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TEAM ‘X’

D.M. HARISH MEMORIAL GOVERNMENT LAW COLLEGE INTERNATIONAL MOOT COURT

COMPETITION 2012

C OLLEGE I NTERNATIONAL M OOT C OURT C OMPETITION 2012 I N T HE I

IN THE INTERNATIONAL COURT OF JUSTICE

PEACE PALACE, THE HAGUE

NETHERLANDS

CASE CONCERNING THE ECONOMIC AND TAXATION POLICIES

T HE

R EPUBLIC

OF

A MITI

APPLICANT

T HE

v.

R EPUBLIC

OF

D ARSHINI

RESPONDENT

ON SUBMISSION TO THE INTERNATIONAL COURT OF JUSTICE

MEMORIAL for the APPLICANT

REPUBLIC OF AMITI

Table of Contents

i

Table of Contents i T A B L E OF C ONTENTS T ABLE OF C
Table of Contents i T A B L E OF C ONTENTS T ABLE OF C

TABLE OF CONTENTS

Table of Contents i T A B L E OF C ONTENTS T ABLE OF C

TABLE OF CONTENTS

I

TABLE OF AUTHORITIES

II

STATEMENT OF JURISDICTION

IX

STATEMENT OF FACTS

X

QUESTIONS PRESENTED

XIII

SUMMARY OF ARGUMENTS

XIV

ARGUMENTS

1

1. The repudiation of the Double Taxation Avoidance Agreement by Darshini is not

justified under international

1

1.1. Darshini does not meet the grounds under Article 46 of the Vienna Convention for

invalidation of the

1

1.2.

Darshini cannot validly terminate the DTAA under international

2

1.3.

Arguendo, Darshini has lost its right to end or suspend its obligations under the

treaty

6

2. Darshini’s shift in its economic policy contravenes its international

8

2.1. The new economic policy of Darshini violates its obligations as a member of the

8

Vipulian Economic

2.2.

Darshini’s unilateral policy changes amount to interference in Amiti’s internal

affairs

9

3. Amiti is not bound to disclose the information requested by Darshini

12

3.1. Under the Vipulian Economic Union Charter, Amiti is not bound to disclose the

information sought by

12

3.2. Amiti is not bound by the ‘exchange of information’ clause in the

15

3.3. The Banking Regulation and Secrecy Act prohibits the disclosure of confidential

16

information

SUBMISSIONS TO THE COURT

XVII

Table of Authorities

ii

Table of Authorities ii T A B L E OF A UTHORITIES Treaties 1. Council of
Table of Authorities ii T A B L E OF A UTHORITIES Treaties 1. Council of

TABLE OF AUTHORITIES

Table of Authorities ii T A B L E OF A UTHORITIES Treaties 1. Council of

Treaties

1. Council of Europe, Convention for the Protection of Individuals with regard to

13

2. European Union[EU], Charter of the Fundamental Rights of the European Union,

Automatic Processing of Personal Data, ETS No. 108, (Jan 28, 1981)

2000 O.J. (C 364) 1, (Dec. 7, 2000)

12

3. International Covenant on Civil and Political Rights, (Dec. 16, 1966)

12,

13

4. Model Treaty on Mutual Assistance in Criminal Matters, G.A. 45/117, U.N. Doc.

16

5. OECD Committee on Fiscal Affairs, Model Tax Convention on Income and on

15

6. United Nations, Econ & Social Council, Convention against Illicit Traffic in Narcotic

A/RES/ 45/117 (Dec. 14, 1990)

Capital, (Paris, July 2008)

Drugs and Psychotropic Substances (Dec. 19, 1988)

16

7. Vienna Convention on the Law of Treaties, 1969

1,

2, 3, 6, 8, 14

ICJ Judgments

1. Case concerning Armed Activities on the Territory of Congo (Congo v. Uganda),

9

Judgment, 2005 I.C.J. 168 (December 19)

2. Corfu Channel Case (United Kingdom v. Albania) Assessment of

9

3. Dissenting Opinion by Judge Cancado Trindade, Jurisdictional Immunities of the

14

4. Exchange of Greek and Turkish Populations, Advisory opinion, PCIJ series B no,

Compensation, , 1949 ICJ 15 XII 49 (December 15)

State (Germany v. Italy) , (Order of 6 July 2010)ICJ

ICGJ 277 (PCIJ 1925)

16

5. Fisheries Jurisdiction (U.K./Ice.), Merits, Judgment, 1973

2

6. Gabcikovo-Nagymaros Project (Hung./ Slovk.), Judgment, 1997 I.C.J. 7, ¶ 95,

3

7. Greco Bulgarian ‘Communities’, Advisory opinion, PCIJ series B no 17, ICGJ 284

(Sep.25)

2,

(PCIJ 1930)

16

8. Kasikili/Sedudu Island (Bots./ Namib.), Judgment, 1999 I.C.J. (Dec. 13)

14

Table of Authorities

iii

9. Military and Paramilitary Activities in and Against Nicaragua (Nicar. v. U.S.), 1986

9, 10

10. Territorial Dispute (Libya/Chad), Judgment, 1994 I.C.J. 6 (Feb. 3)

14

I.C.J. 14, (June 27)

Cases

12

2. Case C-336/96) Gilly v. Directeur des Services Fiscaux de Bas-Rhin, 1998 E.C.R. I-

15

1. Amann v. Switzerland, Eur. Ct. H.R. 47 (2000)

2793

3. Francesco Madafferi and Anna Maria Immacolata Madafferi v.Australia,

CCPR/C/81/D/1011/2001, UN Human Rights Committee (HRC), 26 August 2004

13

4. Hoge Raad, Rolno. 29.296, BNB 1994/259: DTC Netherlands/USA

5

5. Hoge Raad, Rolno. 29.531, BNB 1995/150: DTC Netherlands/Belgium

5

6. Olmstead v. United States, 277 U.S. 438, 944 (1928)

13

7. Peck v. The United Kingdom, Eur. Ct. H.R. 57 (2003)

12

8. RackeGnbH& Co. v Hauptzollamt Mainz, E.C.R. (1998)

3

9. Rolno. 28.734, BNB 1994/294: DTC Netherlands/Belgium

5

10. S. and Marper v. the United Kingdom, Eur. Ct. H.R. 1581 (2008)

12

11. Soo Ja Lim; Seon Hui Lim and Hyung Joo Scott Lim v. Australia, CCPR/C/87/D/1175/2003, UN Human Rights Committee (HRC), 10

August 2006

13

12. Wheaton v. Peters, 33 U.S. 591, 634 (1834)

13

13. Yassin Abdullah Kadi and Al Barakaat International Foundation v. Council of

European Union and Commission of European Communities, [2008] 3 CMLR 41

Treatises

14

1. ALEX CONTE, SCOTT DAVIDSON AND RICHARD BURCHILL, DEFINING CIVIL AND

POLITICAL RIGHTS: THE JURISPRUDENCE OF THE UNITED NATIONS HUMAN RIGHTS

COMMITTEE (2004)

13

2. I. R. JENNINGS AND A. WATTS, OPPENHEIMS INTERNATIONAL LAW,(9 th edn, 1992) 2, 9

3. KLAUS VOGEL, KLAUS VOGEL ON DOUBLE TAXATION CONVENTIONS

3, 5

4. MARK E VILLIGER, COMMENTARY ON THE 1968 VIENNA CONVENTION ON THE LAW OF

TREATIES

1,

2, 6

5. RICHARD K. GARDINER, TREATY INTERPRETATION, (2008)

14

Table of Authorities

iv

6. T.M. COOLEY, A TREATISE ON THE LAW OF TORTS (2d ed. 1888)

Publicists

13

1. Andre Nollkaemper, NATIONAL COURTS AND INTERNATIONAL RULE OF LAW (2011)

 

14,

16

2. B. Balassa, THE THEORY OF ECONOMIC INTEGRATION (1961)

8

3. C.M.Bassiouni and E.M. Wise, AUT DEDARE AUT JUDICARE: THE DUTY TO

EXTRADITE OR PROSECUTE IN INTERNATIONAL LAW (1995)

17

4. Catherine Barnard, THE SUBSTANTIVE LAW OF THE EU (3 rd edn, 2010)

8

5. European Commission, Directorate-General for Economic and Financial Affairs, Economic Crisis in Europe: Causes, Consequences and Responses, European

Economy (7/2009)

10

6. FEIST, Kündigung

3

7. H. Triepel, VÖLKERRECHT UND LANDESRECHT (Leipzig, Verlag von C.L. Hirschfeld

16

trans., (1899)

8. I Roy Rohatgi, PRINCIPLES OF INTERNATIONAL TAX LAW, BASIC INTERNATIONAL

TAXATION

4,

15

9. INTERNATIONAL ECONOMIC POLICY COORDINATION (Willem H. Buiter & Richard C.

Marston eds., 1985)

