The Use of the OECD Commentary
Elgar Tax Law and Practice series
Chapter 10: PENSIONS AND GOVERNMENT SERVICE (ARTT. 18 AND 19)
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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