This article aims to offer the first structural analysis of tax disputes under institutional instability using a core element of the international tax regime as an example. It offers a theory grounded on Mancur Olson’s seminal contribution to group dynamics, the logic of collective action. It also suggests implications of this theory that might help to address key enforcement issues faced by the international tax regime in a frequent context worldwide: institutionally unstable countries.

Certain parts of the international tax system are largely unexplored from a structural perspective. One prominent example is the asymmetric tax treaty network, i.e. the network that consists of bilateral tax treaties concluded between developed and emerging countries on the basis of the OECD Model Tax Convention on Income and on Capital (OECD model). The relative size of this network is substantial. For instance, the United Kingdom's asymmetric tax treaty network represents about 72 per cent of its entire tax treaty network. This article offers a structural analysis of the asymmetric tax treaty network. It answers two fundamental questions. First, it elaborates a theory for explaining why a representative emerging country is willing to conclude tax treaties with developed countries on the basis of the OECD model. Secondly, this article extends that theory to understanding the dynamics of tax treaty interpretation in the emerging world. This extension aims to illuminate the structure of incentives the courts of a representative emerging country normally have when construing OECD-based tax treaties in the foreign direct investment (FDI) area. Game theory is used as a theoretical framework for answering both questions.

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This Article focuses on the problem of transfer pricing from an international taxation perspective. It elaborates two major points using game theory as a theoretical framework. First, it argues that both developed and developing countries are facing the same fundamental problem in the transfer pricing arena; the meaning of the arm's length standard (ALS) is largely unknowable because of the absence of transfer pricing case law with public good features. Second, this Article proposes a solution to the transfer pricing problem within the ALS framework. The proposal consists of a procedural, rather than a substantive, system in which multilateral advance pricing agreements (APAs) are used to produce a proxy for case law with public good features. The proposal is arguably superior to other options (such as formulary apportionment and consolidated base taxation approach elaborated by the European Commission) because it can be applied by both developed and developing countries and is consistent with the current structure of international taxation. The proposal has been written to facilitate its addition to Article 9 of the OECD Model Tax Convention on Income and on Capital.

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One recurring question concerning how legal commands should be formulated in a legal system involves whether commands should take the form of rules or standards. The policy option that is at the core of this question is whether the content of the law should be determined and announced in advance, in a rule, or left to an adjudicator, in a standard. This distinction is relevant in the transfer pricing area because the arm's length approach is a standard: its precise meaning can only be determined via adjudication. Thus, the arm's length standard is unworkable unless the legal system in which it operates is prepared to produce case law (or something functionally equivalent to case law) to give guidance to taxpayers on how they are expected to behave. The purpose of this article is two-fold. First, it attempts to provide an analysis of the dramatic problem faced by the arm's length standard when the legal system in which it works is unable to produce case law capable of showing taxpayers how they are expected to behave in the transfer pricing area (the Problem). The Problem is common to both developed and developing countries. On the one hand, developed countries face the Problem because a variety of reasons have made case law an infrequent element. Moreover, the limited case law available is not a public good: the holdings are too fact-specific to allow predicting the probable outcome of future court decisions. This scenario makes the meaning of the arm's length standard difficult to determine - especially when no comparables are available. On the other hand, developing countries also face the Problem but for an additional reason: their weak rule of law produces, inter alia, frequent violations of stare decisis making case law a negligible source for predicting court decisions. In sum, the meaning of the arm's length standard is largely uncertain in both the developed and developing worlds. This explains the worldwide arm´s length standard crisis.  The second purpose of this article is to suggest a procedural method for inducing a legal system - be it from the developed or developing world - to produce a proxy of case law capable of determining precise meanings of the arm's length standard. The suggested procedure has been written in such a way as to facilitate its addition to article 9 of the OECD or UN Model Tax Conventions on Income and on Capital.

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