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Judicial Interpretation of Tax Treaties The Use of the OECD Commentary

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.
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EXTENDED TABLE OF CONTENTS

Carlo Garbarino

Abbreviations

Preface

Table of cases

Table of legislation

INTRODUCTION

I.  THE IMPACT OF THE OECD COMMENTARY ON NATIONAL JUDICIAL INTERPRETATION

II.  DOMESTIC JUDICIAL TRANSPLANTS OF OECD INTERPRETIVE SOLUTIONS OR PRINCIPLES

A.  Effective judicial transplants as vehicles of judicial convergence

B.  Hybrid judicial transplants as vehicles of judicial divergence

C.  Areas of judicial activism within gaps in the Model-Commentary integrated system

III.  DOMESTIC JUDICIAL TRANSPLANTS AND INTERPRETIVE TECHNIQUES OF TAX TREATIES

A.  Strict and purposive interpretation

B.  The renvoi method

C.  Autonomous interpretation

D.  Contextual interpretation

E.  Ambulatory vs static interpretation

IV.  THE USE OF COMMENTARY IN THE APPLICATION OF TAX TREATIES

1.  SCOPE OF THE TREATIES (ARTT. 1, 2 AND 3)

I.  PERSONS COVERED (ART. 1)

A.  Application of the Convention to partnerships

1.  Treaty entitlement for partnerships

2.  Conflicts of allocation of taxing rights

3.  Triangular cases

B.  Application of the Convention to CIVs

1.  Treaty eligibility of CIVs

2.  Policy issues raised by the current treatment of CIVs

C.  Improper use of the Convention

1.  Introduction

2.  Approaches to the improper use of the treaties

3.  Provisions aimed at different types of improper use of the treaties

D.  The concept of ‘beneficial owner’

1.  General aspects

2.  Beneficial owner and different types of income (dividends, interest, royalties)

II.  TAXES COVERED BY THE TREATIES (ART. 2)

A.  Scope: taxes on income and on capital (Art. 2 § 1)

B.  Definition of taxes on income and on capital (Art. 2 § 2)

1.  Income taxes

2.  Taxes on profits and gains derived from the alienation of property

3.  Extraordinary taxes

4.  Taxes on capital

C.  List of covered taxes (Art. 2 § 3)

D.  New taxes (Art. 2 § 4)

2.  RESIDENCE FOR TREATY PURPOSES (ART. 4)

I.  DEFINITION OF ‘RESIDENT OF A CONTRACTING STATE’ (ART. 4 § 1)

A.  Functions of the concept of ‘resident of a CS’

B.  Resident liable to tax in the RC on worldwide income

1.  General rule

2.  States, political subdivisions, local authorities

C.  Resident liable to tax in the RC only on domestic income

II.  TIE-BREAK RULES FOR INDIVIDUALS (ART. 4 § 2)

A.  Dual residence based on the domestic laws of the CSs: the treaty tie-break rules

B.  Individual resident of one CS on the basis of its domestic laws

C.  Dual resident individuals

D.  The structure of tie-break rules for individuals

1.  Permanent home only in one country – Art. 4 § 2 a) first sentence

2.  Centre of vital interests test – Art. 4 § 2 a) second sentence

3.  Habitual abode test – Art. 4 § 2 b)

4.  Nationality test – Art. 4 § 2 c)

5.  MAP test – Art. 4 § 2 d)

III.  TIE-BREAK RULES FOR COMPANIES (ART. 4 § 3)

A.  Legal entity resident of one CS based on its domestic laws

B.  Dual resident companies

C.  Concept of effective place of management

1.  General definition2.59