10

10. J.S. Mill, PRINCIPLES OF POLITICAL ECONOMY(D. Winch ed., 1970)

13

11. Judith DeCew, Privacy, THE STANFORD ENCYCLOPEDIA OF PHILOSOPHY (2008)

13

12. KEARNEY, International Lawyer 4 (1969)

2

13. KÖCK, Festschrift VEROSTA

3

14. Morten Ougaard, Richard A. Higgott, TOWARDS A GLOBAL POLITY, WARWICK

STUDIES IN GLOBALISATION, CENTRE FOR THE STUDY OF GLOBALISATION AND

REGIONALISATION, ECONOMIC AND SOCIAL RESEARCH COUNCIL (GREAT BRITAIN)

(2002)

10

15. Swann, THE ECONOMIES OF COMMON MARKET (7 th edn, 1992)

 

8

16. Tofan

Mihaela,

INTEGRAREA

ROMDNIEI

IN

STRUCTURILE

UNIUNII

MONETARE

EUROPENE (C.h. Beck. ed, 2008)

8

17. W. Molle, THE ECONOMICS OF EUROPEAN INTEGRATION: THEORY, PRACTICE AND

POLICY

8

Table of Authorities

v

Articles

1. Bohringer Cristoph and Rutherford, Thomas F., Decomposing General Equilibrium

Effects of Policy Intervention in Multi-Regional Trade Models, Method and Sample Application, Centre For European economic Research (ZEW), ZEW Discussion Paper

no. 99-36 (1999)

10

2. Cheshire Paul, Optimal Areas for Planning, Local Economic Development and

Transportation, Technical University of Košice, Faculty of Economics, 2 nd Central

10

3. David. A. Funk, From International Laws to International Economic Community

9

4. Dinah Shelton, Hierarchy of Norms and Human Rights: Of Trumps and Winners, 65

14

5. Dinah Shelton, Normative Hierarchy in International Law, 100 (2) A.J.I.L. 291

14

European Conference in Regional Sciences (CERS), (2007)

Law, 4 CASE W. RES. J. INT'L L. 3 1971-1972

SASK. L. REV. 301 200 at 306

(2006)

6. F Morgenstern, Judicial Practice and the Supremacy of International Law, (1950) 27

16

7. Fernandez, Neville G, International Law And The Use of Force: Armed Intervention In International Affairs, Journal of Singapore Armed Forces, Journal V 24-N1, (Jan-

10

8. Gabriela Bologa and Maria-Nicoleta Rosca, The Legislative Framework for the EU

BRIT. Y. B. INTL. L 42, 90

Mar,1998)

States in the context of Economic and Monetary Integration, 2009 AGORA Int'l J.

Jurid. Sci. xviii 2009

8

9. Greenwood, Nicholas Onuf, The Principle of Non intervention, the United Nations,

9

10. Hoffman, Stanley, International Systems and International Law, World Politics, Vol

9

11. John Funston, ASEAN and the Principle of Non Intervention – Practice and Prospects, Institute of South East Asian Studies, ISSN 0219-3213, No.

and the International System, International Organization, Vol. 25, No. 2 (1971)

14, No. 1, (Oct 1961)

10

12. Kitamura, Economic Theory and the Economic Integration of Underdeveloped

9

5,(March,2000)

Regions, in LATIN AMERICAN ECONOMIC INTEGRATION (M. Wionczek ed. 1964)

Table of Authorities

vi

13. Lori Fisler Damrosch, Politics across Borders: Non Intervention and Non Forcible

10

14. M. Cherif Bassiouni, Policy Considerations on Inter-State Cooperation in Criminal

17

15. M. Fitzmaurice, The Gabcikovo- Nagymoros Case: The Law of Treaties, Leiden JIL

Influence over Domestic Affairs, 83 AM. J. INTL L (1989)

Matters, 4 PACE Y.B. INTL LAW 123 (1992)

11 (1998) 332

3

16. Maria Flavia Ambrosanio and Maria Serena Caroppo, Eliminating Harmful Tax

Practices in Tax Havens: Defensive Measures by Major EU Countries and Tax Haven

Reforms, Canadian Tax Journal Vol. 53 No. 3, 690 (2005)

4

17. Martti Koskenniemi, Hierarchy in International Law: A Sketch, 8 EUR. J. INTL. L.

14

18. Michael Daly, The WTO and Direct Taxation, Discussion Paper No. 9, World Trade

566

(1997)

Organisation (June,2005)

15

19. Morris Goldstein, Improving Economic Policy Coordination: Evaluating some new and some not-so-new Proposals, in THE INTERNATIONAL MONETARY SYSTEM (P.B.

10

20. Rames A. Wessel, The Kadi Case: Towards a More Substantive Hierarchy in

14

21. Valery Shupilov, Legal Assistance in Criminal Matters and Some Important

17

22. VerLoren Van Themaat, The Relations between the Concepts of a Common Market, a Monetary Union, an Economic Union, a Political Union and Sovereignty, (1991) 28

8

23. Wexler, The Theory and Reality of Economic Integration, 14 WORLD POL. 553, 559

9

Kenen, Francesco Papadia, Fabrizio Saccomanni eds., 1994)

International Law?, 5 INTL ORG. L. REV. 323 2008

Questions of Extradition, 15 CASE W. RES. J. INTL LAW 127 (1983)

CML REV 291

(1962)

United Nations Documents

1. Declaration of the Inadmissibility on Intervention and Interference in the Internal

10

2. Declaration on the Inadmissibility of Intervention in Domestic Affairs of States and Protection of Their Independence and Sovereignty, G.A Res. 2131(XX), U.N. Doc

10

Affairs of States, G.A Res. 36/103, U.N Doc. A/RES/36/103 (9 December 1981)

A/RES/20/2131(Dec. 21,1965)

Table of Authorities

vii

3. Declaration on the Principle of International Law concerning Friendly Relations and Cooperation among the States in accordance with the Charter of the United Nations,

10

4. Fourth Waldock Report, Documents of the first part of the seventeenth session

G.A. Res. 37/10, U.N. Doc. A/Res/37/10 (Oct. 24, 1970)

2, 3

5. Human Rights as the Primary Objective of Trade, Investment and Financial Policy,

including the report of the Commission to the General Assembly [1965]

UN Doc. E/CN.4/Sub.2/RES/1998/12 (1998)

14

6. ILC Report 1963, YBILC 1963 II 213

6

7. ILC Report 1966, Report of the of the International Law Commission on the work of

3, 6

8. Minutes of the first session, United Nations Conference on the Law of Treaties, 1968-

3

9. Minutes of the second session, United Nations Conference on the Law of Treaties,

3

its 8th Session

69

1968-69

1,

10. Second Waldock Report, Documents of the fifteenth session including the report of

6

11. U.N. Commission on Economic, Social and Cultural Rights, Statement to the Third

Ministerial Conference of the World Trade Organisation (Nov 26, 1999) UN Doc.

14

12. U.N. Sub-Comm’n on the Promotion and Protection of Human Rights, Globalisation

and Its Impact on the Full Enjoyment of Human Rights, Preliminary Report submitted

by J. Oloka-Onyango and Deepika Udagama, UN Doc. E/CN.4/Sub.2/2000/13

14

13. United Nations, Econ. & Social Council, Comm. of Experts on International

the Commission to the General Assembly, [1963]

E/C.12/1999/9

5

14. Universal Declaration of Human Rights art. 12, G.A. Res 217 (III) A, U.N. Doc.

12, 13

Cooperation in Tax Matters, Abuse of tax treaties and Treaty Shopping

A/RES/ 217(III) (Dec. 10, 1948)

Other Authorities

1. Chatham House (The Royal Institute for International Affairs) and Centre for

International Governance Innovation, Paola Subacchi and Paul Jenkins, Preventing Crises and Promoting Economic Growth: A Framework for International Policy

10

Cooperation (April 2011)

Table of Authorities

viii

2. Council of Economics and Finance Ministers, European Union Code of Conduct,

4

3. European Parliament and Council, Directive on the protection of individuals with

regard to the processing of personal data and on the free movement of such data,

95/46/EC, L281 (24th Oct., 1995)

12

4. OECD Committee on Fiscal Affairs, Commentaries on the Articles of the Model Tax

(Dec. 1, 1997)

Convention on Income and on Capital, (Paris, July 2008)

5

5. OECD Harmful Tax Competition: An Emerging Global Issue (Paris, 1998)

4

6. OECD, Guidelines on the Protection of Privacy and the Transborder flows of

Personal Data, (Sep. 23, 1980)

12

7. OECD, The OECD’s Project on Harmful Tax Practices: The 2001 Progress Report

(Paris, 2001)

4

8. OECD, The OECD’s Project on Harmful Tax Practices: The 2004 Progress Report

4

9. OECD, Towards Global Tax Co-operation: Progress in Identifying and Eliminating

4

10. Organisation for Economic Co-operation and Development [OECD] Committee on

(Paris, 2004)

Harmful Tax Practices (Paris, 2000)

Fiscal Affairs, Report on Tax Treaty Override, (Paris, 1989)

3

11. Yilmaz Akyüz, Global Rules and Markets: Constraints over Policy Autonomy in Developing Countries (Int’l Labour Office, Policy Integration and Statistics

10

Department), Working Paper No. 87, (2008)

Online Sources

1. Oxford

Dictionary,

Dec. 30, 2011)

(OUP

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http://www.oxforddictionaries.com (last

visited

15

9,

Statement of Jurisdiction

ix

Statement of Jurisdiction ix S T A T E M E N T OF J URISDICTION
Statement of Jurisdiction ix S T A T E M E N T OF J URISDICTION

STATEMENT OF JURISDICTION

ix S T A T E M E N T OF J URISDICTION C ASE C

CASE CONCERNING THE ECONOMIC AND TAXATION POLICIES

THE REPUBLIC OF AMITI

v.

