point in the matter at hand. Certain Council of the OECD recommendations. For example. In particular. some recommendations may well be considered to have been drafted in wordings which imply a more stringent political obligation for the Member countries than others. hitherto founded on a voluntary basis within the context of OECD recommendations. [175] In his Opinion of 16 December 1993.3. the General Secretariat of the Council of the European Union asked the Member States how they would define the status of their international instruments. to make clear that the Commission took the position that OECD Recommendations have no legal effect: 2. To support his argument. states often expressly state that the instrument is politically binding. the AG also referred to some textual clauses and concluded that the termination clause confirmed the expressed will to enter into a legally binding agreement. [176] Advocate General Tesauro applied similar criteria in establishing whether an agreement between the European Commission and the United States [177] was binding. which served. A further examination of this issue does not fit within the scope of this article. no efforts have been made to date (as far as I know) to make a classification on a scale of political bindingness. [179] is weak in character ("should". according to the Commission itself. 14/08/2013 . as amended in 1986. sur l’analyse de l’intention.. He also considered the will of the parties to be decisive. sauf le Portugal. Equally significant is the later Recommendation of 23 October 1986 concerning cooperation between member countries "in areas of potential conflict between competition and trade policies".. the possibility of negotiating an agreement formalising relations between them. 5. It is precisely the OECD’s 1979 recommendation. I of the questionnaire): Le critère de distinction des instruments juridiquement non obligatoires par rapport aux instruments juridiquement obligatoires se fonde dans tous les pays. a few years ago. 3.. [180] "as . in the course of meetings held at the end of 1990. Linguistic indicators of the level of political bindingness of recommendations In the field of legally non-binding recommendations. it is necessary to bear in mind the Recommendation of 21 May 1986. I quote more extensively. or that it is not eligible for registration with the United Nations Secretariat. (4) the Commission suggested to the United States authorities.. manifestée par les parties ou resultant du texte de l’accord. as a frame of reference for the definition of some of the issues relating to the extraterritorial application of the rules of competition which frequently arose between the United States and the EEC and were subsequently resolved under the contested Agreement. It might be possible to analyse non-binding agreements with a view to drawing up a taxonomy in which some of these instruments are classified as imposing a heavier political burden than others on the addressees of the recommendations. with a more incisive and innovatory content. Of interest in both the case at hand and in the context of the legal status of OECD Recommendations were the Commission’s reasons to enter into an agreement with the United States.org/highlight/collections/lsco/html/lsco_c06. the wording of the recommendation [178] under discussion in 5. It is appropriate to begin by recalling the circumstances of this dispute. de donner à l’accord une force juridique non obligatoire. which amended and replaced the previous Recommendation of 25 September 1979 concerning cooperation between Member countries on restrictive business practices affecting international trade. as possible"): A.Beyond Legal Bindingness Página 8 de 17 indicators of legal non-bindingness. POLICY PRINCIPLES TO STRENGTHEN COMPETITION IN NATIONAL AND INTERNATIONAL MARKETS a) Trade policy measures affecting competition http://online. Interestingly.1.ibfd. have a bearing on the issue of the so-called extra-territorial application of the rules of competition and the problems which may arise therefrom as regards the relationship between different kinds of legislation of different origin. concluding that a proper distinction between binding and non-binding instruments could only be made on the basis of an analysis of the will of the states (only the Netherlands did not respond to the relevant questions in Para. The will as a basis for bindingness and the European Commission’s view on OECD Recommendations The basis of bindingness is essentially the intention of the states. and briefly to recapitulate the events which led to the conclusion of the Agreement in question. in particular the drawing up of a "legally binding document rather than a non-binding recommendation".

whereas in cases where day-to-day conduct is involved. Thus..Beyond Legal Bindingness Página 9 de 17 1. the addressee is generally the Member country. but it seems (numerically speaking) that. The scope of this article does not leave room for any further examination of the issue. such as "shall"..] Aust [181] also places the term "should" (and "will") at the weaker end of bindingness. that the executive is primarily responsible for the conclusion of treaties... By the same token. Although the majority of the OECD instruments reviewed offer confirmation of the hypothesis. In international law. 14/08/2013 .)". The Recommendation on the Granting of Tax Sparing in Tax Conventions (C(97)184/Final of 23 October 1997) recommends that the governments of the Member countries follow the recommendations set out in the Tax Sparing Credit Report when negotiating and concluding tax treaties. as may also be inferred from the doctrine on the recognition of states and governments. There are also a number of recommendations that are addressed to the "Member Countries". Almost without fail.. Member governments should undertake. whereas recommendations to conclude treaties are generally addressed to the governments of the states. Building on this hypothesis. there are some remaining issues that merit closer attention. the government. be useful in a classification of recommendations according to a scale of political bindingness. and only exceptionally speak to addressees other than the states. This may. on the basis of the attached checklist. Clearly. the government of the Member country.Memoranda of Understanding (legally non-binding) . such as the question of why OECD Recommendations to introduce legislation are addressed mostly to the states.. however. perhaps. Limiting my examples to recommendations to introduce legislation in the field of taxation. The standard text here is "THE COUNCIL (. interestingly. the government is the preferred addressee. legally binding decisions (there are about 20 of them on the OECD website [183]) are practically always directed to the states (as subjects of international law).ibfd. They are often addressed to the "Governments of Member Countries"... the latter Recommendation to the Governments correctly reflects the common practice in states. i. I would refer to the Recommendation on the Tax Deductibility of Bribes to Foreign Public Officials (C(96)27/Final of 11 April 1996). whilst placing more