2.  ‘Effective place of management’ and ‘management and control’ concepts

3.  Case-by-case approach by MAP

3.  DEFINITION OF PERMANENT ESTABLISHMENT (ART. 5)

I.  GENERAL REMARKS

A.  Main use of the PE concept

B.  Deletion of Art. 14 and fixed base concept

II.  GENERAL DEFINITION (ART. 5 § 1)

A.  Three requirements

B.  Existence of the place of business

1.  Definition of ‘place of business’ (place of business test)

2.  Place at taxpayer’s disposal (right of use test)

3.  The place of business must be a place ‘through which’ activities are carried out

C.  ‘Fixed’ place of business

1.  General concept (location test)

2.  Commercial and geographic coherence for mobile activities

3.  Degree of permanency of place of business (duration test)

D.  Place of business ‘through which’ an enterprise carries on its business

1.  General concept (business connection test)

2.  Leasing activities and delivery of spare parts

3.  Gaming/vending machines and pipelines

III.  POSITIVE EXAMPLES OF PES (ART. 5 § 2)

A.  ‘Place of management’

B.  Substantial equipment

IV.  BUILDING SITE (ART. 5 § 3)

A.  ‘Building site’ or ‘construction/installation project’

B.  Twelve-month test

C.  Preparatory works, interruptions and time spent by sub-contractors

V.  EXCLUSIONS (ART. 5 § 4)

A.  Exceptions for preparatory or auxiliary activities

B.  Scope of specific exceptions

1.  Storage space

2.  Purchasing

3.  Information gathering

C.  Other preparatory or auxiliary activities

D.  Combinations of preparatory or auxiliary activities

VI.  DEPENDENT AGENTS (ART. 5 § 5)

A.  Purpose Art. 5 § 5 and concept of ‘dependent agent’

B.  ‘Authority to conclude contracts in the name of the enterprise’

1.  Participation in negotiations

2.  Commissionaire structures

VII.  AGENT OF AN INDEPENDENT STATUS (ART. 5 § 6)

A.  Legal and economic independence of the agent

B.  Agent acting in the ordinary course of its business

1.  Activities belonging to agent’s economic sphere

2.  Number of principals

VIII.  THE SUBSIDIARY-PE CLAUSE (ART. 5 § 7)

A.  Subsidiaries are independent legal entities

B.  Two types of subsidiary characterized as a PE

1.  Sub-material-PE

2.  Sub-agency-PE

C.  Multinational groups and intra-group services

4.  BUSINESS PROFITS AND ASSOCIATED ENTERPRISES (ARTT. 7 AND 9)

I.  ALLOCATION RULE FOR BUSINESS PROFITS (ART. 7 § 1)

A.  Taxation on business profits in the SC only if there is a PE

B.  Profits attributable to the PE

1.  Qualification of ‘profits’

2.  Art. 7 and domestic CFC rules

II.  ATTRIBUTION RULE FOR BUSINESS PROFITS (ART. 7 § 2)

A.  Scope of Art. 7 § 2 and the separate enterprise fiction

B.  Elimination of double taxation

C.  Effects of the separate enterprise fiction

1.  Adjustments in the SC and double taxation relief in the RC

2.  No notional income, no impact on deductions

3.  Different amounts as a result of domestic laws

D.  Previous version Art. 7 § 3 on deduction of expenses

1.  Previous Art. 7 § 4: apportionment of total profits

2.  Previous Art. 7 § 5 and 6

III.  CORRELATIVE ADJUSTMENTS OF BUSINESS PROFITS (ART. 7 § 3)

A.  Same or different results in the RC and in the SC: elimination of double taxation application of Art. 7 § 3 adjustments

