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.

Chapter 10: PENSIONS AND GOVERNMENT SERVICE (ARTT. 18 AND 19)

Carlo Garbarino

Subjects: law - academic, tax law and fiscal policy

Extract

Art. 18 § 1 simply provides that, subject to § 2 of Art. 19, pensions and other similar remuneration paid to a resident of the RC in consideration of past employment shall be taxable only in that RC. The Commentary justifies this principle of exclusive taxation in the RC of the recipient on various policy and administrative considerations. More specifically the Commentary advocates taxation of pensions in the RC on the basis of the following reasons: the RC is in a better position to take all relevant matters into account; equity considerations; difficulties in determining the sources of pensions; and compliance for taxpayers both in the RC and in the SC is complex. The RC is in a better position to provide for adequate taxation of pension payments as it is easier for that State to take into account the worldwide income, and therefore the overall ability of the recipient to pay tax, so as to apply appropriate rates and personal allowances. On equity grounds, host countries with different tax rates will either be advantaged or disadvantaged by receiving an after-tax pension that will be different from that envisaged under the home-country pension scheme. It is difficult to determine sources because a mere reference to a pension ‘arising in’ a CS could be construed as meaning either a pension paid by a fund established in that State or a pension derived from work performed in a State. Finally the complexity of compliance in both the RC and the SC

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