stringent modes of verbs. the decisions are phrased as follows: "THE COUNCIL (. Where a form different from this classical form is used.) DECIDES that Member Countries (.as far as those rules are not at variance with the non-legally binding nature of such instruments. Possibly. On the other hand.. Admittedly.. which are all directed to the Member countries.. which prescribes certain conduct on the part of tax administrations and requests that governments develop the cooperation between their tax administrations on a bilateral or multilateral basis. this Recommendation hovers at the executive level and does not involve the states themselves.e. [182] This is an acceptable proposal.. not to the executive branch of the state. [185] and the Recommendation on the Use of Tax Identification Numbers in an International Context (C(97)29/Final of 13 March 1997). on a general plane. Aust suggests in this context applying the treaty interpretation rules of the Vienna Convention by analogy on MOUs . the decisions refer to "states" or use other verbal formulae to refer to the Member countries. as systematic and comprehensive an evaluation as possible of proposed trade and trade-related measures as well as of existing measures when the latter are subject to review [.)" or similar wordings with the same tenor. By the http://online. a number of recommendations on taxation (one of them being the Recommendation on the OECD Model Tax Convention and the Commentaries. things are not always clear-cut. Noticeably in this regard. the Recommendation concerning Tax Treaty Override (C(89)146/Final of 2 October 1989). where domestic legislation is required. the Recommendation cannot possibly bind the courts in the adjudication of legal disputes before them. i. at the opposite end.) RECOMMENDS the Governments of Member Countries (. such as the Recommendation on the Determination of Transfer Pricing between Associated Enterprises (C97)144/Final of 24 July 1997). some observations are in order. discussed in this article) are addressed to the government. There are a number of recommendations in the field of taxation that fit into the model in terms of requiring specific conduct and being addressed to the government. [186] Still. Similarly. recommendations addressed to the governments appear to be more political in nature than recommendations addressed to the Member countries. There are also recommendations that are addressed to the governments but nonetheless recommend a legislative amendment.org/highlight/collections/lsco/html/lsco_c06. the role of governments differs from that of the states. the governments of the Member countries adhere to the recommendations of the Report on the Attribution of Income to Permanent Establishments. recommendations prescribing certain conduct are generally addressed to the executive branch. [184] It follows from the nature of decisions as being legally binding on the Member countries and triggering state responsibility in case of non-compliance that these international instruments address the Member countries themselves. Of equal importance is the fact that the texts of the over 100 recommendations on the OECD website are more diversified in nature. the Recommendation concerning the Attribution of Income to Permanent Establishments with respect to the Model Tax Convention on Income and Capital (C(93)147/Final of 26 November 1993) merely recommends that in the application of tax treaties.html?q=soft+hard+non.e. just as the decisions.

as interpreted by the Commentaries thereon. however. That their tax administrations follow the commentaries on the Articles of the Model Tax Convention. For example. no breach of this political obligation will arise as long as the government can prove that it acted in good faith and did its utmost to conform.and not the Member countries themselves (quoted as far as relevant here): 2.html?q=soft+hard+non. the executive must be deemed to be under a political obligation to "conform to" the OECD Model Tax Convention in the specific treaties they negotiate and conclude. An equally important aspect is the fact that it is the executive (the government) that carries the political obligation of the Recommendation. the reason behind this matching sender-recipient phenomenon is that the Recommendation is based on the principle of "comply or explain" and that treaty negotiators must only do their best to "conform to" the OECD Model Tax Convention but may deviate from it when they believe such a deviation to be appropriate for any reason. Recommendations addressed to the governments of the Member countries are in conflict with Art. on the other.).4. I will leave this matter for now. the lack of any known international protest against the Dutch practice shows that they also treat the binding force of the Recommendation as relative. As for the latter part of obligation 2 set out in the Recommendation. that decisions must be (and are) addressed to the states. even on the legally non-binding. When concluding new bilateral conventions or revising existing bilateral conventions. as discussed in 5. the Netherlands did not make any reservation in the OECD Commentaries with regard to its wish to include a deviating provision. to conform to the Model Tax Convention. [188] This confirms that the Netherlands does not regard the Recommendation as a legally binding instrument (see the guideline function expressed in the Policy Paper mentioned in 4. it does not impose on http://online. I believe that OECD practice must be paramount in our evaluation of recommendations addressed to the governments. the obligation to "conform to the Model Tax Convention. the obligation is not considered to be really strong. but politically binding in any case. An analysis of the hardness of this obligation immediately shows that it is not hard at all considering the practice among countries of making treaties that considerably deviate from the OECD Model Tax Convention [187] and the way in which other OECD Member countries react to this behaviour. Generally.4.in line with the canon of interpretation according to the Vienna Convention).e.Beyond Legal Bindingness Página 10 de 17 same token.3. 13(5) of the Dutch Model Treaty concerning the taxation of substantial interest holdings. I will further expand on the meaning of conform to in the paragraphs below. they give rise to the same questions regarding political bindingness as regular "Constitutional" recommendations. as interpreted by the Commentaries. on the one hand. i. when concluding tax treaties. as a consequence of the Parliamentary approval process or as a consequence of a judicial decision). 5 of the Convention on the OECD. I conclude that it is only the government that is politically bound to conform. as it is less relevant to the subject matter of this article: even if recommendations directed to the governments are not to be regarded as "recommendations made to Members" as referred to in Art. Thus. OECD practice has developed a number of instruments (declarations. which provides that decisions as well as recommendations are directed to members. 