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Section Title er
TOPIC 1 1
TOPIC 2 6
CASE SUMMARY: Article 4 – Resident 11
TOPIC 3 11
Case Summary – Belgium Court of Appeal, 7 November
2002 12
Article 10(1) allows dividends to be taxed in the residence
state (Belgium). 13
Article 10(2) also permits taxation in the source state
(France), subject to rate limits. 13
Case Summary: Swiss Supreme Court Decision 9C_635/2023 (3
October 2024) 14
Article 11(1) protection depends heavily on a clear,
independent beneficial ownership status. 16
Case Summary: Haworth v HMRC [2024] UKUT 00058 (TCC) 20
Article 13(4) applies to capital gains from alienation of
property not covered by paragraphs 1–3. 20
TOPIC 4 21
Case Summary: Belgium Court of Appeal, 7 November 2002 22
Article 6 – Income from Immovable Property 22
Article 6(1) allows the source state (France) to tax income
from immovable property. 23
Case Summary in Relation to Article 5 – Permanent
Establishment 25
CASE SUMMARY: Article 5 – Permanent Establishment
Case: Hyatt International Southwest Asia Ltd v. ACIT
(International Taxation)
(High Court of Delhi, India, ITA 216/2020 & others, 19
September 2024) 26
Case Summary: AB LLC and BD Holdings LLC v Commissioner
for SARS (Case No. 13276)
Relevant to: Article 7 of the OECD Model – Business Profits 27
CASE SUMMARY: Article 5 – Permanent Establishment
Case: Hyatt International Southwest Asia Ltd v. ACIT
(International Taxation)
(High Court of Delhi, India, ITA 216/2020 & others, 19
September 2024) 28
CASE SUMMARY: Article 7 – Business Profits
Case: Hyatt International Southwest Asia Ltd v. ACIT
(International Taxation)
(High Court of Delhi, India, ITA 216/2020 & others, 19
September 2024) 29
CASE SUMMARY: Article 8 – International Shipping and Air
Transport 29
Article 9(1) of the OECD Model Tax Convention says: 30
TOPIC 5 32
Case Summary: Poland Supreme Administrative Court –
Case II FSK 127/18 (28 November 2019) 32
Article 14(1): Independent professional or similar activities 33
are taxable only in the resident State, unless there is a fixed

1
base in the other State.
Article 15(1): Employment income is taxable in the work
State, unless certain conditions in Article 15(2) apply. 33
Article 14 (Independent Personal Services) applied. 33
Article 15 (Dependent Personal Services) was inapplicable, as
the services were not employment-based. 33
Article 14 remains applicable under older treaties, even
though deleted from the OECD Model in 2000. 34
Case Summary: BNB 2019/164 (Netherlands Supreme Court) 34
Article 17 allows the source state to tax income derived by
entertainers and sportspersons from their personal activities
performed in that state, even if they do not have a permanent
establishment. 36
Article 19(1)(a) governs the situation. 40
Article 15, including paragraph 4 on frontier workers, is
subject to Article 19, as indicated by its opening clause. 41
CASE SUMMARY: Article 20 – Students 42
CASE SUMMARY: Article 21 – Other Income 42
TOPIC 6 43
Part 1: UN Model Article 12A – Fees for Technical Services
(FTS) 43
Part 2: UN Model Article 12B – Automated Digital Services
(ADS) 44
Part 3: Article 23 – Elimination of Double Taxation (OECD
Model) 45
Topic: Application of the credit method for foreign tax relief
Relevant Treaty: Austria–Japan tax treaty
OECD Article Involved: Article 23B (credit method) 47
Topic: Treatment of foreign losses under the exemption with
progression method
Relevant Treaty: Austria–Germany tax treaty
OECD Article Involved: Article 23A (exemption method) 47
Case Summary: Belgium Supreme Court Case F.20.0108.F (24
October 2024) 48
Case Summary: Lin v. Commissioner of Inland Revenue [2017]
NZHC 969 (New Zealand High Court) 49
Article 23B (Credit method) applies to income attributed
under CFC regimes, allowing a tax credit even if the tax was
not directly paid by the taxpayer. 50
TOPIC 7 50
CASE SUMMARY: Article 24 – Non-Discrimination 51
CASE SUMMARY: Article 25 – Mutual Agreement Procedure 52
CASE SUMMARY: Article 26 – Exchange of Information 54
CASE SUMMARY: Article 27 – Assistance in the Collection of
Taxes 55

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TOPIC 1
1. The Problem of Double Taxation
Definition:
Juridical double taxation arises when two or more states impose comparable taxes on the
same taxpayer, in respect of the same subject matter and for the same period.

Causes of Double Taxation:

 Residence vs Residence (e.g., dual residency of individuals or companies)

 Residence vs Source (e.g., country of residence vs where income is sourced)
 Source vs Source (e.g., income from partnerships operating in multiple jurisdictions)

Tax Liability:

 Residents: Taxed on worldwide income

 Non-residents: Taxed on source-based income only

Case Law:

 Satyam Computer Services Ltd v Commissioner of Taxation

[2018] FCAFC 172: Demonstrated the potential for DTCs to create non-
taxation when treaties are misapplied or abused.

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2. Methods of Eliminating Double Taxation
Unilateral Measures:

 Exemption Method: Exclude foreign income from the tax base

 Credit Method: Give credit for foreign tax paid
 Deduction Method: Deduct foreign tax paid as an expense

Limitations:

 Often depend on reciprocity or treaty non-application

 May not be consistently codified

Bilateral Measures:

 Double Taxation Conventions (DTCs): Over 3,000 exist globally

 Commonly follow OECD or UN Model Conventions

3. State Practice in Conclusion of DTCs

Legal Framework:

 Vienna Convention on the Law of Treaties (VCLT) Art. 2(1)(a): A treaty is a written
international agreement between states, governed by international law.