THE REPUBLIC OF DARSHINI

Applicant

Respondent

“Republic of Amiti and Republic of Darshini submit the following dispute to this Court by

Special Agreement for Resolution without reservations, pursuant to Article 40 (1) of the

Statute of the International Court of Justice and the Jurisdiction of this Court thus extends to

all matters referred to by the parties in accordance with Article 36(1) of the Statute of the

Court”

IN THE INTERNATIONAL COURT OF JUSTICE

PEACE PALACE, THE HAGUE

NETHERLANDS

Statement of Facts

x

Statement of Facts x S TATEMENT OF F ACTS I The Vipulian Economic Union, formed in
Statement of Facts x S TATEMENT OF F ACTS I The Vipulian Economic Union, formed in

STATEMENT OF FACTS

Statement of Facts x S TATEMENT OF F ACTS I The Vipulian Economic Union, formed in

I

The Vipulian Economic Union, formed in 2000, comprises of 12 nations including Darshini and Amiti. The guiding principles of the Union include:

(a)

respect for the universal rights of people around the world

(b)

mutual respect for the laws of member nations and the commitment to support the implementation of each other’s laws and decisions of the courts

(c)

movements towards full economic integration – with respect to currency, fiscal policy, monetary policy, taxation and legal systems

(d)

preservation of the unique social, cultural and religious history of each individual member and its people

(e)

exchange of information on matters of importance to member nations and its

policies. Darshini is the leading economy within the VEU and the second largest in the world, whereas Amiti is a developing country which recently opened its economy.

II

To establish itself as a top notch financial centre and to encourage investments, Amiti entered into a number of investment and double tax avoidance agreements (largely based on the OECD Model) with countries around the world. It entered into such a Double Tax Avoidance agreement with Darshini also. Through the said treaty, which had no limited ‘limitation of benefits’ clause, it was agreed that capital gains would be taxed by the country of residence and that exchange of information would be limited to matters under the treaty. Following this, capital gains tax in Amiti was reduced to 1%, unlike Darshini’s 20%. As a result, investment corporations established themselves in Amiti and through such entities, invested into Darshini and these structures were upheld by the courts in Darshini Thus, Amitian Corporations technically contributed to 27% of foreign investment into Darshini.

III

Statement of Facts

xi

Amiti also encouraged the development of its banking system through a Banking Regulation and Secrecy Act, which recognised individual’s privacy and required banks to maintain confidentiality and secrecy, unless the disclosures were required by law. Consequently, people and corporations across the globe established legal entities and bank accounts in Amiti. Though some commentators believed that Amiti was trying to be tax haven, Amiti claimed that it was merely striving to be a world class financial centre.

IV

In 2008-09, following the global financial crisis, Darshini’s economy was significantly affected. The Darshini government to prevent its economy from slipping into a recession, increased spending and passed stimulus packages to support the economy. Consequently, even though the country fell into debt and borrowings constituted over 90% of its GDP, economists believe that this protected Darshini’s economy from the recession. In 2010 however, when the Democratic Party came into power in Darshini, it shifted its economic policy to one of fiscal conservativeness in order to recover the economy in the medium to long term, even though this would slow down the economy and might even slip it into recession. As a result, by late 2010, Darshini slipped into recession. This caused a huge credit crunch and had a devastating impact on Amiti and other countries in the VEU. The Amitian Prime Minister made requests for a reversal of at least the key economic policies of Darshini during this time.

V

In early 2011, a lower court in Darshini passed an order questioning the validity of its DTAA with Amiti, after holding multiple hearings on the ‘public policy’ dimensions of the agreement. Legal experts unanimously agreed that the decision was a mistake and failed to consider the rulings of the Supreme Court of Darshini. The government, however, using an obscure constitutional provision passed a resolution advising the executive to implement the said decision. Amiti expressed its dismay over the lower court’s order and stated that the said decision constituted a ‘grave violation of international law’. The Government of Darshini responded by saying that in times of economic crisis and in light of global state practice viz. tax havens, countries are entitled to make tough choices. This caused the stock markets of both countries to fall and business confidence in the VEU to reduce.

Statement of Facts

xii

VI

Simultaneously, tax investigation authorities in Darshini submitted a report indicating ‘alleged violations’ by Darshini residents in maintaining undeclared income in Amitian Bank accounts. The Supreme Court of Darshini, while hearing a public interest matter asked the Government to determine if there had been any violations and to report back in 3 months. Following this, the Government of Darshini requested Amiti for a disclosure of the identities of Darshini based account holders. The Amiti Government refused disclosure on the ground that it would violate the Banking Regulation and Secrecy Act. Further, no actual law had proved to have been violated by Darshini residents. The Darshini Government stated that this was a violation of the principles of the VEU Charter, to which Amiti responded by saying that the VEU protected an individual’s right to privacy.

VII

Thereafter, Amiti government issued a statement saying that Darshini’s unilateral policy decisions amounted to interference in its internal affairs and was a violation of the principles of the VEU. The increased tension affected the economic mood of both nations detrimentally. The Secretary General of the United Nations advised the governments to refer the matter to the International Court of Justice since they were dealing with critical issues of international significance faced by many other countries. He also stated that this issue had to be resolved in a manner consistent with individual’s rights. Thus, the governments of Darshini and Amiti referred their differences to the International Court of Justice.

Questions Presented

xiii

Questions Presented xiii Q UESTIONS P RESENTED I . W H E T H E R
Questions Presented xiii Q UESTIONS P RESENTED I . W H E T H E R

QUESTIONS PRESENTED

Questions Presented xiii Q UESTIONS P RESENTED I . W H E T H E R

I.

WHETHER

THE

INVALIDATION

OF

THE

DOUBLE

TAXATION

AVOIDANCE

AGREEMENT BY DARSHINI CONTRAVENES INTERNATIONAL LAW?

A.

Whether Darshini meets the grounds under Article 46 of the Vienna Convention for invalidation of the treaty?

B.

Whether Darshini can validly terminate the DTAA under international law?

C.

Whether Darshini has lost its right to end or suspend its obligations under the treaty?

II.

WHETHER DARSHINIS SHIFT IN ITS ECONOMIC POLICY CONTRAVENES ITS

INTERNATIONAL OBLIGATIONS?

 

A.

Whether the new economic policy of Darshini violates its obligations as a member of the Vipulian Economic Union?

B.

Whether Darshini’s unilateral policy changes amount to interference in Amiti’s internal affairs?

III.

WHETHER AMITI IS BOUND TO DISCLOSE THE INFORMATION REQUESTED BY

DARSHINI?

A.

Whether under the Vipulian Economic Union Charter, Amiti is bound to disclose the information sought by Darshini?

B.

Whether Amiti is bound by the ‘exchange of information’ clause in the DTA Agreement?

C.

Whether the Banking Regulation and Secrecy Act prohibits the disclosure of confidential information?

Summary of Arguments

xiv

Summary of Arguments xiv S U M M A R Y OF A RGUMENTS 1 .
Summary of Arguments xiv S U M M A R Y OF A RGUMENTS 1 .

SUMMARY OF ARGUMENTS

of Arguments xiv S U M M A R Y OF A RGUMENTS 1 . T

1.

THE INVALIDATION OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BY

DARSHINI CONTRAVENES INTERNATIONAL LAW.

1.1.Darshini does not meet the grounds under Article 46 of the Vienna Convention for invalidation of the treaty.

Article 46 of the Vienna Convention permits unconstitutionality as a ground for invalidation of a treaty only when there is either a ‘manifest violation’ of a rule of its internal law of fundamental importance. The Double Tax Avoidance Agreement (“DTAA”) was invalidated by Darshini on the grounds that the executive was not expressly permitted to enter into a tax treaty giving up the country’s right to tax capital gains vide Darshini’s income tax legislation. Amiti contends that Darshini’s invalidation of the DTAA agreement is not justified since the violation of the law does not meet the prerequisites of Article 46.