3. political side of bindingness. as interpreted by the Commentaries thereon". The Recommendation concerning the Model Tax Convention The Recommendation concerning the Model Tax Convention on Income and on Capital (C(97)195/Final of 23 October 1997) makes the following recommendations to the executive branches (the governments) of the OECD Member countries . I consider it illogical to assert. Probably. Limiting myself at this stage to the literal text of the Recommendation. and even international agreements) in addition to the instruments listed in Art. this applies to point 2 of the Recommendation concerning the OECD Model Tax Convention.org/highlight/collections/lsco/html/lsco_c06. As for the reaction of other OECD Member countries. on interpreting MOUs . arrangements and understandings. as modified from time to time. 5 of the Convention on the OECD. If the state deviates from the text of the treaty concluded (e. and that the state (in its holistic inclusion of parliament and judiciary) has discretion to deviate.. quoted above. as further discussed in 5.ibfd. As to the latter possibility. not the state.g.4.).Memoranda of Understanding . Therefore. that the wording in recommendations is a matter of coincidental inconsistency (although non-binding instruments may suffer from some loose use of words. 5. although the Recommendation may impose a (politically) binding obligation on the government to conform to the Model Tax Convention. As regards the possibility of an OECD constitutional flaw. and as legally non-binding instruments a fortiori. 5 of the Convention on the OECD. and. If this Recommendation is given the grammatical interpretation it deserves (see Aust. i. The question arises whether naming governments as addressees of recommendations rests on a constitutional flaw or whether the difference between Member countries and governments is not in any way meaningful. which would make systemic sense (as discussed above). the same issue arises.e.. when applying and interpreting the provisions of their bilateral tax conventions that are based on these Articles. 14/08/2013 . Art. they are still international agreements.

The Annex as presented on the website is called the "Model Tax Convention on Income and on Capital" and represents what is usually known as the "Introduction".500 treaties shaped according to a similar pattern. to either follow or deviate from the OECD Model Tax Convention and to apply and interpret the Convention according to the Commentaries. Conform may be taken strictly. there are valid. which sets the ultimate coping stone in the masonry of international tax law. because binding treaty texts are generally examined with a fine-tooth comb before they are signed. Considering further the need to encourage the common application and interpretation of the provisions of tax conventions that are based on those of the Model Tax Convention on Income and on Capital (hereinafter referred to as the "Model Tax Convention") [.org/highlight/collections/lsco/html/lsco_c06. [193] Analysing the cohesion between Introduction. the legal non-bindingness serves to the advantage of MOUs. and methods and to extend the existing network of such conventions" as referring to the Recommendation’s instruction to "conform to the Model Tax Convention" when concluding new treaties or revising old ones (Para. "To harmonise the treaties" and "to extend the existing network of such conventions" can only be understood as referring to the treaties themselves and as imposing a more or less strict task to harmonize what is there and to extend that in the same line. there is an overwhelming number of arguments that should bring the interpreter back on track. If this more relaxed interpretation of conform to can be held to pass the test of linguistic criticism as regards the question as to what the obligations under the Recommendation entail. as noted above. [194] and thus forms part of the interpretational context of the Recommendation. There is also a point of a teleological nature. and there can be little doubt about the role of the Commentaries in the Recommendation’s paragraph: the Recommendation politically binds the executive (and no one else). At the same time. definitions. that has its hands free. "The Model Tax Convention" is an Annex to the Recommendation (see the publication on the OECD website). however.e. i.html?q=soft+hard+non. the paragraph merely sets the task of "encouraging" the common application and interpretation of the treaties. and that the Commentaries are a separate document. in my mind. and methods and to extend the existing network of such conventions to all Member countries and where appropriate to non-member countries. [191] one of them being the bias to a somewhat careless drafting of these texts supported by the sentiment that. The second paragraph focuses on the application and interpretation of the treaty articles. the risk of flaws in their drafting is limited anyway... it is also the judiciary. Model Tax Convention and Commentaries. however. practical reasons [190] for having the 2. Quoting from Para. I have no problem admitting to the same interpreter that a different text would have been conceivable and that the text as it exists may well lead to inappropriate conclusions if a narrow [192] grammatical approach is followed. Considering the context. such as the OECD Model Tax Convention as interpreted by the Convention. despite the arguments above. but may equally be understood as conferring a meaning that has a less far-reaching scope. rules. would be that actors must act in conformity with some pre-existing norm but nonetheless have room for their own deviating conduct. but does leave the executive some room for manoeuvre.. no further reference need be made to the addressee of the Recommendation or to the social environment where deviations are accepted: the mere language gives the Member countries the necessary leeway to attend to their own needs. as these texts are legally non-binding. As an issue of contextual interpretation (I again refer to Aust’s suggestion of interpreting MOUs according to the Vienna Convention): the interpretative value of the context of the Recommendation has not been given sufficient merit in the discussion about the nature of the obligation. the Introduction is presented as an Annex to the Recommendation on the website. Another possible interpretation. which unlike the Model are legally binding http://online. I would bring the words "as interpreted by the Commentaries thereon" within this same.Beyond Legal Bindingness Página 11 de 17 parliament the duty to take the Recommendation into account. As it is. A less benevolent interpreter might claim. the text plainly obliges states to interpret treaties in strict conformity with the Commentaries. There is yet another grammatical issue that arises in the interpretation of the term conform to. and often take a very long time to come into existence (if at all). I would respond to any such claim by making a point to which Aust also drew attention. I conclude that the Introduction and Model Tax Convention should be regarded as a whole.ibfd. 14/08/2013 . provided that the essential elements are complied with. definitions. 28 of the Introduction: "Although the Commentaries are not designed to be annexed in any manner to the conventions signed by the Member countries. As discussed. 2 of the Recommendation quoted above). Indeed. [189] Like so many words. rules. that the text of the actual Recommendation is clear and that. as a general guideline. relatively non-compelling atmosphere of "encouragement". There are dangers involved in creating political obligations by MOUs. however. The Recommendation’s Preamble reads as follows: Considering also the need to harmonise existing bilateral conventions on the basis of uniform principles. which are but linguistic sieves through which many meanings may pass. Instead of making an equally strict statement.. inferring a strict and complete adaptation to the norm. At the end of the day.] The most logical interpretation of the first paragraph is to explain "harmonise existing bilateral conventions on the basis of uniform principles. this term is hybrid in nature rather than one-dimensional.