Historical Background:

 League of Nations: First efforts in 1923

 OECD Model: Started in 1963, last revised in 2017
 UN Model: First issued in 1980, latest in 2021 (2025 update expected)

South-South Models:

 SADC, EAC, COMESA, ATAF: Regional models tailored for African contexts
 ILADT: Latin America-focused, more equitable toward source states

4. Phases of Treaty Negotiation (VCLT-based)

1. Negotiation – Done by representatives with full power; macroeconomic factors
considered
2. Initialization – Initialling each page of the agreed text
3. Signature – Done by finance minister or authorized officials

4
 4. Ratification – Parliamentary process
5. Exchange of Ratifications
6. Entry into Force

5. Effects of DTCs
Allocation of Taxing Rights:

 Source State: Usually gives up taxing rights on some types of income

 Residence State: Applies exemption or credit methods

Relationship to Domestic Law:

 Monist Systems: DTCs apply directly

 Dualist Systems: DTCs must be incorporated into domestic law

Treaty Override:

 Art. 26 VCLT – Pacta sunt servanda

 Art. 27 VCLT – Domestic law cannot excuse treaty breach
 OECD 1989 Report condemns treaty overrides

Saving Clause:

 Art. 1(3) OECD MC & Art. 11 MLI: Allows countries to tax their residents except for
specified benefits

6. New Goals of DTCs Under BEPS

Traditional Goals:

 Prevent double taxation

 Ensure non-discrimination
 Provide for dispute resolution and treaty stability

Post-BEPS Goals (from Action 6):

 Prevent treaty abuse, treaty shopping, and double non-taxation

 Emphasize cooperation in tax matters

Preamble Change Example:

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“Intending to eliminate double taxation... without creating opportunities for non-taxation or
reduced taxation through tax evasion or avoidance…”

7. The BEPS Project (2013–2015)

 A G20-OECD initiative with 44 countries participating equally
 South Africa is a member
 15 Actions – focus on harmful practices, hybrid mismatches, treaty abuse, and
digitalisation

Key Actions Related to DTCs:

 Action 6: Preventing treaty abuse

 Action 7: Preventing artificial avoidance of PE status
 Action 14: Dispute resolution
 Action 15: Multilateral Instrument (MLI)

8. Pillar One & Pillar Two Reforms

Pillar One – Digital Economy

 Amount A: New taxing rights for market jurisdictions

 Amount B: Simplified arm’s length return for baseline marketing and distribution
activities

Pillar Two – Global Anti-Base Erosion (GloBE)

 Income Inclusion Rule (IIR) – Top-up tax for low-taxed income

 Undertaxed Payment Rule (UTPR) – Denial of deduction for untaxed outbound
payments
 Subject to Tax Rule (STTR) – Source state taxation where payments are taxed below
a minimum rate

9. The Multilateral Instrument (MLI)

Purpose:

To amend existing DTCs en masse without individual renegotiations

Entry into Force:

6
  Effective from 1 July 2018 for early adopters
 Applies to Covered Tax Agreements (CTAs) selected by countries

Minimum Standards:

 Art. 6: Modified preamble

 Art. 7: Principal Purpose Test (PPT) or LOB rules
 Art. 16: Mandatory Mutual Agreement Procedure
 Art. 19: Mandatory Binding Arbitration (optional)

Example of Treaty Abuse Rule:

A resident of Country A sets up a conduit company in Country B with a more favorable

treaty to access benefits. Under Art. 7 MLI, this arrangement may be denied if one of its
principal purposes is obtaining the treaty benefit.

10. Case Example: Dual Residence

 The 2014 OECD Model resolved corporate dual residence by Place of Effective
Management (POEM)
 The MLI replaces POEM tie-breaker with a MAP procedure
 Only applies where both jurisdictions opt in

TOPIC 2
1. Structure of Double Tax Conventions (DTCs)
Step-by-Step Application:

1. Entitlement
o Art. 1 (Personal scope): Person must be a resident of one or both states
o Art. 2 (Substantive scope): Tax must be within the scope (typically
income/capital)
2. Allocation Rules
o Classify the income under relevant article (e.g. Art. 10–12 for passive income)
o Determine taxing rights between residence and source state
3. Elimination of Double Taxation
o If both states tax: Apply Art. 23A (Exemption) or Art. 23B (Credit Method)

2. Types of Allocation Rules

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 Type Expression Taxing Right
Exclusive “Shall be taxable only in…” Only one state
Shared “May be taxed in…” Both states may tax
Limited “May be taxed… but…” Source tax capped
Exempt “Shall not be taxed” No tax by either

Examples:

 Art. 19 OECD MC (Government service): Taxed only in the residence state

 Art. 10–12 (Dividends, Interest, Royalties): Source may tax within limits

3. Persons Covered – Art. 1 & Art. 4 OECD MC (2017)

Personal Scope:

 Must be a “person” under Art. 3(1)(a)

 Must be a “resident” under Art. 4
 Saving Clause (Art. 1(3)): Countries may always tax their own residents (unless
covered by exception articles e.g. Art. 7(3), Art. 24)

Fiscal Transparency (Art. 1):

 Income of partnerships treated as income of residents only if:

o The income is taxed in the partner’s hands under domestic law
 Based on OECD 1999 Partnership Report

4. Taxes Covered – Art. 2

 Treaties typically apply to:
o Personal income tax
o Corporate income tax
o Capital and wealth tax
 Includes identical or substantially similar taxes added later
 Certain provisions (e.g. Arts. 24, 26, 27) apply regardless of the tax type

5. General Definitions – Art. 3

Interpretation Approach:

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  Art. 3(2): If a term is undefined, refer to domestic law unless context or mutual
agreement (Art. 25) dictates otherwise

