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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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Carlo Garbarino

The OECD Model Tax Convention on Income and on Capital1 is a Convention-Model which is accompanied by the Commentary, a document issued by the Committee on Fiscal Affairs that provides an explication and interpretation of the Model. Convergence or divergence in respect to the Model is achieved at the level of individual treaties not only by adopting treaty clauses consistent or not with the Model, but also through law-in-action, for example through judicial decisions when national Courts interpret and apply bilateral tax treaties.

It is obviously impossible to systematise the trends (if any) of judicial tax treaty law around the world in a single book, particularly in light of the fact that cases are not binding in jurisdictions that do not follow common law principles. But it is possible to somehow measure the impact of judicial law on the application of tax treaties by identifying what is exactly the ‘use’ of the Commentary in selected judicial applications. So the goal of this study is to focus on how national judges exercise their judicial discretion, and not to comprehend all possible national cases.

One of the basic ideas of this book is that the Commentary may have an impact in national jurisdictions through ‘judicial transplants’ that occur in a global legal process where public/private actors interact in various contexts at domestic and international level to make, interpret, apply, enforce and internalize OECD policies.

Judicial transplants create convergence leading to common applications of tax treaties based on the Commentary because often judges have faithfully aligned to OECD policies. Judicial transplants however also create divergence because in many circumstances judges plainly rejected OECD policies or modified them. In this latter case judicial transplants are used as a vehicle, sometimes even as a mere pretext, for enforcing national interests.

So there are certain ‘transplant resistant’ areas in which domestic tax cultures have developed local solutions which may then exert influence on the Commentary; take for example the broadening of the permanent establishment concept advanced by national courts and now possibly accepted at OECD level.

This book attempts to measure the convergence/divergence of national judicial solutions vis-à-vis the policies which are presented in the Commentary by dissecting them. This task is pursued through the analytical structure of the Extended Contents which is aimed at providing a systemic view of the interpretive solutions advanced by the Commentary. These are then viewed from the perspective of national judicial solutions by looking at diverging or converging cases, thereby creating a structural map of evolving judicial trends.

The book presents the policies advanced by the Commentary as a framework of potential interpretive solutions offered to national Courts, which are then free to exercise their judicial discretion. These solutions neither ‘reveal’ an allegedly unique and pre-existing meaning of a rule of the Model, nor are binding, thereby differing from the solutions posed by interpretive regulations at national level. So these solutions, viewed here in the bottom-up perspective of national systems, just constitute interpretive outcomes available for adjudication.

The book has an underlying hyper-textual structure as it is divided in basic ‘text sections’ referenced by numbers (see the Extended Contents), where the discussion of the relevant cases is developed. Links are inserted between text sections, allowing the reader to ‘navigate’ the text following the thread of the discussion of OECD policies juxtaposed to national diverging or converging cases, thereby gaining a knowledge of those cases outside the boundaries of national traditions.

The account provided here should fill a gap left open by current literature. In certain instances judicial solutions are discussed only from a country-by-country perspective in multi-authored books. In other cases the Commentary is explained on an article-by-article basis without considering national judicial reactions in a comprehensive way. Finally in academic books on tax treaties case law is often relegated to a marginal role. These approaches might come short of presenting a fairly complete and structural map of the evolving judicial trends, a map which is the focus of this book.

Carlo Garbarino

  1 OECD, 2014 Update to the OECD Model Tax Convention (adopted by OECD Council on 15 July 2014), (accessed 28 November 2015).