- Blueprint for the International Tax Authority and its Tribunal


1. With reference to pages 223-226 of On the Loom of Time .....

Blueprint for the International Tax Authority and its Tribunal


In my Loom of Time, Portrait of My Life and Times (second ed. 2014 ) [which you can read at my website and blog], I had suggested the idea for constituting an International Tax Authority to redress some of the present-day problems of black money (see at pages 223-226 ). I had drawn on my ideas on the International Sea Authority that I had suggested as far back as 1972. In the United Nations Convention on the Law of the Sea of 10 December 1982 this Authority was conceived, and was designated as the International Seabed Authority (ISA). It was set up to to organize, regulate and control all mineral-related activities in the international seabed area beyond the limits of national jurisdiction, an area underlying most of the world’s oceans.

Some of the readers of my On the Loom of Time have expressed their desire to know what I had written about the idea of International Seabed Authotity. In deference to their wish, I upload on the net the scanned pages of my dissertation that I had submitted to the Patna University for my LL M Degree in 1972. All my ideas, written a decade before the setting up of the ISA, should be updated by the readers of my dissertation. Its relevance is now only as a source of certain ideas for internationalising the investigation and recovery of taxes so that the knavery of amassing black money is stopped. This salutary effect would be on account of decrease in the barriers posed by the barriers of national sovereignty. It would help us solving to a large extent the problems posed by the secret jurisdictions where black money and ill-gotten wealth is being amassed.

My proposal, to say the obvious, would require many new changes. But these are matters of detail which I cannot pursue here at present. I think my ideas get good support from what the French economist Thomas Piketty has written in Capital in the Twenty-First Century (2013), a book that demands a close study.


The relevant extract from the book is quoted below:

My ideas on International Tax Authority as auggested in my Memoir, On the Loom of Time, Portrait of My Life and Times (2nd ed.) at pp. 223-226)



(a) U.N. Multilateral Convention on Tax Treaties:

Long back, before he became the Judge of the International Court of Justice, Dr. Nagendra Singh had told me to take up as the subject of my doctoral research "the feasibility of a multinational convention for the avoidance of double taxation". I too felt the need for such a convention in our globalised economy on the model of the conventions on the Law of the Seas. It would be good to substitute the bilateral regime of tax treaties by a comprehensive multilateral treaty regime articulating the appropriate governing norms in conformity with international law, and also without transgressing the constitutional restraints on the treatymaking power of the Executive which cannot go counter to our Constitution even at the international plane. I suggest this for my readers to think about.

(b) The idea of constituting International Tax Authority (ITA)

A lot of concern has been expressed to arrest and stop the massive tax evasions, the theft of economic resources, the parking of ill-gotten gains outside by crafting sinister devices through the tax havens and offshore financial centres spread over the world around. The beneficiaries of this morbid opaque system resist/evade transparency. The extent of the damage done to the nation is massive. The gruesome extent of such money, stashed elsewhere, and generated through the opaque system, is now widely known. What is needed is an effective step to stem this evil. Some steps have been taken by some assertive governments, and an articulated schedule of action is now in place after the G-20 Economic Summit recently held in London. It is obvious that the steps contemplated to be taken are neither adequate, nor fully effective. But it is good that something has been done to end this evil. What is saddening is that the Government of India maintained its silence, or at best merely lent some inaudible murmurs to the chorus of protest against such dark areas which the rogue financial system has developed.

The points, which deserve our attention most, are how to devise an effective and vigilant system to stop the abuses aforementioned. It is time to establish an International Tax Authority (ITA) with global jurisdiction. Mere agreements to exchange information are not enough unless there is a strong political will to compel the derelict jurisdictions to become transparent. How can such agreements help us to achieve our objectives, when the legal regime of several tax havens makes them impervious and unresponsive? What information the tax havens can supply when they do not believe in gathering comprehensive information about the real residence of the corporations got incorporated in such jurisdictions, and the beneficial ownership of wealth and income the corporations hold and earn? It seems the appropriate way would be to set up the International Economic Surveillance Authority and the International Tax Authority under the U.N. system.

This Authority can be set up through the provisions of an International Multilateral Tax Convention drawn up under the U.N. mandate. It can be structurally modelled on the International Seabed Authority (ISA) constituted under the United Nations Convention on the Law of the Sea. The ISA was established ‘to organize and control all mineral-related activities in the international seabed area beyond the limits of national jurisdiction’ holding income thereof for promoting international welfare the details of which need not be set
out here.

The ITA can be granted, through a convention, the authority to levy and collect the following taxes:

(i) Levy of tax, as once suggested by James Tobin in 1970s, on transactions in the currency market (this species of tax can be called ‘transaction tax’) [this will dampen exchange rate volatility, and would take care of many other pathological manifestations of the present-day financial system].

(ii) Levyof tax on all transnational transactions including in the ken of taxation the levy of tax on the income of non-residents, and corporations incorporated outside the territory, whether directly or through subsidiaries.

(iii) Toexercise exclusive tax jurisdiction on the cyberspace income-generating spaces, and wealth amassing vaults.

The ITA may consist of an Assembly of all states signatories to the Convention; a Council consisting of 5 executive members, elected by the members of the Assembly to function as the apex executive agency of the ITA ; a Tribunal designed to work as a court of law whose orders can operate effectively even under the domestic jurisdictions. The ITA may be granted competence to appeal to the International Court of Justice which may be given jurisdiction on all States coming within the province of the charge of international taxation under the proposed convention. If a particular State is non-cooperative, various ameliorative or punitive measures can be suggested by the ITA to the specified UN authority/agency, for necessary actions (which may even involve a reference to the Security Council).