As to estoppel. by analogy to the Vienna Convention. Acquiescence ("action brings reaction". these conditions have not been met. 31(2)(b) of the Vienna Convention: "any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty". there is no formal reporting procedure regarding the outcome of this monitoring process. peer review. data collection. monitoring. only the executive will be bound. as noted by Aust. peer pressure. The "sound of silence" binds the state which should have reacted.. this is a basic rule of decency: if a state is in for a penny. as there is simply no act or reliance on that act. there is an issue of evidence: as we do not know what happened during the treaty negotiations. Nicaragua. [195] Annex A to the OECD study on internal steering instruments [196] contains an inventory of OECD Monitoring and Surveillance Activities. These mechanisms may take the form of reporting. [198] there can be no doubt that MOUs may become legally binding if certain conditions are met. First. the Commentaries constitute an instrument under Art. as well as the domestic practices concerning treaty approval. Should any tension arise. the declarations of domestic governments.ibfd. by express declaration and conduct. As an aside. so that the exact scope cannot be gauged. In my view. as is confirmed by the OECD Convention. This position is not easy to defend. the conduct giving rise to the invocation of acquiescence or estoppel must have legal significance in the social playing field. there are no real and compelling grounds for giving the Commentaries a higher status than they currently have as a political commitment. the Rules of Procedure and the Recommendation). 29. etc. political source of information. If it is true that the OECD Model Tax Convention is the only source for monitoring. Even if estoppel is accepted. Most importantly. for estoppel. "silence means consent") rests on the principle that where a state remains silent in response to another state’s claim of the legal bindingness of a rule. the political bindingness of the Commentaries clearly suffices to give the Commentaries their effect as a guideline for applying and interpreting treaties in an ever-changing economic environment. invoking acquiescence will only be valid if there is hard evidence in the form of counter-proof that the Commentaries are binding.1: "Tax officials give great weight to the guidance contained in the Commentaries".Beyond Legal Bindingness Página 12 de 17 international instruments. Good faith. the interpretation of the Annex can only confirm that the status of the Recommendation’s second recommendation on the conclusion of treaties "as interpreted by the Commentaries thereon" is a weaker form of political obligation. Even if a government did not express dissent to the Commentaries during treaty negotiations. with the OECD Model Convention acting as the policy requirement/guideline. recognized as valid.org/highlight/collections/lsco/html/lsco_c06. It is in this legal and factual. however.html?q=soft+hard+non. and not the state itself. in particular. Indeed. [197] 6. "Silence means consent" only makes sense in cases where a legal claim is made. not the Commentaries. sending of reporters. 14/08/2013 . especially as no state will claim that acquiescence in the context of the Commentaries is binding on another state.. but are not a legally binding instrument. and the second state must have relied in good faith upon that act to its own detriment or the first state’s advantage. it is in for a pound and it cannot withdraw from its commitment if State B has based its conduct on that commitment. The similarity to the Temple case is weak. Second. I trust that the considerations above are sufficiently convincing to conclude that the Commentaries must give way to a proper interpretation of the treaty. the rule becomes legally binding on the former state. Firstly. however. international organizations employ all types of review mechanisms. court judgements and the views of the EC Commission. According to this Annex. If the Council exhibits proper caution and refrains from statements in the Commentaries that create an irreconcilable tension between treaties and Commentaries. In my view. estoppel and acquiescence To my mind. Thailand was precluded from taking the position that the Temple did not belong to Cambodia. I would argue that these statements should be given the required weight in the contextual interpretation of the words of the Recommendation. I believe estoppel is not helpful in the case of the Commentaries. Interestingly. and the Commentaries themselves. was precluded from challenging the arbitral award which it had. for example. as I have explained in my earlier article on this subject. However. the act must be clear and unambiguous as well as unconditional and authorized. As the Commentaries are defined as being legally non-binding (as confirmed by the OECD Convention. as explained above. To my knowledge. due to their secret nature and the non-publication of the travaux préparatoires. however. monitoring also takes place on the OECD Model Convention on Income and on Capital. this does not provide a reason why this should have a legal effect where the states have officially proclaimed not to be bound and have acted accordingly. this contributes to the perception that the Member countries regard the Commentaries as a secondary source of information. in light of the legal and factual circumstances. only the Model Tax Convention is mentioned in this regard. it is a mere assumption that the Commentaries were part of the negotiations. social and linguistic environment that the possible role of good faith and its emanations of estoppel and acquiescence should be considered. The same applies to the Commentaries. the Temple http://online. but this does not detract from the basic starting point that the Commentaries are an important. the Recommendation. they can nevertheless be of great assistance in the application and interpretation of the conventions and. [199] Since Thailand acted as if the facts of the case represented the legal situation (the Temple belonging to Cambodia). and from Para. in the settlement of any disputes". either treaty-based or unofficial.