1.2.Darshini cannot validly terminate the DTAA under international law.

Amiti contends that Darshini cannot validly terminate the treaty under the Vienna Convention on account of a fundamental change in circumstances, since the essential object and purpose of the treaty is unharmed by the change in circumstances. The change was in fact triggered by Darshini’s policy change. Further, Amiti contends that Darshini cannot override the treaty under international taxation law on two grounds; first, that Amiti is not a tax haven and therefore cannot be subject to any countermeasures prescribed to deal with tax havens and second; the absence of a limitation of benefits clause in the DTA agreement precludes Darshini from overriding the treaty on account of treaty shopping.

1.3.Arguendo, Darshini has lost its right to end or suspend its obligations under the treaty.

Article 45 of the Vienna Convention provides that a State party having a right to denounce or avoid a treaty may disqualify itself from exercising the right due to its subsequent conduct. A State’s tacit acceptance of a treaty may be inferred from its omission to raise an objection. Darshini continued to execute the treaty even after Amiti reduced its capital gains tax to 1%. Amiti contends that Darshini’s tacit acceptance of the treaty and failure to raise any

Summary of Arguments

xv

objection, disqualifies it from denouncing or avoiding the treaty at a later stage on grounds of unfair capital gains treatment.

2. DARSHINIS SHIFT IN ITS ECONOMIC POLICY CONTRAVENES ITS INTERNATIONAL

OBLIGATIONS.

2.1.The new economic policy of Darshini violates its obligations as a member of the Vipulian Economic Union.

The VEU charter embodies the principle of movement towards full economic integration. A basic feature of an economic union is the harmonisation of economic policy. Despite multiple requests to reverse Darshini’s policies and even though these polices had a devastating impact on the entire VEU, they were not reversed. Amiti contends that this indicates a lack of harmonisation. Moreover, Darshini’s new policy practically acts as an impediment to the free movement of goods and services and therefore, violates its obligations under the VEU charter.

2.2.Darshini’s unilateral policy changes amount to interference in Amiti’s internal affairs

Non-interference in the internal affairs of a State is an established principle of customary international law. Amiti argues that Darshini’s policy shift had a severe impact on Amiti’s ability to manage its economy, resulting in social unrest in the region. This amounts to interference in its economic and social affairs.

3. AMITI IS NOT BOUND TO DISCLOSE THE INFORMATION REQUESTED BY DARSHINI.

3.1.Under the Vipulian Economic Union Charter, Amiti is not bound to disclose the

information sought by Darshini.

The VEU guarantees respect for an individual’s right to privacy. Darshini requested the disclosure of the identities of all Darshini based residents who had bank accounts in Amiti. Amiti submits that disclosure of the information requested by Darshini amounts to an unlawful and arbitrary interference of an individual’s right to privacy. Additionally, Amiti contends that this non-disclosure does not deviate from the principle of ‘exchange of information’ contained in the VEU. Since there exists a primacy of human rights over other international law and States are under an obligation to protect human rights, the enforcement of the exchange of information clause cannot be reconciled with the right to privacy.

Summary of Arguments

xvi

3.2.Amiti is not bound by the ‘exchange of information’ clause in the DTA Agreement.

The DTAA restricts the exchange of information between Darshini and Amiti to ‘matters under the treaty’. ‘Matters under the treaty’ refers to the subject-matter or content of the treaty i.e. provisions of the treaty. Since provisions under the treaty do not relate to tax evasion or tax avoidance, the disclosure of information with regard to violations of Darshini law is not a matter under the treaty. Therefore, Amiti is not bound to disclose the information under the DTAA.

3.3.The Banking Regulation and Secrecy Act prohibits the disclosure of confidential information.

The Banking Regulation and Secrecy Act prohibits disclosure of information unless mandated by applicable law. International obligations constitute applicable law, however, there exists no international obligation on Amiti to disclose the relevant information. Further, the doctrine of mutual legal assistance does not bind a State to disclose information unless contractually bound to do so. Amiti argues that it is prohibited from disclosing the requested information under the Banking Regulation and Secrecy Act.

Arguments

1

Arguments 1 A RGUMENTS 1 . T H E REPUDIATION OF THE D OUBLE T AXATION
Arguments 1 A RGUMENTS 1 . T H E REPUDIATION OF THE D OUBLE T AXATION

ARGUMENTS

Arguments 1 A RGUMENTS 1 . T H E REPUDIATION OF THE D OUBLE T AXATION

1.

THE REPUDIATION OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BY DARSHINI IS NOT JUSTIFIED UNDER INTERNATIONAL

Amiti contends that Darshini’s grounds for repudiation under the Double Taxation Avoidance Agreement (“DTAA”) do not comply with international law. First, the DTAA cannot be invalidated under Article 46 of the Vienna Convention on the Law of Treaties 1 (“Vienna Convention”); Secondly, the termination of the DTAA is unjustified under the Vienna Convention and international taxation law. Arguendo, even assuming that there exist valid grounds for the termination or invalidation of the DTAA, Darshini is precluded from doing so.

1.1. DARSHINI DOES NOT MEET THE GROUNDS UNDER ARTICLE 46 OF THE VIENNA

CONVENTION FOR INVALIDATION OF THE TREATY.

A State’s consent to a treaty in violation of a domestic law cannot be used as a ground for invalidating the treaty unless the violation is ‘manifest and concerned a rule of its internal law of fundamental importance’ under Article 46 of the Vienna Convention on the Law of Treaties 2

The term ‘manifest’ as defined in Para. 2. of the article states that a ‘violation must be objectively evident to any State conducting itself in the matter in accordance with normal practice and good faith.’ 3 A rule of ‘fundamental importance’ is one which is directly connected to the impugned violation and expressly regulates the competence to conclude a treaty. 4

1 Vienna Convention on the Law of Treaties (VCLT) art. 46, opened for signature 23 May 1969, 1155 UNTS 331 (entered into force 27 January 1980) [hereinafter ‘Vienna Convention’]

2 See id.

3 See id.

4 MARK E VILLIGER, COMMENTARY ON THE 1968 VIENNA CONVENTION ON THE LAW OF TREATIES 592, (2009)

[hereinafter ‘Villiger’]; See the statements in Vienna by the delegations of the UK(SINCLAIR), OR 1968 CoW 240, para.19; and Iraq (YASSEEN) ibid 245, para 74.

Arguments

2

The exception, by its very nature must be construed narrowly. 5 Article 46 is declaratory of

customary international law. 6

The lower court of Darshini, in its 2011 decision, questioned whether the country’s income

tax legislation ‘expressly’ permitted the executive to enter into tax treaties to give up the

country’s right to tax capital gains. Darshini fails to meet the conditions for invoking Article

46 since the court’s decision is based on the lack of an express provision, while Article 46

mandates the existence of a fundamental rule which has been violated. Therefore, there

cannot be a ‘manifest’ violation of any internal rule of law.

Therefore, in the instant case, the exception under Article 46 cannot be invoked by Darshini

to invalidate the DTAA.

1.2. DARSHINI CANNOT VALIDLY TERMINATE THE DTAA UNDER INTERNATIONAL LAW.

Darshini cannot unilaterally terminate the DTAA under the provisions of the Vienna

Convention on the grounds of a ‘fundamental change of circumstances’. Further, the treaty

override is violative of international taxation law.

1.2.1.

Darshini

circumstances’ to terminate the DTAA.

cannot

invoke

the

ground

of

a

‘fundamental

change

in

In exceptional cases, a ‘fundamental change of circumstances’ may be invoked as grounds for

termination of a treaty. 7 The change must be with regard to the circumstances existing at the

time of the conclusion of the treaty and unforeseeable by the parties. If the existence of those

circumstances constituted an essential basis of the consent of the parties to be bound by the

treaty 8 and the effect of the change is to radically transform 9 the extent of obligations to be

5 Fourth Waldock Report, ¶1, Documents of the first part of the seventeenth session including the report of the Commission to the General Assembly [1965] 2 Y.B.lnt'l L. Comm'n, UN Doc. A/CN.4/l.116/ADD.9 [hereinafter Waldock Report IV].; KEARNEY, International Lawyer 4 (1969) 18 f.

6 Villiger at 594, supra note 4. See also I. R. Jennings and A. Watts, OPPENHEIMS INTERNATIONAL LAW,(9 th edn, 1992) [hereinafter ‘Oppenheim’].