The earnings from international taxation can go to the Consolidated Fund of the ITA out of which resources can be used for various purposes of global welfare including these:

(i) tofinance all international organizations including the United Nations but excluding those to be specifically excluded on policy considerations (such as the WTO or IMF);

(ii) togrant resources for international humanitarian operations, and poverty alleviations;

(iii) to maintain a fund to meet some unprecedented crisis caused by nature’s wrath, or on account of gross institutional failures;

(iv) to assist through various ways in the creation of better conditions of living for the poor world over;

I may hasten to mention that the suggested Convention would not be just a new version of a double taxation avoidance convention. This should be comprehensive convention superseding all tax conventions. This would be an inevitable legal consequence if the ITA becomes integral to the U.N system. Article 103 of the Charter of the U.N. says: "In the event of a conflict between the obligations of the members of the U.N. under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail". I may mention that once a Convention is operative, all the authorities under domestic jurisdictions will be bound by its decisions.

(c) Democratic Deficit’ in framing tax treaties must be removed

Lack of transparency delights the unscrupulous most. It manifests itself in our Treaty-making power. Our Government had written to the Secretary General of the UNO that in India the treaty-making is an executive act, which was not subject to the constitutional restrains. But, the Delhi High Court has struck a different note. It held that treaty-making powers are under the restraints of the Basic Structure doctrine of our Constitution, and also under other binding constitutional limitations. I would come to this aspect of the matter in Chapter 21 of Book III of this Memoir.

(d) Our Government’s ‘knowledge deficit’

Our Government cannot afford to suffer from ‘knowledge deficit’ in the field of International Law. In course of the PILs I conducted before the Delhi High Court and the Supreme Court, I was shocked by the ‘knowledge deficit’ that our Government displayed. I would mention the following three points:

(i) I have just told you how contrary to the terms of our Constitution, our Government wrote to the Secretary General of the UNO what is wholly wrong. It communicated the UNO : "Parliament has not made any laws so far on the subject, and, until it does so, the President’s power to enter into treaties (which is after all an executive act) remains unfettered by any "internal constitutional restrictions." I intend to examine this topic in some other book. I have referred it merely to underscore the Government’s poverty of knowledge. The worst demonstration of this deficit, was the way it saddled our nation with the obligations under the WTO Treaty, and the Agreements framed under its umbrella. If you are interested to know how it happened, you may go through The Report of the Peoples’ Commission on GATT by V.R. Krishna Iyer, O. Chinnappa Reddy, D.A. Desai and Rajinder Sachar, and my Final Act of WTO: Abuse of Treaty Making Power.

(ii) The ignorance of the government becomes a disaster for the nation. This is proved, to our embarrassment, by the decision of the House of Lords in Government of India v. Taylor (27 ITR 356 HL)]. It was an appeal by the Ministry of Finance, Government of India; and this decision is a monument of our administrative incompetence and lack of the knowledge of International Public Law. Our Government deservedly courted a judicial rebuff that the public law of the foreign States is not given effect outside their jurisdictions. Under the established principles of International Law, neither the foreign public law nor the public acts of the foreign authorities can be given effect26 in domestic jurisdictions. This doctrine is based on the principle of territorial sovereignty which is treated sacrosanct in the presentday public international law. Only through the specific terms of treaties this rule of customary public international law can be modified.

(iii) We are now passing through a phase when great vigilance and knowledge are required as we are interacting with global experts at various fora of international litigations or negotiations. I had occasions to watch our eminent lawyers and eminent judges dealing with the issues of Public International Law. I found them all suffer from ‘knowledge deficit’ India cannot go ahead with this sort of ‘knowledge deficit’. There was a time when Mr. M.C. Setalvad, the then Attorney General of India, was frank enough to tell our Government that for proper presentation of a case before the World Court, experts like Professor Guggenheim and Soskice, deserved to be engaged, because he had his limitations in the field of international law. The way our cases have been represented before the Disputes Settlement Body of the WTO, and the way International Law issues were presented before our courts in the PILs, which I had filed and conducted, make our government’s ‘knowledge deficit’ alarmingly shocking.

I was glad that my pursuits before the Delhi High Court and the Supreme Court in conducting the PIL litigations led our government to realize that its officers, even its law officers, suffered from ‘knowledge deficit’ in the matters pertaining to international taxation. This realization had a positive effect. The government did a good job by setting up the Directorate of International Taxation under the Director-General of International Taxation. I hope this Directorate would not only be able to handle matters of international taxation within our domestic jurisdiction, but would also be competent to present our cases when the Direct Taxes issues come up before the foreign fora.

Wherever I could, I told the leaders of the academic world to improve the standards of the teaching of international law. There was a time when our lawyers and the judges had not much to do with the intricate issues of international public law. Most of them found its study irrelevant to their professional work. But now we live in a different world. This phase of Economic Globalisation has altered our perspective. We must develop our knowledge and skills in public international law, and the art and craft of conducting litigations at foreign fora. But we must not forget our Constitution, and the restraints to which it subjects all the organs of the State. On Sept. 18, 2010, I addressed the students and the faculty members of the National Law University at Jodhpur. I told them about the challenges we are facing at international fora, and also in our domestic courts. I requested the University to do something in the matter to improve the standards of the teaching of international law, and international litigations.

I would also suggest to the Income-tax Department to set up an integrated course for the advanced study of international public law in the spheres of international taxation, commerce, trade and services. This institute can be easily set up at the National Academy of Direct Taxes at Nagpur."


The text of the Dissertation referred above - Links on Shivakantjha - Links on Shivakantjha

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