Interpretation under VCLT:

 Art. 31 VCLT: Good faith, ordinary meaning, in context and light of object and
purpose
 Art. 32 VCLT: Supplementary means (preparatory work, historical background)
 Art. 33 VCLT: Applies if treaty is in more than one language

6. Principles of DTC Interpretation

Key Techniques:

 Grammatical interpretation
 Systematic (in context of treaty structure)
 Teleological (based on the purpose: avoiding double tax, not enabling double non-
taxation)
 Historical (intent of the drafters)

Use of OECD Model and Commentary:

 Static approach: Only consider the version at time of signing

 Dynamic approach: Use later commentaries if consistent
 M. Lang: Only the version in force at treaty conclusion is binding
 J. Avery Jones: Later versions may reflect subsequent agreement (Art. 31(3)(a) VCLT)

7. Residence – Art. 4 OECD MC (2017)

Basic Test:

A person is a resident if they are liable to tax in a state by reason of:

 Domicile
 Residence
 Place of incorporation/management
 Not merely source-based liability

Dual Residence (Individuals) – Art. 4(2):

Apply tests in order:

9
 1. Permanent home
2. Centre of vital interests (economic + personal ties)
3. Habitual abode
4. Nationality
5. Mutual Agreement Procedure (MAP)

Dual Residence (Entities) – Art. 4(3):

 Pre-2017: Place of effective management (PoEM)

 Post-2017: Competent authorities shall endeavour to resolve via MAP, considering
PoEM, incorporation, and other factors

8. Case Studies (Application of Residence Rules)

Individual:

 Citizen of Argentina, works in Germany, family and property in Switzerland

 Art. 4(2) applied → Centre of vital interests in Switzerland → Resident of
Switzerland

Entity:

 Chinese company, board meets in Singapore → Both states may claim residency
 Under Art. 4(3) → MAP to determine → PoEM likely in Singapore

PE Case:

 Japanese company with a PE in Sweden, operating into Denmark

 PE not a person, so cannot be a resident → Only Japanese parent can access
treaties

Case: CIR v Kuttel 1992 (3) SA 242 (A); 54 SATC 298

Key Principles:

1. Ordinary Residence = Real Home

A person is “ordinarily resident” where they naturally and as a matter of course
return — their principal or real home.
2. Centre of Vital Interests (Art 4(2)(b))
Courts look at family ties, business interests, and lifestyle. Kuttel emigrated to the
US, moved his family, and built a life there — South Africa was no longer his centre.
3. Habitual Abode (Art 4(2)(c))
Even though Kuttel visited South Africa often, his time in the US was more stable and
settled, so his habitual abode was not in SA.

10
 4. Substance Over Form
Ownership of SA property and assets didn’t override his clear intention and conduct
showing emigration.

CASE SUMMARY: Article 4 – Resident

Case: Susquehanna International Securities Ltd & Others v. The Revenue Commissioners
(High Court of Ireland, [2024] IEHC 569, 2 October 2024)

Issue:
Can a US limited liability company (LLC) that is fiscally transparent under US law be
treated as a “resident” under Article 4(1) of the Ireland–US Tax Treaty and thereby
enable Irish subsidiaries to claim group tax relief?

Principle:
Under Article 4(1) of the OECD Model and the Ireland–US Treaty, a “resident” must be
liable to tax in that state. The Irish High Court ruled that a fiscally transparent US LLC
was not liable to tax in the US at the entity level and therefore not a resident under the
treaty. The fact that its income was taxed in the hands of its members was not sufficient.

The Court rejected the purposive interpretation used by the Tax Appeals Commission
and confirmed that only entities subject to tax themselves (not through members)
qualify as “residents” under Article 4.

Outcome:
The LLC was not a treaty “resident”; group relief was denied. Decision in favour of the
tax authorities.

TOPIC 3

1. Dividends – Art. 10 OECD MC

Taxing Rights:

 Primary: Taxed in residence state of shareholder.

 Secondary (limited): Source state may also tax up to 15%.
o 5% if the recipient is a company holding ≥25% of capital for ≥365 days (MLI
Art. 8).
o Must be beneficial owner of the dividends.

Beneficial Ownership:

11
  Not merely the direct recipient—must have the right to use and enjoy the dividends
without legal/contractual obligation to pass them on (OECD Comm. Art. 10, Para.
12.4).
 Conduit companies, agents, fiduciaries are typically excluded.

Exceptions:

 Art. 10(4): If dividends are effectively connected to a PE, then Art. 7 applies
(business profits).
 No tax on dividends from foreign income unless:
o The recipient is a resident, or
o The holding is connected to a PE in the source state.

Case Example:

A SA company pays dividends to a resident of Country X who holds 26%—both SA and X can
tax, but SA is limited to 15%. Country X must grant relief.

Case: T Danmark & Y Denmark v Danish Ministry of Taxation (Joined Cases C-

116/16 & C-117/16, CJEU, 2019)

Key Principles under Article 10 (OECD MC):

1. Beneficial Ownership:
Only the true controller of dividends qualifies for treaty relief. Conduit companies
with a legal duty to pass income onward are excluded.
2. Anti-Avoidance:
Treaty benefits are denied where structures are wholly artificial or designed for
treaty shopping without business substance.
3. Ownership Threshold:
Even if a shareholder holds ≥25% for 365 days, they must still be the beneficial
owner to access the 5% withholding rate (Art. 10(2)(a), MLI Art. 8).
4. PE Exception (Art. 10(4)):
If dividends are tied to a permanent establishment, they’re taxed under Article 7 as
business profits, not dividends.

Case Summary – Belgium Court of Appeal, 7 November 2002

Relevance to Article 10 – Dividends

Issue:

Did distributions received by a Belgian resident from a French real estate company (SCI)
qualify as dividends under Article 10 of the France–Belgium tax treaty, and could Belgium
tax them as such?