where judgements of the European Court of Human Rights bind the states only in the case adjudicated and not in any subsequent cases. a boundary treaty was concluded in 1904 according to which the Temple of Preah Vihear would be on Thai territory. In the Temple case. as citizens will be bound only if additional conditions are met. More than 40 years after the 1904 treaty. such as international customary law or jus cogens. 93 of the Constitution limits the scope of bindingness to treaty provisions and decrees of international organizations. This map was published in 1908. The Commentaries therefore do not have effect in the Dutch legal order by force of the Constitution. acquiescence and estoppel may serve as interpretational aids in support of the facts and the legal instruments. 93 of the Constitution. Only a treaty or a decision by an international organization can have a binding effect on citizens. 95 of the Constitution) and for that reason alone cannot be considered to be binding upon the taxpayers.ibfd. a new map mistakenly showed the temple to be on Cambodian territory. Validity. Validity of international law is based on unwritten constitutional law and is not expressed in any provision of the Dutch Constitution. In such circumstances. These conditions are specified in Art. and therefore directly connected to war and peace and world stability. 7.Beyond Legal Bindingness Página 13 de 17 case is a boundary case. The judgements are more or less "integrated" into the European Convention. Thailand stationed four keepers at the temple and 50 years later. It also remained silent during the negotiations leading up to the 1937 treaty. [201] http://online. The Commentaries do not belong to either category. in which the existing borders were expressly confirmed. Boundary regimes are special regimes: borders are left intact even after expiry of a border treaty. Secondly.which might indicate otherwise . The Supreme Court has never bestowed any such interpretational status on the Commentaries. Even though there can be no doubt that good faith. the prevailing view is that the Commentaries do not have effect on the domestic plane. Thailand even presented maps to international commissions showing the Temple to be on the Cambodian side of the border. but .. It should also be borne in mind that acquiescence and estoppel play a role in cases where the evidence is unclear and equivocal. does not mean that the rule can be enforced against the citizens. there is no actual evidence nor any argumentation which can be considered more than just plausible in light of the social and linguistic environment . 14/08/2013 . the Temple case also differs from the case of the Commentaries in that the parallel is missing. but did not make any representation. however. If the Commentaries were binding on the Netherlands. the Thai government discovered the mistake. they would be valid in the Dutch domestic legal order.. not even following the discovery of the mistake in 1934. This also confirms that the Commentaries are not binding. the International Court of Justice took the position that in these circumstances. Art. Is there any other way in which the Commentaries might percolate into the Dutch legal order? In the field of human rights.org/highlight/collections/lsco/html/lsco_c06. estoppel and acquiescence may cause the Commentaries (as well as other MOUs) to be legally binding. even if they were to create an obligation at the international level (which they do not). Thus. However. the position defended by Engelen is an interesting theoretical possibility but it ignores the realities and details of the case considered. in 1954. Validity means no more than that an internationally binding rule is part of the domestic system of rules. and the European Court’s interpretation is awarded a kind of erga omnes effect. which reads as follows: "Treaty provisions and decrees of international organizations which can be binding on every person in terms of their contents shall only be binding after they have been published. In those cases.by later interpretation . even if similar principles apply to both situations. Thailand considered itself entitled to station military troops in the Temple. Not surprisingly. irrespective of whether the states expressed a will to let the border treaty expire. [200] Moreover. Thailand had forfeited its right to invoke the inaccuracy of a map which had been drawn up at Thailand’s request and in respect of which Thailand had never claimed exceptions.that the Commentaries are legally binding. the Dutch Supreme Court nevertheless incorporates these judgements in later cases and takes the European Court’s judgements as leading instruments in the interpretation of the European Convention on Human Rights.html?q=soft+hard+non. In 1907. 93." This article originally only served to protect citizens against direct application of international law. The domestic plane What if the Commentaries are binding on the states despite the foregoing? Would the Commentaries be binding on the taxpayers and the courts in the domestic legal order? From a Dutch perspective: according to the Dutch Constitution. The OECD Commentaries have not been published in the manner prescribed by Dutch law (as based on Art. as well as on the occasion of the treaty of 1946. and the history of the Dutch Constitution explicitly excludes other sources of international law from the scope of Art. however. In my view. the prevailing view is that bindingness cannot be thrust upon states whose silence coincides with their expressed will recorded in official historic instruments and their subsequent acts. and has never expressed the opinion that the Commentaries should be read as an integral part of the tax treaties. estoppel and acquiescence must be used with caution and only in situations where the legal documents and behaviour are not equivocal in nature.also prevented citizens from invoking international law unless the applicable conditions were met. validity of international law in the Dutch legal order and bindingness on the Dutch citizen are two different things. The Dutch Supreme Court applied a similar reasoning in the German Mutual Agreement case. More than a quarter of a century later.

