Foreign Law in U.S. International Taxation: The Search for Standards

Abstract

This article was written while the author was with the law firm of Steptoe & Johnson LLP. The opinions expressed in the article do not necessarily reflect the views of the Treasury.

Copyright © 1996 by Philip R. West.

Among U.S. tax professionals, references to international taxation commonly encompass two things: the U.S. tax rules that apply to the U.S. income of non-U.S. persons, and the U.S. tax rules that apply to the non-U.S. income of U.S. persons. In both cases, the focus is on U.S. rules. Frequently, however, foreign law affects the application of these U.S. rules. This article examines the role of foreign law in U.S. international taxation.
In a variety of contexts, U.S. tax law either explicitly or implicitly requires an interpretation of foreign law or allows for an argument that foreign law is relevant to U.S. tax consequences. Neither the courts nor the Treasury has, however, articulated a standard for determining when foreign law should be taken into account and, where foreign law is taken into account, what its proper role should be in the interpretation of U.S. tax rules. As a result, taxpayers and the government continue to dispute the role of foreign law in interpreting U.S. tax rules. Even different courts may take different views of the relevance of foreign law to what appears to be the same U.S. tax issue.