B.  Corresponding adjustments

1.  Secondary spontaneous adjustments

2.  If no spontaneous adjustment, then MAP

C.  Exact scope of Art. 7 § 3 adjustments

IV.  SEPARATE TAXATION (ART. 7 § 4)

A.  Limited force of attraction of the PE: the ‘effectively connected income’

1.  Concept of ‘limited force of attraction’ of the PE

2.  Common structure of the ‘effectively connected’ concept applied to different types of income

B.  Force of attraction of isolated income from the perspective of the treaty SC

1.  Art. 7 and Art. 10 § 4: force of attraction on outbound dividends

2.  Art. 7 and Art. 11 § 4: force of attraction on outbound interest

3.  Art. 7 and Art. 12 § 3: force of attraction on outbound royalties

4.  Art. 7 and Art. 13 § 2: gains from the alienation of movable property of a PE

5.  Art. 7 and Art. 21 § 2: other income effectively connected to a PE in the SC

6.  Art. 7 and Art. 6 § 4: income from immovable property of an enterprise

7.  Art. 7 and income from personal services (Artt. 15, 16, 17 and 18)

V.  ART. 7 AND OTHER ARTICLES FROM THE PERSPECTIVE OF THE TREATY RC

A.  Foreign taxable income

1.  Foreign income from immovable property

2.  Business profits/losses of a foreign PE and FTC in the RC

3.  Foreign dividends

4.  Foreign interest

5.  Foreign royalties

B.  Foreign exempt income

1.  Foreign income from immovable property

2.  Losses of foreign PEs

3.  Foreign dividends attributed to a foreign PE

4.  Foreign interest attributed to a foreign PE

5.  Interest arising from foreign partnerships

6.  Foreign interest arising from atypical silent partnership agreements

VI.  ARM’S LENGTH FOR ASSOCIATED ENTERPRISES (ART. 9)

A.  Arm’s length price (Art. 9 § 1)

1.  Use of the OECD Transfer Price Report

2.  Applications of Art. 9 based on domestic laws

3.  Arm’s length concept

4.  Procedural aspects

5.  Transfer price and thin cap rules

6.  Arm’s length rule for interest and royalties

B.  Arm’s length adjustments (Art. 9 § 2)

1.  Primary adjustments

2.  Secondary adjustment

5.  INCOME FROM IMMOVABLE PROPERTY, CAPITAL GAINS, AND CAPITAL (ARTT. 6, 13 AND 22)

I.  INCOME FROM IMMOVABLE PROPERTY (ART. 6)

A.  Allocation rule (Art. 6 § 1)

1.  Taxation in the SC and in the RC

2.  Application of Art. 6 based on domestic laws

3.  Tax treatment in the RC of income of foreign immovable property of taxpayers resident of that RC

B.  Definition of ‘immovable property’ (Art. 6 § 2)

C.  Income from legal use of immovable property (Art. 6 § 3)

D.  Income from immovable property of an enterprise (Art. 6 § 4) and other treaty articles

II.  CAPITAL GAINS, (ART. 13)

A.  Introduction to capital gains

1.  Capital gains treated separately or as ordinary income

2.  Relevant period of maturation of the capital gain

3.  Definition of ‘alienation of property’

4.  Exchange gains

5.  Exit taxes (deemed realization)

6.  Outbound transfer of an asset from a PE

B.  Gains from the alienation of immovable property (Art. 13 § 1)

C.  Gains from the alienation of movable property of a PE (Art. 13 § 2)

D.  Gains from the alienation of ships and aircraft (Art. 13 § 3)

E.  Gains from the alienation of shares in real estate companies (Art. 13 § 4)

F.  Gains from the alienation of any property other than that referred to in §§ 1–5 (Art. 13 § 5)

1.  Allocation rule and prevention of double non-taxation

2.  Definition of ‘any property other than that referred to in §§ 1–5’

3.  Alienation of shares

4.  Beneficial owner of capital gains

5.  Depreciation/losses

6.  Redemption of securities

III.  CAPITAL (ART. 22)

A.  Immovable property (Art. 22 § 1)

1.  Notion of immovable property in the context of capital taxes

2.  Taxation in the SC of non-residents of immovable property in the SC

3.  Taxation in the RC of residents for their immovable property in the SC

B.  Movable property (Art. 22 § 2)

1.  Property forming part of a PE

2.  Taxation in the SC of non-residents owning business movable property in the SC

3.  Taxation in the RC of residents for their business movable property in the SC

C.  Capital represented by ships/aircrafts (Art. 22 § 3)

D.  Elements of capital other than those listed in §§ 1 to 3 (Art. 22 § 4)