there is considerable conventional and constitutional support for the role of the Commentaries: the OECD Convention. cannot. this position should be welcomed. be accepted as legally binding in a balanced system of international law. Since the participants in this subsystem of international law are the state and the taxpayer. It is pointless to await any case law on the Commentaries. The author can be contacted at hpijl@deloitte. as it creates balance in the international system that involves such a great many participantsstakeholders (taxpayers and states). There are good reasons to be optimistic about a cohesive fiscal Planet Earth and about the chance of taxation seeing itself in terms of unifying principles and developing international community. Friedrich Nietzsche. Conclusion Tax treaties are a specimen of hybrid treaties. Moreover. it will be here. and in general) good faith has its merits in the creation of legal bindingness. there is no collision of state wills where the Commentaries are involved. Instead. It is not legally binding contractually and cannot be allocated such status through specific conduct. with the stakeholders being the states and the taxpayers. which represents a "unilateral" state instrument. Where the wills of states collide. provided that we recognize the essential function of the Commentaries to bring states together in the long term. policy-scientific and philosophical environment. 14/08/2013 . does not throw us back into total darkness. but it does mean that the current paradigm is well able to explain the Commentaries as fitting into the concept of state sovereignty. courts or states on conduct-based grounds. which may have its own interests that should prevail in circumstances where individual and state interests collide.. the domestic practices concerning treaty approval. the choice in the process [202] that creates international law must be against estoppel and acquiescence. state sovereignty. so unimportant a discipline when compared to other issues of international law. As discussed. initially unfettered. but with a certain degree of political bindingness. and show coherence in the interaction between international law and domestic law: no international rule becomes binding until parliament has approved the same. Perpetual peace. * Partner with Deloitte. Other areas of international law show that non-binding instruments can very well be the precursor to a binding instrument. therefore. Under the paradigm of state sovereignty. A document such as the OECD Commentaries. In fact. If the hope of an ever-improving international society has a realistic basis anywhere. Solution of mankind. lecturer at the International Tax Center Leiden. as domestic courts regard the Commentaries as an important source of information. In this judicial sense. this does not really cause much of a problem. and also happened in the context of the International Atomic Energy Agency..org/highlight/collections/lsco/html/lsco_c06.nl. the domestic systems are to be regarded as a given when answering the question of whether the Commentaries can or cannot become binding on individuals. the case is insoluble and all theoretical positions remain open. as it is unlikely that the issue will ever be brought to the ICJ. http://online. Erlösung. as explained above. linguistic. attention should be paid to the double role of the state: the state is the party intermediating tax benefits for the taxpayers. may have to be limited. the Commentaries themselves. state sovereignty cannot be limited by arguments based on good faith and inspired by conduct exhibited. held on 14 September 2006. the Recommendation. Die Geburt der Tragödie aus dem Geiste der Musik. they have to be recast in something else. Any other view would turn the basic concept of sovereignty upside down. Acceptance of the Commentaries as legally non-binding. first published in 1871.ibfd. the binding nature of which is believed by some jurists to strengthen every day. the declarations of domestic governments.Beyond Legal Bindingness Página 14 de 17 8. Projecting a post-modern view of history as a discontinuous process seems too pessimistic in this small field of taxation. and court judgements. The parliamentary systems of the OECD Member countries are commensurate with these philosophical principles. social. states are omnipotent entities. The Commentaries may represent emerging law. but at the same time acts as the defender of its own interests. University of Leiden and Vienna University. subject to no rules other than those by which they want to be bound. as well as views of the EC Commission all confirm the role of the Commentaries as an important. There is no need for a change of paradigm. political source of information. This happened to the Helsinki Charter. In this legal. Valhalla. However.html?q=soft+hard+non. But in order to become hard law. part-time judge with the (Tax) Court of Appeal of The Hague. Holy Grail. Although domestic law cannot be used as an excuse not to apply international law. all subjective wills of the states are reflected in one and the same super-will to regard the Commentaries as non-binding. treaty or custom. This is not to say that scientific revolutions replacing one paradigm with the other do not exist. The act of balancing the interests of both participants in this treaty system is delicate and cannot be left exclusively to the executive. In such a harmonized environment. 139. but not as legally binding. This article is based on a presentation made at the conference "The Quest for the Holy Grail in International Tax Law". Das Prinzip Hoffnung keeps us going. so that the paradigm of sovereignty would have to be adapted in order for the Commentaries to be regarded as binding by arguments based on good faith. and (non-governmental) expert in the UN sub-Group of Experts for the definition of the PE-Article. even though (in abstracting from these realities.

