The Internal Revenue Service in recent years has been particularly concerned about third-country residents use of bilateral income tax treaties to avoid paying tax on United States source income. Although third-country residents have benefitted from United States bilateral income tax treaties for more than twenty years, the loss of tax revenue from such unintended use was not considered a major problem. The recent proliferation of tax treaties between the United States and tax havens which resulted in an increased loss of tax revenues, however, has caused the Internal Revenue Service (IRS) to change its evaluation of the treaty shopping problem. The inclusion of a thirty-two page section on treaty shopping in a 1981 IRS report on tax havens in one indication that the IRS now considers third-country residents' abuse of United States tax treaties a serious problem.
Kenneth A. Grady,
Income Tax Treaty Shopping: An Overview of Prevention Techniques,
Nw. J. Int'l L. & Bus.