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Facts:

 A Belgian resident owned shares in a French SCI, which earned rental income from
French immovable property.
 France treated the SCI as fiscally transparent, taxing the rental income directly in the
hands of the Belgian shareholder.
 The shareholder argued that Belgium should exempt the income as immovable
property income under Article 6.
 Belgium classified the income as dividends and applied withholding tax accordingly.

Key Principles under Article 10 (Dividends):

 Article 10(1) allows dividends to be taxed in the residence state (Belgium).

 Article 10(2) also permits taxation in the source state (France), subject to rate limits.
 The term “dividends” includes income from shares or rights in companies that
participate in profits (Article 10(3)).

Court’s Ruling:

 The SCI was not treated as fiscally transparent under the treaty since it was not
classified as an “attribution company” in the treaty protocol.
 As such, the Belgian court held that the distributions were dividends, not
immovable property income.
 Belgium was entitled to tax the payments as dividends under Article 10, not Article
6.

✅ Conclusion (in relation to Article 10):

 Even if income originates from immovable property, distributions via shares in a

company like an SCI can be taxed as dividends under Article 10 if the company is not
fiscally transparent under the treaty.
 This case confirms the principle that form and classification under domestic and
treaty law determine whether income qualifies as dividends.

13
2. Interest – Art. 11 OECD MC
Taxing Rights:

 Primary: Residence state of the recipient.

 Secondary: Source state may withhold up to 10% if recipient is beneficial owner.

Definition (Art. 11(3)):

 Includes: Income from debt-claims, bonds, government securities, etc.

 Excludes: Penalty charges for late payment.

Exceptions:

 If interest is effectively connected to a PE, then Art. 7 applies.

 If interest exceeds arm’s length due to a special relationship, the excess is taxed
under domestic law (Art. 11(6)).

Case Law:

 Deutsche Asia Pacific Finance (2008): Court

prioritized interest article even where domestic law treated the payment as a
dividend.

Source Rule:

 Default: Source is where the payer is resident.

 Alternative: If a PE bears the cost, source is where PE is located.

Case Summary: Swiss Supreme Court Decision 9C_635/2023 (3 October 2024)

Relevant Treaty Provision:

Article 11(1) OECD Model Convention / Switzerland–Denmark Treaty (1973, as amended)
– Interest arising in a Contracting State and beneficially owned by a resident of the other
Contracting State shall be taxable only in that other State.

Facts

A Danish financial institution acquired Swiss government bonds and simultaneously entered
into cross-currency rate swaps (CCRS) with investment banks. While it received interest on
the bonds, it also paid out equivalent amounts to the banks under the CCRS. The institution

14
sought a refund of Swiss withholding tax (35%) on the interest, arguing it was the beneficial
owner entitled to treaty protection under Article 11(1).

Key Legal Issues

1. Was the Danish taxpayer the “beneficial owner” of the interest?

2. Could the Swiss tax authority deny treaty benefits on grounds of treaty abuse
despite beneficial ownership being established?

Legal Principles (Article 11(1) OECD / Swiss–Danish Treaty)

 The term "beneficial owner" requires the recipient of the interest to not be under a
legal or contractual obligation to pass it on to someone else.
 OECD Commentaries distinguish formal ownership from beneficial ownership,
which demands actual control over the income.
 Treaty benefits under Article 11(1) may only be granted if the interest is
“beneficially owned” by the resident claiming relief.

Swiss Supreme Court Decision

1. Beneficial Ownership Test:

o The Court held that the taxpayer was the beneficial owner because it had no
legal or contractual duty to forward the interest.
o The swap obligations were separate from the actual interest payments,
meaning beneficial ownership was retained despite economic pass-
throughs.
2. Tax Treaty Abuse Doctrine:
o The Court noted that treaty abuse may override beneficial ownership rights,
but only in exceptional circumstances.
o It applied the "good faith" test and referenced ICJ and domestic GAAR
principles, stating that treaty benefits can be denied if a structure violates
the object and purpose of the treaty and shows artificiality or excessive
deviation.
o Since the factual record was incomplete, the case was remanded to the
lower court to determine whether the CCRS scheme constituted treaty
abuse.

Outcome

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  The taxpayer was initially successful: the Supreme Court ruled it was the beneficial
owner of the interest under Article 11(1).
 However, full entitlement to treaty benefits was not confirmed; the case was sent
back for further examination of whether the entire arrangement was abusive.

Key Takeaways

 Article 11(1) protection depends heavily on a clear, independent beneficial

ownership status.
 The legal test for beneficial ownership is distinct from economic pass-throughs.
 Even if beneficial ownership is found, treaty abuse can still bar relief, especially
where transactions lack commercial substance or purpose.
 Swiss courts apply a narrow legal interpretation of “beneficial ownership” but are
willing to deny relief under the abuse of rights doctrine if misuse is shown.

3. Royalties – Art. 12 OECD MC

Taxing Rights:

 Exclusive to the residence state of the beneficial owner (OECD approach).

 Note: Many DTCs (esp. UN Model) deviate and allow source state WHT (usually
limited).

Definition:

 Payments for the use of, or the right to use:

o Copyright (literary, artistic, scientific)
o Patents, trademarks, designs, models
o Know-how (industrial, commercial, scientific experience)

Exclusions:

 Leasing equipment (UN MC includes it)

 Payments to someone who does not own the IP
 Full ownership transfers (capital gains under Art. 13)
 Distribution rights, spectrum fees, roaming fees

Exceptions:

 If royalties are connected to a PE, then Art. 7 applies (business profits).

16
  Special relationship rule also applies (Art. 12(4))—only arm’s length amount benefits
from Art. 12.

Example:

A German pharma company licenses a patent to a Polish firm. Payment = royalties.