p. and the Helsinki Accord: the Documentary Evolution of the Conference on Security and Co-operation in Europe 1973-1975. 146. 151. 161.pdf. Modern Treaty Law and Practice (Cambridge University Press. 38(1)(a) Statute ICJ. H. 25 of the OECD Model Tax Convention provides for a mutual agreement procedure. Boyle.html?q=soft+hard+non. Fitzmaurice. The concept is understandable in the context of the absolutistic internal variants in which the concept of state sovereignty resulted in the preceding centuries. M. 145. p. Book review by Leo Gross and Anthony D’Amato".Beyond Legal Bindingness Página 15 de 17 140. Bertolt Brecht.V. 343. WOB 04/248-FRC and WOB 04/731-FRC (Court of Rotterdam. 142. in which the Sovereign admittedly had no obligations towards his subjects. 2006). It is a moot point whether this position is correct. R.law. 148. 2 March 2005). 141. A.). Edited by Igor I. Aust. Ibid. European Politics. 2005). 2005). 43. International Law (Oxford. See. 162. On both issues methodologically. Department of Economic and Social Affairs. United Nations. with residents being defined under Art. 143.g. From Apology to Utopia. Oppenheim. 153. http://online. Interrogating the Treaty. states are collectivities of individuals who have transferred their rights to the state. Para. A. 150. the Role of Non-Binding Norms in the International Legal System (New York: Oxford University Press. Even under the absolutist Hobbesean view. Para. The Law Quarterly Review. the State Secretary of Finance and the author reached an understanding to the effect that the author would be provided with the original documents (partly anonymized) laying down the actual agreements made by the competent authorities (which has been done). Following the decision in Pijl/Deloitte Tax Advisors B. State Secretary of Finance. 33 of the Introduction to the Commentaries. 147. "The subjects of the law of nations". Bertolt Brecht. Koskenniemi. Jacqueline Paquin Granier and Mary Frances Dominick. 2001. 5 of the Preamble to the Recommendation concerning the Model Tax Convention on Income and on Capital (C(97)195/Final of 23 October 1997). International Law: A Treatise (1905). 38(1)(b) Statute ICJ. 14/08/2013 . 157. 154. 2000). M. the Structure of International Legal Argument. 19. L. 163. additional doubts may arise as to whether the customary condition attached to declarations that there should be no other dispute resolution mechanisms is met. p. v. Röben. New York. p. Sec.ibfd. for examples. "Soft Law in International Law-Making". 2005) [Beiträge zum ausländischen öffentlichen Recht und Völkerrecht. 156. In the same order: Nietzsche. Evans (ed. Under most of the existing declarations.org/highlight/collections/lsco/html/lsco_c06. 78 American Journal of International Law 960 (1984) (Code BR1-84). Band 177]. in the eyes of Para. Or whatever category is to be protected: under tax treaties it is the "resident" who enjoys treaty benefits. 160. Art.northwestern. 7(b) of the Dutch Treaty Approval Act of 7 July 1994. Italics added. 159. New York: Oxford University Press. now that Art. 38(1)(c) Statute ICJ. Para. at 1 et seq. That is. The UN Commentaries can be found in United Nations Model Double Taxation Convention between Developed and Developing Countries. E. In any case. pp. 152. Craven and M. 2000). 35. Reissue with a new Epilogue (Cambridge: Cambridge University Press. 97119. Nuclear Tests. at http://anthonydamato.edu/Adobefiles/BR1-84-helsinki. 147. Lauterpacht. Vol.. Art. Kavass. Art.. Wolfrum and V. D.g. 149. Essays in the Contemporary Law of Treaties (Nijmegen: Wolf Legal Publishers.D. See the summary of the positions in "Human Rights. in M. 64 (1948). 155. 184. Nicaragua. taxation matters are generally excluded. 4 of the OECD Model Tax Convention as persons who are subject to taxation on their worldwide income. Commitment and Compliance. Publication of the author’s findings regarding those texts is still due. Shelton. 144. Developments of International Law in Treaty Making (Berlin: Springer. 158. See e.

