Treaty shopping in international taxation law

Generally Tax avoidance acts are technically within the law even though they entail dealings that do not commercially make good judgment or the institution of illicit relations based on the objective to obtain tax benefits . While it is agreeable that law-enforcement authorities have the mandate to regulate tax evasion cases , there exists a controversy over whether it is justifiable for these authorities to control tax avoidance practices (Frederik Z , 2002 . In essence it is not easy to ascertain whether or not a certain act constitutes lawful tax planning or tax avoidance . In

some instances a courts intervention is pre-requisite for final disposal of the matter

In US although courts view tax avoidance as legal , the position with the tax authorities or Congress is different , as they do not take a lenient position toward it as such act may cause a drop of tax revenues thwart equity of taxation and negatively affect the success of tax policy (Pasquale

, 2006 . On the other hand failure to counter tax avoidance practices damages integrity of tax policy in terms of fairness , which , in turn , is sure to worsen the level of voluntary compliance (Frederik Z , 2002 . The net effect is to cause a nation 's tax system as a whole not to function correctly . Tax avoidance acts are more likely to materialize in situations where well defined tax rules are not in place as well as where there are tax-free or tax-favoring opportunities . This calls upon the need to ascertain that before instituting a certain system , it has to have clear and well defined provisions with no exception or only a few exceptions so as to safeguard mechanisms against potential abuse

With increasing market globalization , national governments are seen to come together in a concerted effort to create a level playing ground through...