Germany, as residence state, has exclusive taxing rights per OECD MC Art. 12.

Velcro Canada Inc. v The Queen

Issue: Whether Velcro Holdings BV (Netherlands) was the beneficial owner of royalties
received from Velcro Canada, qualifying for reduced withholding tax under the Canada–
Netherlands tax treaty.

Key Principles (Art. 12 OECD MC):

1. Beneficial Ownership:
A company is the beneficial owner if it has control and discretion over royalty
income.
→ VHBV had no obligation to pass on exact funds and used them for its own
purposes.
2. Substance Over Form:
The court looked at economic reality, not just contracts. VHBV wasn’t a mere
conduit, even though it paid 90% of the income to its parent.
3. No Agency or Nominee Relationship:
VHBV acted in its own name, not as an agent of the parent.
4. Treaty Entitlement:
Because VHBV was the beneficial owner and a Dutch resident, it was entitled to
reduced or 0% withholding tax under Article 12.

Case Name: Italy – Supreme Court Case 26640 (14 October 2024)

Jurisdiction: Italy
Treaty: Italy–Luxembourg Income and Capital Tax Treaty (1981), Article 12(1)–(3)
OECD Equivalent: Article 12 – Royalties

Legal Issue:

Whether two Luxembourg holding companies qualified as beneficial owners of royalties

under Article 12(2), justifying application of the 10% reduced withholding tax by the Italian
withholding agent.

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Decision:

The Italian Supreme Court upheld the taxpayer’s position, confirming that the Luxembourg
recipients qualified as beneficial owners. The reduced withholding tax rate under Article
12(2) was therefore correctly applied.

Key Legal Principles:

The Court relied on a three-pronged test, consistent with the ECJ's Danish Cases (Joined
Cases C-116/16 & C-117/16):

1. Substantive Business Activity Test – recipients must engage in genuine economic

activity (not be conduit entities).
2. Dominion Test – recipients must have the right to use and retain the royalties
without obligation to pass them on.
3. Business Purpose Test – recipients must serve a legitimate commercial role within
the royalty structure.

All three tests were satisfied, affirming the companies’ status as beneficial owners under
Article 12(2).

4. Capital Gains – Art. 13 OECD MC

General Rule:

 Art. 13(5): Gains not otherwise covered are taxable only in the residence state of
the alienator.

Key Provisions:

1. Immovable Property – Art. 13(1):

 Taxed in the state where the property is located (refers to Art. 6).

2. Movable Property of a PE – Art. 13(2):

 Gains may be taxed in the PE state; residence state grants relief (Art. 23).

3. Ships/Aircraft – Art. 13(3):

 Taxed only in the state of PoEM of the enterprise.

4. Shares in Property-Rich Entities – Art. 13(4):

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  Source state may tax if:
o Shares derive >50% of their value from immovable property in that state.
o 365-day holding period (Art. 9 MLI)

5. All Other Assets – Art. 13(5):

 Taxed exclusively in the residence state of alienator.

Case Example 1:

Polish company sells patent to German firm = Capital gain, not a royalty. Poland has
exclusive taxing rights under Art. 13(5).

Case Example 2:

Italian company’s PE in Austria sells an espresso machine = capital gain connected to PE →

Art. 13(2) → both Austria and Italy may tax.

Alta Energy v Canada (2021 SCC 49)

Canada–Luxembourg treaty after selling shares in a Canadian oil company.

Key Principles (Art. 13 OECD MC):

1. Art. 13(4) – Shares in Property-Rich Companies

o Canada could tax the shares only if the underlying property wasn’t used in
business.
o Court held the oil assets were used in business, so Canada had no taxing
right.
2. No Abuse Found (No GAAR)
o Using a Luxembourg holding company for treaty benefits was not abusive.
o Treaty language was clear; there was no hidden intent to exclude holding
companies.
3. Treaty Text Governs
o Tax treaties must be interpreted according to their terms, not through
domestic anti-avoidance logic.

Outcome:

Luxembourg company won. Canada could not tax the capital gain under Article 13 due to
the business property exemption.

Issue: Whether a Luxembourg company could claim a capital gains exemption under the

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Case Summary: Haworth v HMRC [2024] UKUT 00058 (TCC)

Relevant Treaty Provision:

Article 13(4) OECD Model Convention / UK–Mauritius Tax Treaty – Taxation of capital gains
from the alienation of property other than those mentioned in paragraphs 1–3, taxed only
in the State of residence.

Facts

Mr Haworth and Mr Lenagan settled family trusts that owned shares in TeleWork Group Plc.
To avoid UK capital gains tax (CGT) on the disposal of these shares, the trustees undertook a
tax planning strategy known as the “round the world” scheme. This involved:

1. Replacing Jersey trustees with Mauritian trustees.

2. Disposing of shares while the trust was managed in Mauritius.
3. Reappointing UK-based trustees thereafter.

The goal was to trigger Article 13(4) of the UK–Mauritius treaty, ensuring the capital gains
would be taxed only in Mauritius (which had no CGT), by shifting the place of effective
management (POEM) of the trust.

Legal Issue

Was the POEM of the trust genuinely in Mauritius at the time of the disposal, such that the
trust would be deemed resident in Mauritius and entitled to protection under Article 13(4)
of the tax treaty?

Legal Principles (Article 13(4) & POEM)

 Article 13(4) applies to capital gains from alienation of property not covered by
paragraphs 1–3.
 Gains are taxable only in the State of residence of the alienator.
 Residence of non-individuals under the UK–Mauritius treaty is determined by Article
4(3): the entity is resident where its POEM is situated.
 OECD Commentary (para 24) defines POEM as the place where key management
and commercial decisions are in substance made.