1-2. 404.oecd. Part II. p. As the Recommendation is rather long. 2004 reprint). French Republic v. Pressure from the business community seems to have inspired the OECD in this regard. Recommendation of 23 October 1986.as opposed to treaties .org/highlight/collections/lsco/html/lsco_c06. 39. 172. I requested disclosure on the basis of the European provisions on public access to Council documents. 178.B. 171. No. 181. 3 discusses the distinctive characteristics of legally binding and politically binding instruments. Moreover. 183. "Alternatives to Treaty-Making and Law-Making by Treaty and Expert Bodies in the Council of Europe".365. state intervention is not subject to the procedural exhaustion rule (which requires that diplomatic protection can only successfully be invoked if all legal remedies in the state having allegedly breached the international rule have been exhausted).oecd. 20. 30 of the Commentaries on Art. Aust. 14/08/2013 . p. The same principle also applies to areas like transboundary pollution. NRIB. A. General Tax Treaties Policy Paper. http://webdomino1. 168. 173.g. Case C-327/91. 188. 180. It should also be mentioned here that the Commentaries . Commission of the European Communities. Aust. 165. A. 166. Parliamentary Records.nsf/Display/7E864459656BB674C12570880057B8A6? OpenDocument. and was not published. Document PESC/SEC (1996) 899 of 9 August 1996. copies can be obtained from me. 9 August 1994. 129 of September 1990).org/horizontal/oecdacts. E. 12.html?q=soft+hard+non. 175. The document is only available in French. 3 and Appendix G.nsf/type? OpenView&Start=1&Count=1000&Expand=1#1. 169. Polakiewicz. Para. which indicates that the state might become involved in these matters at an earlier stage.ibfd. C-327/91. where the principle of proportionality ultimately rules conflicting (valid) interests of states and victims. p. in Wolfrum and Röben. [1994] ECR I-03641. 177. in the field of human rights. since the constitution only allows courts of law to take treaties and decisions of international organizations into account. 13 of the OECD Model Tax Convention. see J. TK 1987-1988. See also Para.. the word "should" indicates a weak obligation. p. 1994. 184.have not been published in the official Treaty Gazette. 55 (Suppl. 186. Reference is made to the Recommendation on Tax Avoidance and Evasion (C(77)149/Final of 21 September 1977).. Which is more a recommendation not to enact legislation that may be in breach of the treaties.nsf. Chap. see ECJ. the Dutch courts cannot give effect to the Commentaries as a binding instrument. 170. http://webdomino1. for instance. The reasoning could be that the state will be harmed because its citizens become poorer as a consequence of unjust taxation in the other state and consequently have less spending power in their own state. p. which confirms the scope of the regular OECD-type Art. Chap. http://webdomino1. In the context of non-binding instruments of the Council of Europe. 185. 13(5) and allocates exclusive power of taxation to the resident state.org/horizontal/oecdacts. 179. To the Committee. 247. International Law and How We Use it (Oxford. 167. Treaty of 14 December 1960.oecd. http://online.Beyond Legal Bindingness Página 16 de 17 R.Art. 176. 187. I have confined myself to quoting only a few paragraphs. 50. Higgins. 164. 182. 174. Problems and Process.org/horizontal/oecdacts. Aust.C(97)240/Final. On the other hand. Aust. in the Decision of 11 December 1997 . 25 OECD Model Tax Convention). C(86)65/Final. The agreement has not been published in the Official Journal of the European Communities. Without having made any reservations in the Commentaries. under the diplomatic protection system of tax treaties ("mutual agreement procedure" .

"Some Observations on the Legal Status of the Commentaries on the OECD Model".merriam-webster.html?q=soft+hard+non. Douma et al. view our cookies statement page. at 105: "Taxpayers of states adhering to the monistic theory are normally bound by the Commentaries if the state is so bound under principles of international law". F. Pagani. p. However.com/dictionary/conform).. pp.] BNB 2000/16 and BNB 2000/17. See the Annex to the 1995 Transfer Pricing Guidelines and Peer Review of Mexico’s Transfer Pricing Legislation and Practices.usually used with to <conform to another’s wishes> b: to act in accordance with prevailing standards or customs <the pressure to conform>" (www. 4. the loose-leaf OECD publication Model Tax Convention on Income and on Capital. it seems unlikely that compliance with the Commentaries does not form part of the review process. The Legal Status of the OECD Commentaries (S.pdf). 60 Bulletin for International Taxation (2006).org/highlight/collections/lsco/html/lsco_c06. (www. See for a different opinion. 216-224. 46 European Taxation (2006). 199. The question of whether the actual Model Tax Convention or Commentaries also formed part of the Annex and were only omitted on the website for practical reasons was disregarded as irrelevant to the argument in the main text. "Peer Review: a Tool for Co-operation and Change. [Also published in Portuguese as: "Os Comentários da OCDE como Fonte do Direito Internacional e o Papel do Poder Judiciário". Online Books IBFD (accessed 14 Aug. Narrow.. Citation: S. an Analysis of an OECD Working Method". 39. No. 2013).Beyond Legal Bindingness Página 17 de 17 189. pp. Douma et al.oecd. © Copyright 2008 Hans Pijl All rights reserved © Copyright 2013 IBFD All rights reserved Disclaimer Cookies are set by this site. 202. 191. IBFD 2008). Higgins. 195. and to be published in Chinese in China. and neglect teleological and systemic aspects. 3. 192.g. p. 203-228. but the issue of a proper reference does not as such carry my reasoning. also : to be in agreement or harmony . Pijl. Aust. 201.. http://online. 45. 196. p.. Reasons which also require interpretational harmonization of these harmonized treaties.ibfd. 14/08/2013 . Revista Direito Tributário Internacional 2006/2. Engelen. 198. To learn more. e. H. "The OECD Commentary as a Source of International Law and the Role of the Judges". Aust. 197. F. SG/LEG(2002)/1 of 11 September 2002 (www.used with to or with <changes that conform with our plans> 2 a: to be obedient or compliant . 190.1: to be similar or identical. as this approach would take a limited view on "conform to".. From Merriam-Webster Online Dictionary: "intransitive verb . See also. eds.org/dataoecd/29/16/34244429.org/dataoecd/33/16/1955285. 200.pdf). 194. as foreign case law on the treaty provisions concerned is generally taken into account by domestic courts.oecd. 193.