7 Vienna Convention, art. 62, supra note 1.

8 Gabcikovo-Nagymaros Project (Hung./ Slovk.), Judgment, 1997 I.C.J. 7, ¶ 95, (Sep.25) [hereinafter Gabcikovo-Nagymaros Project ]

9 Fisheries Jurisdiction (U.K./Ice.), Merits, Judgment, 1973 I.C.J. 3, ¶ 41, (July 25). [hereinafter Fisheries Jurisdiction Case. ]

Arguments

3

still performed under the treaty, the grounds for termination will be valid. 10 The provision must be narrowly construed to apply to only exceptional cases. 11 Article 62 can be considered as declaratory of customary international law. 12

The ICJ held in the Gabcikovo-Nagymoros Project case that a change in the economic policies of a State was held by the ICJ to be insufficiently connected to the basis of consent of the treaty and did not radically alter the extent of obligations still to be performed. 13

In the instant case, the recession in Darshini cannot prevent it continuing the treaty as it was a foreseeable consequence of its shift in economic policy. 14 Moreover, the essential object and purpose of the treaty i.e. to prevent double taxation is not harmed by the change in circumstances. There are no exceptional circumstances in this situation to allow Darshini to terminate the treaty under Article 62 of the Vienna Convention.

1.2.2. Darshini cannot override the DTAA under international taxation law.

Darshini’s justifications of overriding the treaty are not tenable in international law. First, Amiti does not fall within the definition of a ‘tax haven’ and cannot be subject to any countermeasures taken in that regard; and Second, the DTAA does not contain a ‘limitation of benefits’ thereby allowing persons who are residents outside the Contracting States to receive the benefits of the treaty legally and precluding Darshini from overriding the treaty. 15

10 Vienna Convention, Art. 62, supra note 1; Gabcikovo-Nagymaros Project, supra note 8

11 Gabcikovo-Nagymaros Project, ibid, ¶104; Fisheries Jurisdiction Case, supra note 9; KÖCK, Festschrift VEROSTA 82; FEIST, Kündigung 165; ILC Report 1966, Report of the of the International Law Commission on the work of its 8th Session,¶ 9 (1966) 2 Y.B.lnt'l L. Comm'n, UN Doc A/6309/Rev.1;Statement in Vienna by then USSR delegation, OR 1968 CoW 374, para. 46.

12 Fisheries Jurisdiction Case, supra note 9; Gabcikovo-Nagymaros Project, supra note 8¶ 95; (Case C-162/96 RackeGnbH& Co. v Hauptzollamt Mainz, E.C.R. I- 3700 (1998); Federal Republic of Germany, OR 1969 Plenary 119¶ 32; Observation by the Iraqi government to the I.L.C Waldock Report IV, supra note 5; Statement in Vienna by the UK delegation, OR 1968 CoW 369, ¶ 39.

13 Gabcikovo-Nagymoros Project, ¶ 95 and 104, supra note 8; M. Fitzmaurice, The Gabcikovo- Nagymoros Case: The Law of Treaties, Leiden JIL 11 (1998) 332 ff.

14 Compromis, ¶8.

15 Organisation for Economic Co-operation and Development [OECD] Committee on Fiscal Affairs, Report on Tax Treaty Override, (Paris, 1989), ¶ 2; KLAUS VOGEL, KLAUS VOGEL ON DOUBLE TAXATION CONVENTIONS at 119 (3 rd ed., 2005)

Arguments

4

1.2.2.1. Amiti is not a tax haven and is therefore not subject to sanctions meted by Darshini on this basis.

It is submitted that Amiti does not fulfil the international standards required to be categorised

as a tax haven.

The Organisation for Economic Co-operation and Development (“OECD”), the foremost

authority in international taxation policy 16 lays down four cumulative parameters for the

identification of a tax haven. 17 They are, a ‘no or nominal’ tax rate, ineffective exchange of

information, lack of transparency and the absence of a requirement of substantial activity in

the bank accounts. 18 The fourth criterion of ‘substantial activity’ cannot be proved and is held

to be an impractical criterion for determining a tax haven. 19 A low tax rate alone is not a

sufficient condition to identify a jurisdiction as a tax haven and this parameter must be

present with any one of the other parameters. 20

In the instant case, Amiti does not satisfy all the necessary OECD criteria. Amiti has

procedures to effectuate the effective exchange of information. The ‘Banking Regulation and

Secrecy Act’ allows for the disclosure of information under the requirements of the

applicable law. 21 Moreover, Amiti as a member of the Vipulian Economic Union (“VEU”) is

committed to exchange information on all matters of importance to other member countries. 22

Under the DTA Agreement with Darshini, Amiti is also required to exchange information on

16 I ROY ROHATGI, PRINCIPLES OF INTERNATIONAL TAX LAW, BASIC INTERNATIONAL TAXATION 73 (2d ed.,

2005.

17 Organisation for Economic Co-operation and Development [OECD], Harmful Tax Competition: An Emerging Global Issue (Paris, 1998); OECD, Towards Global Tax Co-operation: Progress in Identifying and Eliminating Harmful Tax Practices (Paris, 2000); OECD, The OECD’s Project on Harmful Tax Practices: The 2001 Progress Report (Paris, 2001); OECD, The OECD’s Project on Harmful Tax Practices: The 2004 Progress Report (Paris, 2004)

18 See OECD, (Paris, 1998), ¶ 52; Council of Economics and Finance Ministers, European Union Code of Conduct, 1998 O.J. (C 2) 1 (Dec. 1, 1997).

19 Maria Flavia Ambrosanio and Maria Serena Caroppo, Eliminating Harmful Tax Practices in Tax Havens:

Defensive Measures by Major EU Countries and Tax Haven Reforms, Canadian Tax Journal Vol. 53 No. 3, 690

(2005).

20 OECD, (Paris, 2000), supra note 17 ¶ 7.

21 Compromis, ¶6.

22 Compromis, ¶ 1.

Arguments

5

all matters under the treaty. 23 Further, there is no factual basis for alleging a lack of

transparency on the part of Amiti.

Therefore, apart from a low taxation rate, Amiti does not meet any of the OECD criteria to be

classified as a tax haven. Consequently, Darshini’s invalidation of the DTA Agreement is

unjustified.

1.2.2.2. Darshini

shopping’.

is

precluded

from

terminating

the

DTAA

on grounds

of

‘treaty

‘Treaty shopping’ is the practice of persons taking advantage of the benefits of the tax treaty

through entities which are residents of the Contracting States. 24 ‘Limitation of benefits’

clauses are a preventive measure against ‘treaty shopping’. 25 The absence of such a clause

results in the validity of entities from a third State receiving benefits under the treaty.

Accepted countermeasures against treaty shopping do not include the termination of the

treaty. 26 Further, States cannot apply domestic anti-avoidance rules to international treaties. 27

In the present case, the DTAA does not contain a limitation of benefits clause, 28 therefore it

does not specifically restrict the use of the tax structure implemented under it. Furthermore,

the courts of Darshini have upheld the structures of foreign corporations set up in Amiti and

investing in Darshini.

Darshini’s termination of the DTAA is not a valid countermeasure against treaty shopping

and is a violation of international law.

23 Compromis, ¶ 4.

24 United Nations, Econ. & Social Council, Comm. of Experts on International Cooperation in Tax Matters, Abuse of tax treaties and Treaty Shopping, U.N. Doc. E/C.18/2005/2, (Dec. 5-9 2005); VOGEL at 127, supra note 1.

25 OECD Committee on Fiscal Affairs, Commentaries on the Articles of the Model Tax Convention on Income and on Capital, (Paris, July 2008), ¶ 20.

26 VOGEL at 111, supra note 15.

27 VOGEL at 121, supra note 15; Hoge Raad, Rolno. 29.296, BNB 1994/259: DTC Netherlands/USA; Rolno. 28.734, BNB 1994/294, concl. Verburg, and Rolno. 29.531, BNB 1995/150, concl. Van Soest: both Netherlands/Belgium.

28 Compromis.

Arguments

6

1.3. ARGUENDO, DARSHINI HAS LOST ITS RIGHT TO END OR SUSPEND ITS OBLIGATIONS

UNDER THE TREATY.

Article 45 of the Vienna Convention on the Law of Treaties 29 provides that a State party having a right to denounce or avoid a treaty may disqualify itself from exercising the right due to its subsequent conduct. 30 A State is precluded from exercising its right if it has ‘expressly agreed that the treaty is valid or remains in force or continues in operation’ 31 or by reason of its conduct be considered as having acquiesced in the validity of the treaty or its maintenance in force or in operation’. 32 Specifically, it cannot call into question the validity of the treaty. 33

A State’s tacit acceptance of a treaty can be inferred from its negative conduct, i.e. its

omission to raise an objection 34 or its positive conduct, i.e. if the State accepted benefits or

enforced its obligations under the treaty. 35

In the instant case, Amiti and Darshini entered into a DTAA wherein the State of residence

taxes ‘capital gains’, 36 a scheme proposed by Darshini to tax its own offshore corporations. 37

The ensuing consequences of foreign companies taking residence in Amiti and investing in Darshini began soon after when Amiti reduced its capital gains tax to 1%. 38 Darshini failed to raise any objection to the DTAA with regards to treaty shopping or allege that Amiti was a tax haven and continued the operation of the treaty.