Tribunal Findings

20
  Although formal decisions were taken in Mauritius, effective decision-making and
strategic control remained in the UK.
 The Mauritian trustees merely implemented instructions from the UK.
 The “real top-level management” occurred in the UK, following the test in HMRC v
Smallwood [2010] EWCA Civ 778.
 The Tribunal rejected the argument that a different POEM test applies under treaty
law compared to UK domestic law (Wood v Holden not followed).

Conclusion / Holding

The Upper Tribunal ruled in favour of HMRC. The POEM of the trust had not moved to
Mauritius. Therefore, the trust remained UK resident at the time of the disposal, and the
capital gains were taxable in the UK under Article 13(4).

Key Takeaways

 Substance over form is crucial in determining POEM under Article 13(4).

 The mere relocation of trustees is insufficient if control remains elsewhere.
 The case reinforces anti-avoidance doctrine in treaty residence disputes, especially
involving tax-motivated restructuring

TOPIC 4
1. Article 6 – Income from Immovable Property
Key Rules:

 Art. 6(1): Income from immovable property in one Contracting State may be taxed in
that State, even if the recipient is a resident of the other.
 Art. 6(2): Immovable property is defined per the domestic law of the State where
the property is situated.
o Includes: landed property, usufruct, mineral rights, livestock, equipment
used in agriculture/forestry.
o Excludes: ships, aircraft, boats (covered under Art. 8).

Business Income Link – Art. 6(4):

 If property is part of a business or used for independent services, Art. 6 takes

priority over Art. 7.

Example:

21
A Swedish designer owns a villa in Spain (rented to tourists). Both Sweden (residence) and
Spain (property location) can tax under Art. 6. Spain has priority even if the villa is used in
business.

Royal Bank of Canada v HMRC [2020] UKFTT 267 (TC)

Key Principles – Article 6 (OECD MC)

1. Source State Taxing Rights – Art. 6(1)

o The UK had taxing rights over royalty income derived from UK-based oil and gas
fields, even though RBC was resident in Canada.
2. Definition of Immovable Property – Art. 6(2)
o The Tribunal applied UK domestic law and found that royalty rights linked to oil
extraction qualified as immovable property.
o The definition included mineral rights and payments for working natural resources,
as expressly stated in Article 6(2).
3. Business Use of Property – Art. 6(4)
o Although RBC acquired the rights as part of debt recovery, the property income
retained its character, and Article 6 applied in priority over Article 7 (business
profits).

Outcome:

The royalty payments were treated as income from immovable property, giving the UK full
taxing rights under Article 6 — regardless of whether RBC had a UK permanent
establishment.

Case Summary: Belgium Court of Appeal, 7 November 2002

Article 6 – Income from Immovable Property

Issue:

Whether dividends received by a Belgian resident from a French real estate civil company
(SCI) should be classified as income from immovable property under Article 6 of the
France–Belgium tax treaty, or as dividend income under Belgian tax law.

Facts:

 The taxpayer, a Belgian resident, held 100 shares in a French Société Civile
Immobilière (SCI).

22
  The SCI's sole activity was the ownership, management, and rental of immovable
property in France.
 The taxpayer was taxed in France on his portion of the rental income.
 He claimed that, under French fiscal transparency rules, the income should be
treated as immovable property income (not dividends), and thus exempt from
Belgian tax under Article 6.

Principles & Ruling in Relation to Article 6:

 Article 6(1) allows the source state (France) to tax income from immovable
property.
 However, the Belgian tax authority treated the income as dividends under Belgian
domestic law, because the SCI was a legal person and the taxpayer held shares.
 The taxpayer argued that the SCI’s income should be treated as transparent,
attributing rental income directly to him and falling under Article 6.

Court's Decision:

 The Court ruled against the taxpayer:

o Belgium is not bound to apply French transparency rules unless the treaty
explicitly requires it.
o The shares in the SCI do not equal direct ownership of French property.
o The treaty’s Protocol only allows France to treat the SCI as transparent if it's
an “attribution” company, which this SCI was not.
o Therefore, Belgium could treat the distributions as dividends, not as
immovable property income.

✅ Conclusion (Article 6 Context):

 Income from shares in a foreign real estate company is not necessarily income
from immovable property under Article 6.
 Unless the treaty or protocol explicitly deems the structure transparent, the
residence country may classify the income under its own law (e.g., as dividends).
 The Court confirmed that Article 6 does not override domestic classification rules
where the company is a distinct legal entity

23
2. Articles 5 & 7 – Business Profits and Permanent
Establishment
Art. 7(1) – General Rule:

 Profits taxable only in residence state unless the enterprise has a PE in the other
state.
 If a PE exists, only the profits attributable to the PE are taxable by the source state.

3. Article 5 – Permanent Establishment (PE)

3.1 Basic Rule PE – Art. 5(1)

Definition: A fixed place of business through which the business of the enterprise is wholly
or partly carried on.

Requirements:

 Place of business (e.g., office, factory, shop)

 At the disposal of the enterprise
 Fixed geographically and in time (≥ 6 months usually)
 Business must be carried on through it

Example:

A sales manager from Company A uses an office in Company B's building (both part of the
same group). If the manager has freedom to use the office and oversees standards, this can
constitute a PE under Art. 5(1).

