Judicial Interpretation of Tax Treaties

Judicial Interpretation of Tax Treaties

The Use of the OECD Commentary

Elgar Tax Law and Practice series

Carlo Garbarino

Judicial Interpretation of Tax Treaties is a detailed analytical guide to the interpretation of tax treaties at the national level. The book focuses on how domestic courts interpret and apply the OECD Commentary to OECD Model Tax Convention on Income and on Capital. Adopting a global perspective, the book gives a systematic presentation of the main interpretive proposals put forward by the OECD Commentary, and analyses selected cases decided in domestic tax systems in order to assess whether and how such solutions are adopted through national judicial process, and indeed which of these are of most practical value. The book operates on two levels: firstly it sets out a clear and comprehensive framework of tax treaty law, which will be an important tool for any tax practitioner. Secondly, the book provides crucial guidance on issues of tax treaty law as applied at domestic level, such as investment or business income, dispute resolution and administrative cooperation.


Carlo Garbarino

Subjects: law - academic, tax law and fiscal policy


The taxation of business profits within the treaty is organized in two main provisions: on the one hand, Art. 5 defines the concept of PE but does not itself allocate taxing rights, on the other hand, Art. 7 allocates taxing rights with respect to business profits of an enterprise of a CS attributable to a PE. Art. 7 is based on the separate entity and arm’s length principles and has been subject to considerable variations in interpretation. Starting from a lack of a common interpretation, the 1984 report and the 1993 report ‘Attribution of Income to PEs’ eventually lead in 2008 to the report ‘Attribution of Profits to PEs’ (‘2008 Report’), and a new version of Art. 7 appeared in Model 2010, while a revised version of 2008 was adopted in 2010 (‘2010 Report’). The current version of Art. 7 reflects the approach developed in the 2010 Report and must be interpreted in light of the guidance contained in it. Art. 7 § 1 provides that profits of an enterprise of a CS shall be taxable only in the RC unless the enterprise carries on business in the SC through a PE situated therein. If the enterprise carries on business as aforesaid, the profits that are attributable to the PE in accordance with Art. 7 § 2 may be taxed in the SC (Art. 7 § 1). An additional problem is the non discrimination in the SC of PEs of foreign enterprises (see infra at paras 13.64–13.92). The first

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