29 Vienna Convention, supra note 1.

30 Vienna Convention, art. 45, supra note 1.

31 See id.

32 See id.

33 ILC Report 1966, Y.B.lnt'l L. Comm'n 1966 II 239,¶ 4; VILLIGER at 578, supra note 4.

34 Waldock Report, Documents of the fifteenth session including the report of the Commission to the General Assembly, Art 4 (c), [1963] 2 Y.B.lnt'l L. Comm'n, UN Doc. A/CN.4/SER.A/1963/ADD.1 [hereinafter Waldock Report II], 39f; ILC Report 1963, YBILC 1963 II 213, para. 5; VILLIGER at 578, supra note 4.

35 Waldock Report II art. 4, para. (b), 38f, supra note 33; VILLIGER at 578, supra note 4.

36 Compromis.

37 Compromis.

38 Compromis.

Arguments

7

Furthermore, although the economic recession began in 2008-09, Darshini was able to maintain its obligations under the DTAA. Only in 2011, after a lower court order, was the treaty invalidated.

Darshini’s knowledge of the facts, its legal interest in the consequences and its failure to act accordingly over a long period of time, clearly indicate the State’s tacit acceptance of the treaty. Darshini is therefore precluded from invalidating, terminating, withdrawing from or terminating the treaty under the grounds it contends.

Arguments

8

2.

DARSHINIS SHIFT IN ITS ECONOMIC POLICY CONTRAVENES ITS INTERNATIONAL OBLIGATIONS.

Darshini’s radical policy shift had a detrimental impact on the entire Vipulian Economic Union including Amiti. 39 Amiti contends that this shift in policy violates the latter’s obligations under the VEU Charter and amounts to interference in Amiti’s internal affairs.

2.1. THE NEW ECONOMIC POLICY OF DARSHINI VIOLATES ITS OBLIGATIONS AS A MEMBER

OF THE VIPULIAN ECONOMIC UNION.

One of the principles of the VEU Charter is ‘movement towards full economic integration – with respect to currency, fiscal policy, monetary policy, taxation and legal systems’. 40 There are various stages of economic integration and an ‘economic union’ is one such stage. 41 The main feature of an economic union is linking the removal of restrictions on commodity and factor movements by forming a single market with a degree of harmonization of economic, monetary, fiscal, social and counter-cyclical policies. 42 Full ‘economic integration’ is characterised by complete unification of the economies involved and their policies. 43

The VEU is moving from harmonisation of economic policies to the complete unification of the same. On interpreting the terms according to their ordinary meaning and context, 44 ‘harmonisation of policy’ implies bringing into or being in agreement on the course of action

39 Compromis, ¶9.

40 Compromis, ¶1.

41 B. BALASSA, THE THEORY OF ECONOMIC INTEGRATION (1961); SWANN, THE ECONOMIES OF COMMON

MARKET (7 th edn, 1992); P. VerLoren Van Themaat, The Relations between the Concepts of a Common Market, a Monetary Union, an Economic Union, a Political Union and Sovereignty, (1991) 28 CML REV 291;Tofan

Mihaela, INTEGRAREA ROMDNIEI IN STRUCTURILE UNIUNII MONETARE EUROPENE (C.h. Beck. ed, 2008) at 179

42 See Balassa; Swann; W. Molle, The Economics of European Integration: Theory, Practice and Policy (5 th edn, 2006) at 84; Catherine Barnard, The Substantive Law of the EU (3 rd edn, 2010); Gabriela Bologa and Maria- Nicoleta Rosca, The Legislative Framework for the EU States in the context of Economic and Monetary Integration, 2009 AGORA Int'l J. Jurid. Sci. xviii 2009.

43 See BALASSA, supra note 41; SWANN, supra note 41; Bologa and Rosca, supra note 42.

44 Vienna Convention, art. 31.1, supra note 1.

Arguments

9

to be adopted by the government. 45 Further, economic integration implies economic planning 46 and necessitates international cooperation. 47

In the present case, Darshini unilaterally changed its economic policy from fiscal stimuli to fiscal conservativeness. 48 The ‘devastating impact’ on the Vipulian subcontinent and Amiti’s repeated requests to change or modify the policy 49 is evidence of a lack of harmonisation of Darshini’s policy with those of the rest of the VEU States.

Further, Darshini’s new policy caused investment money to freeze and ceased the supply of goods and services from Darshini Corporations. 50 The new policy practically acted as an impediment to the free movement of goods and capital and is not in furtherance of the Union’s basic objectives. Therefore, the new economic policy violates Darshini’s obligations under the VEU Charter.

2.2. DARSHINIS UNILATERAL POLICY CHANGES AMOUNT TO INTERFERENCE IN AMITIS

INTERNAL AFFAIRS

Non-interference in the internal affairs of a State is an established principle of customary international law. 51 Interference occurs when a State intervenes, either directly or indirectly

45 Oxford Dictionary, (OUP 2011) (defines ‘harmonise’ as “Bring into or be in harmony,” ‘harmony’ as “agreement, concord,” ‘policy’ as “course of action adopted by the government”), http://www.oxforddictionaries.com (last visited Dec. 30, 2011).

46 Kitamura, Economic Theory and the Economic Integration of Underdeveloped Regions, in LATIN AMERICAN ECONOMIC INTEGRATION (M. Wionczek ed. 1964) at 63; David. A. Funk, From International Laws to International Economic Community Law, 4 CASE W. RES. J. INT'L L. 3 1971-1972.

47 Wexler, The Theory and Reality of Economic Integration, 14 WORLD POL. 553, 559 (1962); David. A. Funk, From International Laws to International Economic Community Law, 4 CASE W. RES. J. INT'L L. 3 1971-1972.

48 Compromis ¶8.

49 Compromis ¶9.

50 Compromis ¶ 9.

51 Military and Paramilitary Activities in and Against Nicaragua (Nicar. v. U.S.), 1986 I.C.J. 14, 106 (June 27) [hereinafter Nicaragua case]; Declaration on the Inadmissibility of Intervention and Interference in the Domestic Affairs of States, G.A. Res. 36/103, U.N. Doc A/Res/ 36/103(Dec. 9, 1981); Corfu Channel Case (United Kingdom v. Albania) Assessment of Compensation, , 1949 ICJ 15 XII 49 (December 15); Case concerning Armed Activities on the Territory of Congo (Congo v. Uganda), Judgment, 2005 I.C.J. 168 (December 19); Greenwood, Nicholas Onuf, The Principle of Non intervention, the United Nations, and the International System, International Organization, Vol. 25, No. 2 (1971); Hoffman, Stanley, International Systems and International Law, World Politics, Vol 14, No. 1, (Oct 1961); OPPENHEIM, supra note 6 at 69; Declaration on the Principle of International Law concerning Friendly Relations and Cooperation among the

Arguments

10

for any reason whatsoever, in the internal or external affairs of any other State. 52 Any form of interference, including attempted threats against the personality of the State or those against

its political, economic and cultural elements amounts to a violation of international law. 53

A State can violate the principle of non-interference even without resorting to the use of

force. 54 The economic policies of States can have significant spill-over effects which need to

be taken into account during the decision-making process by harmonising and adjusting their

economic policies. 55 Global economic integration has resulted in tightened constraints over independence in policy decisions, 56 and resulted in greater interdependence amongst nations,

making the coordination of economic policies between States vital. 57

States in accordance with the Charter of the United Nations, G.A. Res. 37/10, U.N. Doc. A/Res/37/10 (Oct. 24, 1970) [hereinafter ‘Friendly Relations’]; Declaration on the Inadmissibility of Intervention in Domestic Affairs of States and Protection of Their Independence and Sovereignty, G.A Res. 2131(XX), U.N. Doc A/RES/20/2131(Dec. 21,1965) [hereinafter ‘Domestic Affairs’]. ; Declaration of the Inadmissibility on Intervention and Interference in the Internal Affairs of States, G.A Res. 36/103, U.N Doc. A/RES/36/103 (9 December 1981).

52 See Friendly Relations, ibid.

53 Nicaragua Case, supra note 51.

54 Lori Fisler Damrosch, Politics across Borders: Non Intervention and Non Forcible Influence over Domestic Affairs, 83 AM. J. INTL L (1989) 1; Fernandez, Neville G, International Law And The Use of Force: Armed Intervention In International Affairs, Journal of Singapore Armed Forces, Journal V 24-N1, (Jan-Mar,1998); Domestic Affairs, supra note 51.