3.2 Specific PEs

Construction PE – Art. 5(3):

 Only a PE if the project lasts >12 months (OECD)

 UN Model: Threshold is >6 months, and includes supervisory/assembly activities

Dependent Agent PE – Art. 5(5):

A person acting on behalf of an enterprise in a State constitutes a PE if:

 They habitually conclude contracts, or

24
  Play the principal role leading to contracts routinely concluded without material
modification
 Contracts must be in the name of the enterprise, or concern its property/services

Independent Agent – Art. 5(6):

Not a PE if:

 Legally and economically independent

 Acts in the ordinary course of business
 Not acting exclusively/almost exclusively for related enterprises

Anti-Fragmentation Rule – Art. 5(4.1):

Prevents splitting business activities into multiple smaller pieces to avoid PE status if:

 Closely related enterprises carry out complementary functions

 Overall activity is not preparatory or auxiliary

Case Summary in Relation to Article 5 – Permanent

Establishment
Case Name: BNB 2019/164 – Netherlands Supreme Court
Date: 19 July 2019
Treaty: Netherlands–South Korea Income Tax Treaty
OECD Reference: Article 5 – Permanent Establishment

Issue:

Whether a Swiss employer (A Co) had a permanent establishment (PE) in South Korea
based on its employee’s (X’s) work supervising a construction project in Korea, which would
allow South Korea to tax income or business profits under the treaty.

Facts:

 A Co, a Swiss company, sent a Dutch resident employee (X) to work in South Korea to
oversee a drill ship construction project.
 The worksite and facilities used were provided by a third party (B Co), not A Co.
 A Co did not directly carry out construction; it only supervised.

Decision (Article 5 Analysis):

25
  The Supreme Court found no PE existed:
o There was no fixed place of business in Korea used by A Co (fails Article 5(1)).
o The construction site did not qualify under Article 5(3) since A Co wasn’t the
builder.
o The activities performed by the employee were preparatory or auxiliary
(excluded under Article 5(4)(e)).

Conclusion (in relation to Article 5):

A permanent establishment under Article 5 requires a fixed place, control, or substantial

activity by the enterprise. In this case, A Co had no such presence, so it did not have a PE in
South Korea, and Korea could not tax A Co’s business profits.

CASE SUMMARY: Article 5 – Permanent Establishment

Case: Hyatt International Southwest Asia Ltd v. ACIT (International Taxation)
(High Court of Delhi, India, ITA 216/2020 & others, 19 September 2024)

Issue:
Did Hyatt International have a permanent establishment (PE) in India under Article 5 of the
India–UAE Tax Treaty due to its strategic service agreements with an Indian hotel operator?

Principle:
The Court affirmed that a PE can be constituted through fixed service arrangements and
oversight functions. It emphasized that a PE is a distinct economic entity, and its existence is
based on sustained business presence, not on whether the parent entity earns a profit.

The Court ruled that Hyatt had a PE in India and that profits were attributable to it under
Article 7, rejecting the argument that global losses of the parent entity negate local tax
liability.

Outcome:
Decision in favour of the tax authority. PE status confirmed, allowing India to tax
attributable profits.

4. Article 7 – Attribution of Business Profits

Key Concepts:

26
  Profits attributable to the PE are those it would earn as a separate and independent
enterprise
 Must consider:
o Functions performed
o Assets used
o Risks assumed

Authorised OECD Approach (AOA):

Two-step analysis:

1. Functional analysis: Identify PE activities and economic functions

2. Transfer pricing analysis: Determine arm’s length pricing

AOA codified in 2010, relevant for post-2008 treaties

Art. 7(3) – Adjustment and Relief:

If one state adjusts profits, the other must make a corresponding adjustment to prevent
double taxation. Disputes go through Art. 25 Mutual Agreement Procedure (MAP).

CASE
Case Summary: AB LLC and BD Holdings LLC v Commissioner for SARS (Case No. 13276)
Relevant to: Article 7 of the OECD Model – Business Profits

Case Name:
AB LLC and BD Holdings LLC v Commissioner of the South African Revenue Service (SARS)
(Tax Court, Johannesburg, 2015)

Issue:
Whether AB LLC and BD Holdings LLC, US-incorporated advisory firms, were liable for South
African income tax on profits earned from providing consultancy services in South Africa.
The question turned on whether they had a “permanent establishment” (PE) in South
Africa under Article 5(2)(k) of the South Africa–USA Double Taxation Agreement (DTA),
which would then trigger taxation of business profits under Article 7.

Decision:
The court held that:

27
 1. AB LLC and BD Holdings LLC had a permanent establishment in South Africa as
defined in Article 5(2)(k), due to their employees furnishing consultancy services in
South Africa for more than 183 days.
2. The income earned was therefore attributable to a PE, and taxable in South Africa
under Article 7(1) of the DTA.
3. Even if Article 5(2)(k) required Article 5(1)’s "fixed place of business" test to be met,
the companies’ regular use of X’s boardroom and on-site presence constituted a
fixed place of business.
4. Deferred income (success fees paid in 2009) was still attributable to the PE and
taxable under Article 7 because it arose from the same contract and work performed
during the PE’s existence.

Key Principles from Article 7 (Business Profits):

 A non-resident enterprise's business profits are only taxable in the source country if
it carries on business through a PE there.
 The profits taxable are those "attributable to the PE"—that is, profits the PE would
have earned if it were an independent enterprise under arm’s-length principles.
 The existence of a PE under Article 5 triggers taxation under Article 7, regardless of
when payment occurs (e.g., deferred "success fees").

Significance:
This case affirms that Article 5(2)(k) (services-based PE) can operate independently or
inclusively with Article 5(1), and that once a PE exists, Article 7(1) enables the taxing of
profits attributable to the PE—including delayed payments. It reinforces a purposive
interpretation of treaty provisions and a substance-over-form approach in determining
cross-border tax liabilities.

CASE SUMMARY: Article 5 – Permanent Establishment

Case: Hyatt International Southwest Asia Ltd v. ACIT (International Taxation)
(High Court of Delhi, India, ITA 216/2020 & others, 19 September 2024)

Issue:
Did Hyatt International have a permanent establishment (PE) in India under Article 5 of the
India–UAE Tax Treaty due to its strategic service agreements with an Indian hotel operator?

Principle:
The Court affirmed that a PE can be constituted through fixed service arrangements and
oversight functions. It emphasized that a PE is a distinct economic entity, and its existence is
based on sustained business presence, not on whether the parent entity earns a profit.