6.  INCOME FROM EQUITY AND FROM DEBT (ARTT. 10 AND 11)

I.  DIVIDENDS (ART. 10)

A.  Allocation Rule (Art. 10 § 1)

B.  Withholding tax clause (Art. 10 § 2)

1.  Reduced treaty withholding tax on outbound dividends

2.  Beneficial owner of dividends

3.  Distributions of profits by partnerships

4.  Procedural matters

C.  Definition of ‘dividends’ (Art. 10 § 3)

1.  Open definition and renvoi to domestic laws

2.  Characterization of dividends based on the domestic laws of the SC

D.  Force of attraction on outbound dividends effectively connected to a PE (Art. 10 § 4)

E.  Prohibition of extra-territorial taxation, by the source country of profits, of dividends (Art. 10 § 5)

1.  Scope of Art. 10 § 5

2.  Special rule for undistributed dividends of a CFC

II.  INTEREST (ART. 11)

A.  Allocation rule for interest (Art. 11 § 1)

1.  Preliminary remarks

2.  Non-exclusive taxation

3.  Interest ‘paid’

4.  Scope of Art. 11

B.  Withholding tax clause (Art. 11 § 2)

1.  Reduced treaty withholding tax on outbound interest

2.  Related expenses and shifting of tax burden

3.  Exceptions to lower withholding tax in the SC (preferential tax regime in the RC)

4.  Beneficial owner of interest

5.  Procedural questions and conditionality

C.  Definition of ‘interest’ (Art. 11 § 3)

1.  Art. 11 § 3 clause: autonomous definition

2.  Specific situations and hybrid instruments

3.  Penalty charges

D.  Force of attraction on outbound interest effectively connected to a PE (Art. 11 § 4)

E.  Interest effectively connected to, and borne by, a PE (Art. 11 § 5)

1.  Interest borne by a PE in the SC and received by a resident of the RC

2.  Interest borne by a PE in a third country and received by a resident of the RC

3.  No extra-territorial taxation in the SC on interest paid to a recipient in the RC and attributable to a PE in the SC

F.  Arm’s length rule for interest (Art. 11 § 6)

7.  ROYALTIES (ART. 12)

I.  ALLOCATION RULE (ART. 12 § 1)

A.  Exclusive taxation in the RC

B.  Concurrent taxation in the RC

1.  Withholding tax issues

2.  Beneficial owner of royalties

C.  Scope of Art. 12

II.  DEFINITION OF ‘ROYALTIES’ (ART. 12 § 2)

A.  General aspects

1.  ‘Use of rights’ and ‘payment’ or royalties

2.  Transfer of rights – criteria

3.  Hybrid situations

B.  Payments that are not royalties, but business profits

1.  Payments for leasing of equipment

2.  Payments for ‘transponder leasing’ agreements

3.  Payments for ‘roaming’ agreements and for spectrum licences

4.  Payments for the rent of films

5.  Payments for exclusive distribution rights

6.  Payments for the development of a design

7.  Certain software-related payments

C.  Payments for know-how

1.  Definition of ‘know-how’

2.  Know-how vs provision of services

D.  Payments for computer software

1.  Definition of software (operational/application software)

2.  Copyright protection

3.  Software-related payments: a synopsis

E.  Payments for mixed contracts

1.  Payments for software

2.  Payments for digital products (images, sounds or text)

III.  FORCE OF ATTRACTION ON OUTBOUND ROYALTIES EFFECTIVELY CONNECTED TO A PE (ART. 12 § 3)

IV.  ARM’S LENGTH RULE FOR ROYALTIES (ART. 12 § 4)

8.  INCOME FROM EMPLOYMENT, DIRECTORS’ FEES, AND STUDENTS (ARTT. 15, 16 AND 20)

I.  ALLOCATION RULE FOR INCOME FROM EMPLOYMENT (ART. 15 § 1)

A.  Taxation in the SC where the employment activities are carried out

1.  Benefits in kind

2.  Exceptions to the general rule (Artt. 16, 18, and 19)

B.  Tax treatment (exemption or taxation) of foreign employment income in the RC

II.  GENERAL EXCEPTION TO ALLOCATION RULE FOR INCOME FROM EMPLOYMENT (ART. 15 § 2)

A.  Requirement 1 (not more than 183 days in the SC)

1.  The 183-day rule

2.  ‘Days of physical presence’ test

B.  Requirement 2 (employer paying remuneration not resident of the SC)

1.  Purpose of the rule

2.  Concept of ‘economic employer’

C.  Requirement 3 (remuneration not ‘borne by’ the PE of the employer in the SC)

1.  Purpose of the rule

2.  Allocation of deduction to the PE is conclusive. Notional service charge has no effect

3.  Direct relationship between Art. 15 § 2 and Art. 7

4.  ‘Hiring-out of labour’

