How Reform-Friendly Are U.S. Tax Treaties?

This article addresses the treaty compatibility aspect of proposals for reforming the U.S. international tax system. Finding that a reform proposal is treaty compatible obviates the need for renegotiating or overriding existing U.S. treaties to implement the proposal if enacted. After establishing that a U.S. move to an exemption system would be treaty compatible despite the literal reading of Article 23 of the U.S. Model income tax treaty as requiring a credit system, the article argues that any system that is or can be expressed as an outright fixed or floating combination of exemption and credit is treaty compatible regardless of how it is actually labeled or expressed. The article also algebraically demonstrates, by employing a uniform method, that most recent proposals for reforming the U.S. international tax system are, or can be expressed as, perfect fixed or floating combinations of exemption and credit and therefore are treaty compatible.

The article then explains why it is unlikely that taxpayers or treaty partners would object to the enactment of any such proposals even if they were not treaty compatible.