Mutual agreement procedure and arbitration, which are alternative solutions to international tax disputes, are not independent and optional procedures, but arbitration constitutes a part of the mutual agreement procedure, which is expected to have the effect of leading the settlement of the dispute by involving a third party arbitrator.

Arbitration under tax treaties has been only adopted in some countries until recently due to concerns that it would infringe upon the taxation sovereignty of the Contracting States. As part of the 2015 Organization for Economic Co-operation and Development (OECD) and G20 BEPS prevention project measures, the introduction of an arbitration clause as the final stage of the MAP is being encouraged. In the European Union, the EU Directive on Tax Dispute Resolution mechanisms in European Union, which improved the limits of the arbitration agreement for transfer pricing cases, was adopted in October 2017, and in accordance with the EU Directive, tax arbitration system for international tax disputes was enacted in the EU member states.

In order to cope with changes in the international tax environment, Korea has newly established the basis for delegation of arbitration under the tax law in Article 22(6) of the ｢Adjustment of International Tax Act｣, which was resolved by the National Assembly on November 30, 2020. The tax code revision is a step forward to respond to the international tax environment surrounding arbitration under tax treaties.

In order to prepare for the introduction of arbitration under the tax treaty in Korea after the revision of the tax law in 2020, this study examined alternative dispute resolution measures in the United States and the arbitration provisions under the tax treaty using the method of literature review. The importance of arbitration as a solution to tax disputes in the United States differs in the direction of domestic and international taxation on basis of anaylsis and evaluation on the practical experience. IRS arbitration was abolished in 2015 due to poor utilization, but in terms of international tax disputes, the role of arbitration in the tax treaty is evaluated higher than at the beginning. It is analyzed that the United States has made an attempt to selectively target Contracting States and increase the effectiveness of arbitration by analyzing and evaluating the characteristics of international tax disputes by Contracting States before the introduction of arbitration as a dispute resolution method in earnest. In the light of the US case, Korea first needs to analyze the current Korean MAP case and evaluate the system. An arbitration system should be established with a more focus on enhancing the efficiency of MAP practices and protecting taxpayers. And rather than considering the introduction of arbitration immediately for all Contracting States, it would be more effective to consider expanding the negotiating Contracting States after accumulating practical experience in arbitration through amendments to tax treaties with some Contracting States, evaluating the effectiveness of the arbitration.

First of all, in the adoption of the arbitration type a final offer-type arbitration in terms of diplomatic and political relations and the time required for the procedure can be considered. This type of arbitration is a priority in terms of taxpayer protection because it enables the elimination of uncertainty within the period. However, in terms of tax revenue allocation, it is difficult to prioritize between final-offer arbitration or independent opinion arbitration. In determining the scope of the arbitration target, provided that the introduction purpose of the original arbitration is more focused on the progress of efficient and effective MAPs, it is desirable to establish the arbitration scope around issues that may delay the MAP progression. In addition, it is necessary to cultivate arbitrators who comply with the requirements of competence, independence, and impartiality generally used in the global tax treaty network.

▶ Key Words：Tax treaty, Mutual Agreement Procedure(MAP), International arbitration in tax matters, final-offer arbitration or best-offer, mandatory arbitration