III.  REMUNERATION OF CREWS IN INTERNATIONAL TRANSPORT (ART. 15 § 3)

A.  Allocation rule

B.  Frontier workers

IV.  ALLOCATION RULE FOR DIRECTORS' FEES (ART. 16 § 1)

A.  Taxation in the SC and in the RC

B.  Notion of director under domestic laws

C.  Scope of Art. 16

D.  Art. 16 and other articles

1.  Art. 16 and Art. 7

2.  Art. 16 and Art. 14

3.  Art. 16 and Art. 15

V.  ALLOCATION RULE FOR STUDENTS (ART. 20 § 1)

A.  No taxation in the SC if payments arise from outside the SC

B.  Payments exclusively for the purposes of education /training

C.  Art. 20 and Art. 15

9.  ENTERTAINERS AND SPORTSPERSONS

I.  ALLOCATION RULE (ART. 17 § 1)

A.  Taxation in the SC and in the RC

B.  Definition of entertainers and sportspersons

1.  Not exhaustive list

2.  Definition of sportspersons

3.  Entertainers: inclusions

4.  Entertainers: exclusions

5.  Case-by-case approach

C.  Various types of compensation

1.  Cases in which Art. 17 applies

2.  Cases in which Art. 7 applies (no connection income/performance)

3.  Cases in which Art. 12 applies

4.  Difficult cases

D.  Art. 17 and other articles involving personal activities

1.  Art. 17 and Art. 14

2.  Art. 17 and Art. 15

3.  Art. 17 and Art. 18

4.  Art. 17 and Art. 19

5.  What happens when the treaty does not include Art. 17?

II.  INCOME ACCRUED TO ANOTHER PERSON (ART. 17 § 2)

A.  Tax in the SC even if income paid to another non-resident person

1.  General scope of the rule

2.  Different types of third-party recipients

3.  Cases in which Art. 17 § 2 does not apply

B.  Judicial approaches when Art. 17 § 2 is not present

1.  Deemed sourcing rule (tax in the SC)

2.  Art. 17 § 2 is implicit to Art. 17 § 1

3.  Lack of taxing powers (no tax in the SC)

C.  Income paid indirectly to an individual

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

I.  ALLOCATION RULE FOR PENSIONS (ART. 18 § 1)

A.  Pensions and annuities for ‘past employment’

B.  Other payments for cessation of employment

1.  Non-periodic remuneration

2.  Characterization of other remuneration: factors

C.  Art. 18 and Art. 15

1.  Cases in which Art. 18 applies

2.  Cases in which Art. 15 applies

D.  Transfer of residence of the recipient of pensions

1.  Allocation of taxing rights

2.  Double non-taxation and exit charges

II.  ALLOCATION OF TAXING RIGHTS WITH RESPECT TO PENSION BENEFITS

A.  Overlapping of national systems and mismatches

B.  Alternative provisions

1.  Exclusive source taxation of pension payments

2.  Non-exclusive source taxation of pension payments

3.  Limited source taxation of a pension

4.  Taxation of pensions if the RC does not tax

III.  CROSS-BORDER ISSUES RELATING TO PENSIONS

A.  Exempt pensions

B.  Statutory social security schemes

1.  Social security: definition

2.  Social security schemes may fall under Artt. 18, 19 or 21

C.  Individual retirement schemes

D.  Tax treatment of contributions to foreign pension schemes

1.  Deductibility of contributions in the host-country

2.  Aim of the provision

3.  Characteristics of the suggested provision

E.  Tax obstacles to the portability of pension rights

IV.  GOVERNMENT SERVICE (ART. 19)

A.  Structure of Art. 19

B.  Scope of Art. 19

1.  In general: rules on international courtesy

2.  Concept of ‘public body’

3.  ‘In the discharge of functions of a governmental nature’ (deleted in 1977)

