Get the answer of: Can Domestic Law Override a Tax Treaty?


The OECD Treaty Override Report (1989) defined the term “treaty override” as a situation “where the domestic legislation of a State overrules treaty provisions of either a single treaty or all treaties hitherto having had effect in that State”.

Treaty overrides may be intentional or unintentional. Intentional treaty overrides include situations such as:

(i) Later law overrides prior law, or


(ii) Superior treaties (e.g. diplomatic treaties) supersede tax treaties.

Overrides that are not intended may arise in the following situations:

a. A Court decision may be contrary to the common interpretation of the treaty partners. Such legal decisions could amount to a treaty override. However, a State has the legislative power to reverse the effect, and the reversing legislation in consultation with the treaty partner would be an acceptable remedy.

b. A State may redefine an undefined treaty term under its domestic law, which effectively overrides the treaty. Such changes in domestic law are permitted only when they are compatible with the context of the treaty and accepted by the other Contracting State. Often such unilateral changes are made unjustifiably by States to combat treaty abuse. The correct remedy would be to renegotiate the treaty.


c. A State may unintentionally override or contradict the treaty provisions.

Tax treaties are governed by the principle of “pacta sunt servanda” or good faith (VCLT Article 26). The Contracting States mutually undertake to respect and apply the treaty provisions under the international law. Moreover, VCLT Article 27 requires that the domestic law cannot serve as a justification for the non-compliance with treaty obligations.

In general, tax treaties override existing domestic laws and are even given precedence over subsequent domestic laws. However, several countries allow treaty overrides if a subsequent legislative act either is specifically intended to override or provides for a clear statutory provision that cannot be reconciled with the treaty.


Constitutional Provisions:

The constitutional provisions in each State decide the interaction of the domestic legislation and the international treaty obligations.

Paragraph 14 of the 1989 OECD Report mentions:

“The level attributed to treaty obligations, as incorporated in domestic law, determines whether derogations there from are unconstitutional or not. In the end, the choice is between giving priority either to a State’s international obligations, or to the sovereignty of decision of a country’s elected representatives”. Thus, the status of the treaty obligations depends on the priority given to them over other domestic laws under a country’s constitution.


The 1989 OECD Report identified the following constitutional systems:

(a) The constitution provides that the treaty is self-executing and becomes part of the domestic law without any further enactment, as “lex specialis” or special law (Examples: Argentina, France, Italy, Japan, Netherlands, Switzerland). In a self-executing treaty, usually a tax treaty has a status superior to prior and subsequent domestic legislation. It is constitutionally impossible for domestic legislation to override such a treaty.

(b) The constitution requires a parliamentary act to incorporate or approve a given international agreement, but once this has been done, it attributes a superior status to the provisions of an international agreement (Examples: Belgium, Finland, Germany, Iceland, Ireland, Luxembourg, Norway, Peru, Portugal, Singapore, Sweden).

These countries always give priority to treaty law through express legal provisions or case law decisions. Treaty provisions override subsequent domestic tax legislation to avoid a breach of the international obligations, as “lex posterior generalis non derogat legi priori specialis” (later law does not override a special law).


(c) The constitution regards an international agreement to be on par with domestic legislation (Examples: Austria, Brazil, Denmark, Indonesia, Israel, Korea, Sri Lanka, the United States). Several countries give treaty obligations the same rank as the domestic law.

In the case of conflict, the one last in date prevails under the maxim “lex posterior derogat legi priori” (later law overrides a special law). Therefore, a subsequent change in law could lead to a treaty override, and violate the State’s international obligations.

(d) The constitution is based on parliamentary sovereignty. It cannot bind itself or its successors (Examples: Australia, Canada, India, New Zealand, The United Kingdom). International agreements have no special status, and become part of the domestic law by parliamentary statute. A treaty, which can only have effect if legislative action is taken, can typically be overridden by subsequent legislative action. Therefore, Parliament can override a prior treaty by a subsequent amendment or repeal.

In practice, treaty override through subsequent legislation must be expressly intended. Even if the treaty overrides are feasible under the domestic law, it is presumed that a State does not want to breach its treaty obligations under public international law. The Courts generally maintain that the legislature does not intend to modify or abrogate a treaty.


It would require legislation with a specific measure that was clearly irreconcilable with the treaty provisions or gave evidence of a clear intention to enforce a treaty override. The less clear the intention to override, the less likely it is that the Courts would uphold that the legislation should override a tax treaty.

In summary, treaties normally override other, contrary, domestic laws. The tax laws in several countries specify that they are applicable regardless of any contrary legislation (Examples: Australia, Canada, India, Malaysia, United Kingdom). Consequently, if the treaty provisions, as implemented, conflict with other domestic laws, the treaty prevails.

Although treaty overrides by domestic law are possible, the countries are bound to comply with their international obligations under customary international law and the override must be specifically intended. Legislative silence may not be sufficient to break a treaty.

Improper Use of Treaties:

The 1989 OECD Report regarded a treaty override through conflicting domestic legislation or unilateral action as illegal under international law. It suggested that members should avoid treaty overrides and consult with each other on any legislation likely to lead to treaty violations.


It also discouraged unilateral overriding legislation to counter treaty conflicts. In situations where conflict of provisions was inevitable, the treaties should be renegotiated.

Subsequent additions to the OECD Commentary on “Improper Use of the Convention” in 2003 now illustrate several “anti-treaty abuse” provisions in OECD Member States. They deal with treaty shopping, controlled foreign corporation rules and preferential tax regimes that are considered as harmful tax practices.

The Commentary also includes the prevention of both tax avoidance and tax evasion as a treaty objective. Moreover, it mentions that the application of provisions under the domestic law to counter treaty abuse does not constitute treaty override.

The OECD Commentary 2003 supports the view that these anti-abuse rules under domestic law do not have to be specifically included in tax treaties to be effective. It argues that taxes are ultimately imposed through domestic law provisions, as restricted by tax treaties. Thus, a treaty abuse is essentially an abuse of the domestic law under which the tax is levied.

To the extent anti-avoidance rules are part of the basic domestic taxation, these rules “are not addressed in tax treaties and therefore not affected by them”. It concludes that “a proper construction of tax conventions allows them to disregard abusive transactions” involving unintended treaty benefits.

Therefore, “States do not have to grant benefits of a double taxation convention where arrangements that constitute an abuse of the provisions of the convention have been entered into”.



These views expressed in the Commentary by the Committee on Fiscal Affairs could lead to a treaty override if applied unilaterally by Contracting States. They require specific provisions in the treaty itself to be applicable.

According to Philip Baker, countering anti-avoidance through domestic tax rules cannot justify a unilateral treaty override and could amount to a breach of an international obligation.

This view was also taken by the Indian Supreme Court, which held that domestic anti-avoidance rules could not be applied unless they are contained in the treaty itself. The concern relating to the ambulatory use of domestic law to counter “treaty abuse” is also expressed by Vogel. A State can improve its treaty position unilaterally through subsequent changes in its domestic law.

Such attempts by the State to circumvent or dodge a treaty could amount to infringement of the international legal duty to fulfil the treaties that it concluded in good faith (VCLT Article 26). However, the acceptance of the new law for some time by the other Contracting State may constitute subsequent practice under Article 31(3)(b) of the VCLT.