Rule of Law vs Rule of Power: The Limits of Tax Defence Measures in the Customary International Law on Countermeasures

This article shows (using the United States as an example) that the retaliatory tax measures against discriminatory or extraterritorial taxation by other states are legally restricted by customary international law on countermeasures. The main finding of this article is that the United States’ retaliatory tax measures, as currently envisioned by the US administration, could be seen as illegal under international law, because their activation would serve better as a punishment of foreign states than as an inducement for them to repeal their discriminatory or extraterritorial tax law. This finding reinforces the thesis that the rule of power prevails over the rule of law in the examined sphere of power to tax in the United States. All in all, the article sketches guidance on how any sovereign jurisdiction can defend itself against tax measures implemented and applied by another state through its domestic tax law that is at odds with international law.