4.  What counts is the activity, not public nature of employer

C.  Allocation of taxing powers in general

1.  The SC has exclusive right to tax and the RC using FTC must exempt

2.  The RC can take into account exempted income for FTC purposes

3.  But exceptions giving exclusive rights to tax to the RC

D.  Types of income covered by Art. 19

1.  Salaries, wages, other similar remuneration, and non-periodic remuneration

2.  Pensions paid ‘out of funds created by’ the CS

3.  Pensions for combined private and government services

E.  Allocation rules for income from government services (Art. 19 §§ 1 and 2)

1.  Allocation rule for salaries (Art. 19 § 1)

2.  Allocation rule for pensions (Art. 19 § 2)

F.  Application of Artt. 15, 16, 17, and 18 to remuneration for government services (Art. 19 § 3)

11.  OTHER INCOME AND INTERNATIONAL TRANSPORT (ARTT. 21 AND 8)

I.  OTHER INCOME ‘NOT DEALT WITH BY OTHER ARTICLES OF THE CONVENTION’ AND SOURCED IN THE SC

A.  Isolated other income in the SC (Art. 21 § 1)

1.  Basic rule (exclusive taxation in the RC)

2.  Specific types of income covered by Art. 21 § 1 (investment, income, personal services)

3.  Prevention of double non-taxation on other income sourced in the SC

4.  Alternative model (concurrent taxation in the RC and in the SC)

B.  Other income effectively connected to a PE in the SC (Art. 21 § 2)

1.  Art. 21 § 2 and other treaty rules

2.  Relief from juridical double taxation in the RC if tax in the SC

II.  OTHER INCOME ‘FROM SOURCES NOT EXPRESSLY MENTIONED’, I.E. SOURCED IN A THIRD COUNTRY

A.  Isolated other income in a third country (Art. 21 § 1)

B.  Other income ‘attributable’ to a PE in a third country (Art. 21 § 2)

III.  SHIPPING, INLAND WATERWAYS TRANSPORT AND AIR TRANSPORT (ART. 8)

A.  Ships/aircraft in international traffic: allocation rule (Art. 8 § 1)

1.  Different models of taxation

2.  Activities covered by Art. 8 § 1

3.  Investment income related to shipping activities

B.  Allocation rule for income from boats engaged in inland waterways transport (Art. 8 § 2)

1.  Definition of boats engaged in inland waterways transport

2.  Enterprises not exclusively engaged in shipping, inland waterways transport or air transport

C.  Effective place of management of an enterprise aboard a ship/boat (Art. 8 § 3)

D.  Profits from the participation in joint activities (Art. 8 § 4)

12.  METHODS FOR ELIMINATION OF DOUBLE TAXATION (ARTT. 23A AND 23B)

I.  GENERAL REMARKS

A.  Three cases of juridical double taxation

1.  Dual residence

2.  Residence-source

3.  Source-source

B.  The methods for elimination of double taxation

1.  Exemption (full and with progression) and credit (full and ordinary)

2.  Operation and effects of the methods

C.  Conflicts of qualifications vs conflicting treaty interpretations

1.  General principle: the RC is obliged to give relief (exemption or credit) if the SC ‘may tax’

2.  Double taxation

3.  Double non-taxation (double exemption)

II.  THE EXEMPTION METHOD (Art. 23A)

A.  Exemption relief (Art. 23A § 1)

1.  The RC is obliged to give relief if the SC ‘may tax’ (‘subject to tax’ and ‘effectively taxed’)

2.  How relief is provided

B.  Switch-over to credit for dividends and interest (Art. 23A § 2)

C.  Exemption with progression (Art. 23A § 3)

D.  Double non-taxation (Art. 23A § 4)

III.  THE CREDIT METHOD (Art. 23B)

A.  Methods (ordinary FTC) (Art. 23B § 1)

1.  Ordinary FTC: general issues

2.  FTC and domestic rules

3.  Features of the FTC as regulated by domestic laws

B.  Principle of progression safeguarded in the RC (Art. 23B § 2)

C.  Tax sparing

1.  Concept and rationale of tax sparing provisions

2.  OECD position

13.  NON-DISCRIMINATION (ART. 24)

I.  GENERAL REMARKS

A.  Prohibition of discrimination based on nationality

B.  What Art. 24 does not achieve

1.  Art. 24 does not provide a broad equal protection clause

2.  Art. 24 does not provide broad definition of discrimination

3.  Art. 24 does not cover discrimination based on residence

4.  Art. 24 does not prevent reverse discrimination

5.  Art. 24 does not provide MFN treatment

6.  Art. 24 does not provide reciprocity

7.  Art. 24 does not eliminate differentiated treatments imposed by treaty

8.  Art. 24 does not eliminate differentiated treatments for public bodies and not profit organizations

C.  The structure of Art. 24

II.  THE NATIONALITY NON-DISCRIMINATION CLAUSE (ART. 24 § 1)

A.  Subjective scope

1.  Nationals of the CSs (the RC or the SC, but not of a third country) even if not resident of the CSs

2.  Art. 24 covers discrimination based on nationality

3.  Interplay of nationality/residence: five cases

B.  Objective scope (comparables)

1.  ‘In the same circumstances’

