The Limitation on Benefit Clause of the U.S.-German Tax Treaty and its Compatibility with European Union Law

Anders, Dietmar | January 1, 1997

This comment details why the limitation on benefits clause of the U.S.- German Treaty is contrary to European Union law.5 Part I describes the discriminatory situation which German companies may face and illustrates how tax treaty abuse could occur and how to prevent it. Part I also contains an introduction to the U.S.-German Treaty and provides an example of the conflict between U.S. tax treaties and European Union law. Part II analyzes in detail the Treaty’s discriminatory features with respect to European Union aw and discusses potential justifications for this discrimination based on the case law of the European Court of Justice.6 Part II concludes that the limitation on benefits clause constitutes unjustified discrimination and vio- lates the EC Treaty. Part III reflects on possible solutions to the conflict, and it recommends a renegotiation of the U.S.-German Treaty. At present, an implementation of the derivative benefits concepts into this Treaty is ad- visable. However, Part I recommends that all bilateral treaties between the United States and EU Member States should later be replaced by a sin- gle tax treaty between the United States and the European Union. Part IV summarizes the conclusions drawn in Parts I-lII.