55 Morris Goldstein, Improving Economic Policy Coordination: Evaluating some new and some not-so-new Proposals, in THE INTERNATIONAL MONETARY SYSTEM (P.B. Kenen, Francesco Papadia, Fabrizio Saccomanni eds., 1994); Chatham House (The Royal Institute for International Affairs) and Centre for International Governance Innovation, Paola Subacchi and Paul Jenkins, Preventing Crises and Promoting Economic Growth:

A Framework for International Policy Cooperation (April 2011).

56 Yilmaz Akyüz, Global Rules and Markets: Constraints over Policy Autonomy in Developing Countries (Int’l Labour Office, Policy Integration and Statistics Department), Working Paper No. 87, (2008); MORTEN

OUGAARD, RICHARD A. HIGGOTT, TOWARDS A GLOBAL POLITY, WARWICK STUDIES IN GLOBALISATION at 50, CENTRE FOR THE STUDY OF GLOBALISATION AND REGIONALISATION, ECONOMIC AND SOCIAL RESEARCH

COUNCIL (GREAT BRITAIN) (2002); John Funston, ASEAN and the Principle of Non Intervention – Practice and Prospects, Institute of South East Asian Studies, ISSN 0219-3213, No. 5,(March,2000) [hereinafter ‘Funston’].

57 INTERNATIONAL ECONOMIC POLICY COORDINATION (Willem H. Buiter & Richard C. Marston eds., 1985); Bohringer Cristoph and Rutherford, Thomas F., Decomposing General Equilibrium Effects of Policy Intervention in Multi-Regional Trade Models, Method and Sample Application, Centre For European economic Research (ZEW), ZEW Discussion Paper no. 99-36 (1999); Cheshire Paul, Optimal Areas for Planning, Local Economic Development and Transportation, Technical University of Košice, Faculty of Economics, 2 nd Central European Conference in Regional Sciences (CERS), (2007); European Commission, Directorate-General for Economic and Financial Affairs, Economic Crisis in Europe: Causes, Consequences and Responses, European Economy (7/2009); Funston, ibid.

Arguments

11

In the instant case, following the global financial crisis, Darshini made a radical change to its economic policy by switching to a policy of fiscal conservativeness. 58 The net effects of its policies resulted in Darshini and the entire Vipulian Economic Union sliding into a recession. 59 Darshini had a free market economy and as the leading economy in the Vipulian Union, the economies of other nations in the VEU were highly dependent on it. The state of affairs in the Vipulian sub-continent was comparatively worse than the rest of the global economy. 60 Darshini’s policy shift had a direct impact on Amiti’s capabilities of managing its economy and resulted in social unrest in the region. 61 Such interference in the economic and social affairs of Amiti is interference in its internal affairs and amounts to a violation of international law.

58 Compromis, ¶8

59 Compromis, ¶¶ 8, 9.

60 Compromis, ¶9.

61 Compromis, ¶9.

Arguments

12

3. AMITI IS NOT BOUND TO DISCLOSE THE INFORMATION REQUESTED BY DARSHINI.

The State of Amiti is not obligated to disclose the information requested by Darshini on three

grounds; first, that the request violates an individual’s right to privacy guaranteed under the

VEU Charter; second, that such a disclosure is not required under the DTAA and third, in the

absence of any international obligation to disclose this information, such a disclosure violates

the Banking Regulation and Secrecy Act (“Act”).

3.1. UNDER THE VIPULIAN ECONOMIC UNION CHARTER, AMITI IS NOT BOUND TO

DISCLOSE THE INFORMATION SOUGHT BY DARSHINI.

The Vipulian Economic Union Charter requires that members respect the universal rights of

people around the world. 62 The information sought by Darshini is protected under an

individual’s right to privacy and thus it cannot be disclosed. Furthermore, Amiti does not

violate any other provisions of the Charter by not disclosing the information.

3.1.1.

The information requested by Darshini is protected under an individual’s right to privacy and is therefore, violative of the VEU Charter

The ‘right to privacy’ is a fundamental human right guaranteed under international law, 63

where no individual ‘shall be subjected to the arbitrary or unlawful interference with his

privacy, family or correspondence.’ 64 The protection of personal data is of fundamental

importance to a person’s enjoyment of his or her right to respect for private and family life. 65

‘Personal data’ includes any information which is about a living, identifiable individual and

62 Compromis, ¶1.

63 Universal Declaration of Human Rights art. 12, G.A. Res 217 (III) A, U.N. Doc. A/RES/ 217(III) (Dec. 10, 1948) [hereinafter ‘UDHR’]; International Covenant on Civil and Political Rights art. 17, G.A. Res 2200A (XXI), U.N. Doc. A/6316 (Dec. 16, 1966)[hereinafter ‘ICCPR’].

64 ICCPR, art. 17, ibid.

65 European Union[EU], Charter of the Fundamental Rights of the European Union art. 8, 2000 O.J. (C 364) 1, (Dec. 7, 2000); S. and Marper v. the United Kingdom, Eur. Ct. H.R. 1581 (2008); Amann v. Switzerland, Eur. Ct. H.R. 47 (2000); Peck v. The United Kingdom, Eur. Ct. H.R. 57 (2003);European Parliament and Council, Directive on the protection of individuals with regard to the processing of personal data and on the free movement of such data, 95/46/EC, L281 (24th Oct., 1995); OECD Guidelines on the Protection of Privacy and the Transborder flows of Personal Data, (Sep. 23, 1980) [hereinafter ‘OECD, Protection of Privacy’].

Arguments

13

relates to the individual. 66 Financial records of an individual would therefore classify as

personal data and is subject to protection under an individual’s right to privacy.

‘Arbitrary interference’ in any individual’s privacy and their personal information constitutes

an infringement of his fundamental human right to privacy. 67 Interference is arbitrary when it

does not pass the test of reasonableness. 68 Such interference amounts to a violation of the

universal rights guaranteed by the VEU Charter.

In the instant case, the information sought by the State of Darshini relates to the identities of

residents having bank accounts in Amiti. 69 Financial records of the residents constitute

personal data and are protected under an individual’s right to privacy.

Darshini’s request for the personal data of individuals is based merely on ‘alleged violations’

and there is no proof of a crime having been committed. Further, the request is not targeted to

specific suspects, but is a broad-based request for information on all Darshini-based residents

who had bank accounts in Amiti. 70 The request for the information is clearly arbitrary and

unreasonable and therefore, violates the VEU Charter. The non-disclosure of the requested

information does not derogate from other principles of the VEU Charter.

3.1.2.

The non-disclosure of the requested information does not derogate from other principles of the VEU Charter.

66 OECD, Protection of Privacy, ibid; Council of Europe, Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data, ETS No. 108, (Jan 28, 1981).

67 UDHR, Art. 12, supra note 63; ICCPR, art. 17, supra note 64; J.S. MILL, PRINCIPLES OF POLITICAL ECONOMY at 306 (D. Winch ed., 1970); Wheaton v. Peters, 33 U.S. 591, 634 (1834); Olmstead v. United States, 277 U.S. 438, 944 (1928); Judith DeCew, Privacy, The Stanford Encyclopedia of Philosophy (2008); T.M. COOLEY, A

TREATISE ON THE LAW OF TORTS at 29 (2d ed. 1888).

68 ALEX CONTE, SCOTT DAVIDSON AND RICHARD BURCHILL, DEFINING CIVIL AND POLITICAL RIGHTS: THE JURISPRUDENCE OF THE UNITED NATIONS HUMAN RIGHTS COMMITTEE at 147 (2004). See also Soo Ja Lim; Seon

Hui Lim and Hyung Joo Scott Lim v. Australia, CCPR/C/87/D/1175/2003, UN Human Rights Committee (HRC), 10 August 2006, available at: http://www.unhcr.org/refworld/docid/47975af7c.html [accessed 2 January 2012]; Francesco Madafferi and Anna Maria Immacolata Madafferi v.Australia, CCPR/C/81/D/1011/2001, UN Human Rights Committee (HRC), 26 August 2004, available at:

http://www.unhcr.org/refworld/docid/4162a5a36.html [accessed 2 January 2012].

69 Compromis ¶14.

70 Compromis ¶14.

Arguments

14

The VEU Charter also enshrines the principle of ‘exchange of information on matters of importance’ between States. However, the enforcement of this provision cannot be reconciled with the protection of an individual’s right to privacy.