2.  Comparable situations and same treatment

3.  Non-comparable situations

4.  Basic inbound comparable

5.  Notional inbound comparable

6.  ‘More burdensome’ treatment

7.  Applications of comparability

III.  THE STATELESS PERSONS NON-DISCRIMINATION CLAUSE (ART. 24 § 2)

IV.  THE PE NON-DISCRIMINATION CLAUSE (ART. 24 § 3)

A.  Full inbound equal treatment in the SC

B.  But derogations

1.  Specific elements relevant in establishing the inbound comparable

2.  A different mode of taxation of the PE does not imply discrimination

3.  Art. 24 § 3 is not applicable to certain group transactions

C.  Actual implications of the PE non-discrimination clause

1.  Treatment of PE losses

2.  Treatment of dividends in respect of participations owned by PEs

3.  Structure and rate of tax

4.  Extension to the PEs in the SC of the FTC granted by the RC to taxpayers resident there

V.  THE DEDUCTION NON-DISCRIMINATION CLAUSE (ART. 24 § 4)

A.  Full inbound equal treatment in the SC

B.  But derogations (thin cap issues)

VI.  THE FOREIGN-SHAREHOLDER NON-DISCRIMINATION CLAUSE (ART. 24 § 5)

A.  Full inbound equal treatment in the SC

B.  But derogations (intra-group transactions)

1.  Domestic consolidation

2.  Withholding tax on outbound dividends

3.  Domestic deferral on gains for intra-group transactions

4.  Compensatory corporation taxes and ACT

VII.  ART. 24 APPLIES TO ALL TAXES (ART. 24 § 6)

14.  MUTUAL AGREEMENT PROCEDURE (ART. 25)

I.  TYPE-1 ADJUDICATIVE MAP: GENERAL ASPECTS (ART. 25 § 1)

A.  Cases of application of MAP

1.  Typical cases

2.  Issues not susceptible of MAP

B.  Activation of MAP

1.  MAP activated by probable risk of double taxation

2.  Presentation of objections

C.  Request of MAP before/during domestic remedies: different approaches

1.  MAP can be activated only after a domestic judicial decision is rendered

2.  MAP can be activated only if domestic remedies are relinquished

3.  The MAP can be activated and also reached before a domestic judicial decision is rendered

4.  Payment of taxes as a requirement to initiate MAP procedure

II.  TYPE-1 ADJUDICATIVE MAP – PROCEDURAL ASPECTS (ART. 25 § 2)

A.  MAP procedure

1.  Stage 1 (dealings between the taxpayer and the RC)

2.  Stage 2 (dealings between CSs)

B.  Implementation of the mutual agreement

1.  Duty to implement the mutual agreement in the CSs

2.  Legal status of mutual agreement

3.  Implementation of MAP and domestic legal remedies

III.  TYPE-2 AND 3: ADMINISTRATIVE AND LEGISLATIVE MAP (ART. 25 § 3)

A.  Type-2 MAP – difficulties in interpretation or application of the Convention

B.  Type-3 MAP – elimination of double taxation in cases not provided for in the Convention

IV.  COMMUNICATIONS (ART. 25 § 4)

V.  ARBITRATION (ART. 25 § 5)

A.  General aspects

1.  Arbitration procedure if a mutual agreement is not reached within two years

2.  Arbitration as an extension of the MAP that deals with unresolved issues

B.  Procedural aspects

1.  Request for arbitration (after two-year from presentation of case to MAP)

2.  Concept of ‘unresolved case’ as pre-condition for request

3.  Concept of ‘case presented’ to Competent Authority

4.  Arbitration not available for cases of ‘potential violation’

5.  Extension of arbitration to cases of double taxation not provided for in Convention

C.  Arbitration decision

15.  EXCHANGE OF INFORMATION AND ASSISTANCE IN COLLECTION (ARTT. 26 AND 27)

I.  EXCHANGE OF INFORMATION (ART. 26)

A.  General remarks

1.  Tax information (notion and economic value)

2.  Emergence of a new standards for exchange of information

B.  Scope (Art. 26 § 1)

1.  Concept of tax information

2.  Exchange of information for the application of treaties and/or domestic laws

3.  Modes and techniques of exchange of information

4.  Practical modalities

C.  Treatment of the exchanged information (Art. 26 § 2)

1.  Reciprocal confidentiality

2.  Cases of internal disclosure

3.  Limitations to internal disclosure

D.  Limitations to the exchange of information (Art. 26 § 3)

1.  Violation of domestic laws or administrative practices of the Requested-CS

2.  Violation of secrecy rules or public order

E.  Information gathering measures (Art. 26 § 4)

1.  Concept of ‘information gathering measures’

2.  No exceptions for the lack of interest by Requested-CS

F.  Bank secrecy (Art. 26 § 5)

1.  Scope of Art. 26 § 5 (bank secrecy is not a limitation)

2.  Art. 25 § 5, added in 2005, represents current practice

3.  Agents and fiduciaries

II.  ASSISTANCE IN THE COLLECTION OF TAXES (ART. 27)

A.  Introduction

B.  Reciprocal assistance in collection (Art. 27 § 1)

1.  Duty of assistance if requirements met

2.  Procedural issues

C.  Revenue-claim (Art. 27 § 2)

D.  Acceptance of Revenue-claim (Art. 27 § 3)

1.  Revenue-claim ‘finally owed’ by a person resident of the Requested-CS

2.  Duty of acceptance by the Requested-CS

E.  Conservancy measures (Art. 27 § 4)

F.  Time-limits and priority for revenue claims (Art. 27 § 5)

G.  Proceedings on revenue-claims (Art. 27 § 6)

H.  Cessation of revenue-claims (Art. 27 § 7)

I.  Limitations to assistance (Art. 27 § 8)

Index