A treaty with differing obligations must be interpreted through balancing their interests in good faith using the test of reasonableness. 71 The principle of good faith in interpreting a treaty is recognised as a part of customary international law. 72 The mode of legal reasoning applied in practice is hierarchal. 73

There exists a priority of human rights guarantees in general over other international law, 74 without it necessarily constituting jus cogens. 75 The primacy of fundamental human rights was restated in the Kadi case 76 , where the European Court of Justice refrained from giving effect to a Security Council obligation on the ground that performance of the same would conflict with fundamental rights guaranteed under internal law as well as international law. 77 It is a State’s first responsibility to promote and protect human rights. 78

In the present case, Darshini’s request for confidential information from Amiti is in furtherance of the principle of ‘exchange of information’ under the VEU Charter. However,

71 Vienna Convention, art. 31, supra note 1; RICHARD K. GARDINER, TREATY INTERPRETATION, (2008).

72 Territorial Dispute (Libya/Chad), Judgment, 1994 I.C.J. 6, 21 (Feb. 3); Kasikili/Sedudu Island (Bots./ Namib.), Judgment, 1999 I.C.J. 1045, 1059, (Dec. 13); Vienna Convention, Art. 31, supra note 14.

73 Martti Koskenniemi, Hierarchy in International Law: A Sketch, 8 EUR. J. INTL. L. 566 (1997); Dinah Shelton, Normative Hierarchy in International Law, 100 (2) A.J.I.L. 291 (2006) [hereinafter ‘Shelton’].

74 Dissenting Opinion by Judge Cancado Trindade, Jurisdictional Immunities of the State (Germany v. Italy) , (Order of 6 July 2010)ICJ; U.N. Sub-Comm’n on the Promotion and Protection of Human Rights, Globalisation and Its Impact on the Full Enjoyment of Human Rights, Preliminary Report submitted by J. Oloka-Onyango and Deepika Udagama, UN Doc. E/CN.4/Sub.2/2000/13, para.63. See also, Human Rights as the Primary Objective of Trade, Investment and Financial Policy, UN Doc. E/CN.4/Sub.2/RES/1998/12 (1998);

75 Shelton, supra note 73 at 294; Dinah Shelton, Hierarchy of Norms and Human Rights: Of Trumps and Winners, 65 SASK. L. REV. 301 200 at 306.

76 Yassin Abdullah Kadi and Al Barakaat International Foundation v. Council of European Union and Commission of European Communities, [2008] 3 CMLR 41.

77 See id, Kadi case; ANDRE NOLLKAEMPER, NATIONAL COURTS AND INTERNATIONAL RULE OF LAW at 281

(2011); Rames A. Wessel, The Kadi Case: Towards a More Substantive Hierarchy in International Law?, 5 INTL ORG. L. REV. 323 2008.

78 U.N. Commission on Economic, Social and Cultural Rights, Statement to the Third Ministerial Conference of the World Trade Organisation (Nov 26, 1999) UN Doc. E/C.12/1999/9, ¶ 6.

Arguments

15

the disclosure of this information violates an individual’s right to privacy, a fundamental human right guaranteed under the Charter and recognised in international law. Further, the Secretary-General of the United Nations, while advising the reference of the dispute to this Court, maintained that the dispute must be resolved in a manner consistent with the rights of individuals. 79 Thus, the requested information can be denied on the ground that doing so derogates from human rights obligations guaranteed under domestic and international law. Therefore, the non-disclosure of the information does not violate the VEU Charter.

3.2. AMITI IS NOT BOUND BY THE EXCHANGE OF INFORMATIONCLAUSE IN THE DTAA.

The DTAA entered into by Darshini and Amiti is ‘largely based’ on the OECD Model Tax Convention on Income and Capital. 80 However, the DTAA limits the exchange of information to matters under the treaty. 81 ‘Matters under the treaty’ refers to the substance of the treaty or the treaty provisions. 82 The provisions of the DTAA pertain to the division of taxes between contracting states and the elimination of double taxation. 83 Therefore, information exchanged under the exchange of information clause is limited to the same.

In the instant case, the information requested by Darshini relates to the identities of Darshini based residents having bank accounts in Amiti in furtherance of investigating ‘alleged violations’ of Darshini law. 84 The information is unconnected with the application of the provisions of the DTAA and is a question of internal law, exempted from the treaty. Therefore, the information sought is not mandated under the DTAA and Amiti is not bound to disclose the same to Darshini.

79 Compromis, ¶17.

80 OECD Committee on Fiscal Affairs, Model Tax Convention on Income and on Capital, (Paris, July 2008).

81 Compromis, ¶ 4.

as

text”), http://www.oxforddictionaries.com (last visited Dec. 30, 2011).

82 Oxford Dictionary, (OUP 2011) (defines 'matter'

“substance

or

content

of

a

83 I ROHATGI at 23 supra note 16; (Case C-336/96) Gilly v. Directeur des Services Fiscaux de Bas-Rhin, 1998 E.C.R. I-2793; Michael Daly, The WTO and Direct Taxation, Discussion Paper No. 9, World Trade Organisation (June,2005).

84 Compromis, ¶14.

Arguments

16

3.3. THE BANKING REGULATION AND SECRECY ACT PROHIBITS THE DISCLOSURE OF

CONFIDENTIAL INFORMATION.

Under the provisions of the Banking Regulation and Security Act, disclosure of confidential

information by banks and financial institutions is strictly prohibited unless forced to do so by

the applicable law. 85

3.3.1. The existence of an international obligation is required for disclosure of information under the Act.

States are obligated to uphold the principles of international law in the creation and exercise

of its domestic law. 86 They must comply with their international obligations and should

organise their national legal order in such a manner as to allow for an effective performance

of international obligations. 87 Indeed, international law and domestic laws are complementary

in nature. 88 .

The term ‘applicable law’ in the Act includes a State’s international obligations, since States

must comply with international law while exercising its domestic provisions. Therefore, in

order for disclosure under the Banking Regulation and Secrecy Act to be permissible, there

must exist an international obligation to provide the requested information.

3.3.2. International Law does not warrant the disclosure of the information requested by Darshini.

The doctrine of mutual legal assistance between States encourages States to cooperate with

each other to obtain evidence and other forms of legal assistance necessary for criminal

investigations and prosecutions in relation to offences. 89 The basis of mutual legal assistance

85 Compromis, ¶6.

86 H. TRIEPEL, VÖLKERRECHT UND LANDESRECHT at 289 (Leipzig, Verlag von C.L. Hirschfeld trans.,(1899).

87 Exchange of Greek and Turkish Populations, Advisory opinion, PCIJ series B no, ICGJ 277 (PCIJ 1925). See also Greco Bulgarian ‘Communities’, Advisory opinion, PCIJ series B no 17, ICGJ 284 (PCIJ 1930) [84]; NOLLKAEMPER at 11 supra note 77.

88 F Morgenstern, Judicial Practice and the Supremacy of International Law, (1950) 27 BRIT. Y. B. INTL. L 42, 90; NOLLKAEMPER at 11 supra note 77.

89 Model Treaty on Mutual Assistance in Criminal Matters art 1, para. 2, G.A. 45/117, U.N. Doc. A/RES/ 45/117 (Dec. 14, 1990); United Nations, Econ & Social Council, Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances art 7 (Dec. 19, 1988).

Arguments

17

is reciprocity. 90 Indeed, mutual legal assistance is rendered only in accordance with bilateral or multilateral treaties between States. 91 A State is under no obligation to assist another State unless contractually bound to do so. 92

In the instant case, Amiti and Darshini have not entered into a mutual legal assistance treaty. Furthermore, as contended in Arguments 3.1. and 3.2 of the Memorial, both the VEU Charter and the DTAA between Amiti and Darshini do not enforce any obligation to make such a disclosure. Since, there are no international obligations on Amiti to make such disclosures, the ‘applicable law’ exception will not apply. Therefore, Amiti is prohibited from disclosing the information requested by Darshini under the Banking Regulation and Secrecy Act.

90 C.M.Bassiouni and E.M. Wise, Aut Dedare Aut Judicare: The Duty to Extradite or Prosecute in International Law 26 – 46 (1995).

91 Valery Shupilov, Legal Assistance in Criminal Matters and Some Important Questions of Extradition, 15 CASE W. RES. J. INTL LAW 127 (1983).

92 M. Cherif Bassiouni, Policy Considerations on Inter-State Cooperation in Criminal Matters, 4 PACE INTL LAW 123 (1992) at 131.

Y.B.

Submissions to the Court

xvii

Submissions to the Court xvii S UBMISSIONS TO THE C OURT For the foregoing reasons, the
Submissions to the Court xvii S UBMISSIONS TO THE C OURT For the foregoing reasons, the

SUBMISSIONS TO THE COURT

Submissions to the Court xvii S UBMISSIONS TO THE C OURT For the foregoing reasons, the

For the foregoing reasons, the Republic of Amiti, Applicant, respectfully requests the Court to adjudge and declare that:

1)

Darshini’s

repudiation

of

the

Double

Tax

Avoidance

Agreement

contravenes

international law.

 

2)

Darshini’s

shift

in

its

economic

policies

adopted

contravenes

its

international

obligations and must be reversed.

 

3)

Amiti is under no obligation to disclose the confidential information sought by Darshini.