The Court ruled that Hyatt had a PE in India and that profits were attributable to it under
Article 7, rejecting the argument that global losses of the parent entity negate local tax
liability.

28
Outcome:
Decision in favour of the tax authority. PE status confirmed, allowing India to tax attributable
profits.

CASE SUMMARY: Article 7 – Business Profits

Case: Hyatt International Southwest Asia Ltd v. ACIT (International Taxation)
(High Court of Delhi, India, ITA 216/2020 & others, 19 September 2024)

Issue:
Is India entitled to tax business profits attributable to Hyatt’s PE in India, even if Hyatt
globally reported losses?

Principle:
Under Article 7 of the OECD Model (mirrored in the India–UAE Treaty), profits are taxable in
the PE’s host country only to the extent they are attributable to that PE. The Court clarified
that attribution is independent of the parent entity's overall profit/loss, focusing solely on
the PE’s activities.

The Court rejected earlier case law (like Nokia Solutions) that required profit at a global level
before attribution, affirming that a PE is taxed based on its own economic activity.

Outcome:
The Court upheld India’s right to tax Hyatt’s Indian PE under Article 7, regardless of global
losses.

5. Article 8 – International Shipping and Air Transport

Art. 8(1):

 Profits from the operation of ships/aircraft in international traffic are taxable only in
the residence state of the enterprise.

Precedence over Art. 7 — even if there's a PE in the other state.

Art. 3(1)(e):

Defines international traffic as transport between states, excluding domestic-only routes

unless operated by a foreign enterprise.

29
CASE SUMMARY: Article 8 – International Shipping and Air Transport

Case: TOB “EVV Automotive Lviv” v. Ukrainian Tax Authority (Supreme Court of Ukraine,
Case № 1.380.2019.005098, 4 May 2023)

Issue:
Are freight payments made to an Austrian company for international transport subject to
Ukrainian tax, or exempt under Article 8 of the Ukraine–Austria Tax Treaty?

Principle:
Under Article 8 of the OECD Model (mirrored in the Ukraine–Austria DTA), profits from
international transport are only taxable in the country of the operator’s residence. The
Court ruled in favour of the taxpayer, confirming exemption from Ukrainian withholding tax.

6. Article 9 – Associated Enterprises and Arm’s Length

Principle
Art. 9(1):

When associated enterprises (same group) set non-arm’s length terms, profits may be
reallocated as if transactions were conducted between independent enterprises.

Arm’s Length Principle:

 Ensures fair taxation between related parties

 Key method: Comparability analysis (functions, risks, and assets)

Art. 9(2) – Corresponding Adjustment:

If one state adjusts a transaction, the other must adjust its tax base to avoid economic
double taxation.

Tele2 Case and Article 9 – Associated Enterprises

🏢 What’s Article 9 About?

Article 9(1) of the OECD Model Tax Convention says:

If companies in the same group (associated enterprises) make deals that are not at arm’s
length (i.e., not how independent businesses would act), then tax authorities can adjust the
profits — basically pretending the deal was done as if it were between unrelated
companies.

30
This is called the arm’s length principle, and it's there to:

 Prevent profit shifting within multinational groups,

 Ensure fair taxation,
 Use comparability analysis to test if the terms match those between independent
businesses.

💼 What Happened in the Tele2 Case?

 Tele2 Sweden loaned money in USD to a related Kazakh company (MTS).

 In 2015, they converted the loan to Kazakh tenge — even though the tenge was
collapsing in value.
 Tele2 suffered massive currency losses and tried to deduct those losses for tax.

But here’s the catch:

 Tele2 had the right to cancel the conversion (and avoid the loss), but chose not to —
even when it saw the tenge crashing.

⚖️How Does Article 9 Apply?

 The Swedish tax authority argued:

“No independent business would agree to such a risky conversion — only a company
acting in a group interest (not its own) would do that.”
 The court agreed, saying:
o The conversion wasn’t arm’s length.
o A deduction for the early loss (before 22 October) isn’t allowed.
o The realistically available option for Tele2 was to cancel the deal — but it
didn’t.

→ This is a textbook Article 9 scenario:

 Tele2 and MTS are associated enterprises.

 The loan conversion was a deal independent businesses would not make.
 So, under Article 9, the tax authority was right to reallocate the loss — denying part
of the deduction.

📌 Final Thought:

This case shows how Article 9 protects tax fairness:

It stops group companies from shifting losses (or profits) in a way that independent
businesses wouldn’t accept, especially when a realistic, risk-free option was ignored.

31
BONUS: Differences Under the UN Model
 Lower PE thresholds (especially for construction and services)
 Art. 5(5) UN MC includes:
o Delivery agents
o Insurance premium collectors
 Source-based bias: Allows more taxing rights to developing/source countries (esp. in
business profits, royalties, technical services)

TOPIC 5
1. Article 14 – Independent Personal Services (Deleted from
OECD MC but retained in UN MC)
Scope:

 Applies to professionals (lawyers, doctors, architects, consultants, etc.)

 Activities must be of an independent character (no subordination)

Rule:

 Taxable only in the residence state, unless there is a fixed base regularly available
in the source state.
o Then, the source state may tax income attributable to the fixed base.

Example: An architect from Germany (resident) works part-time in South Africa from a
leased studio—SA may tax the income related to that studio.

CASE
Case Summary: Poland Supreme Administrative Court – Case II FSK 127/18 (28
November 2019)

Relevant Treaty Provision:

Article 14 OECD Model Convention (pre-2000 version) – Independent Personal Services
(Deleted from the OECD Model in 2000, but still relevant in older bilateral tax treaties)

Facts

32
A Polish limited liability company with a branch in the Slovak Republic engaged Polish-
resident subcontractors under civil law contracts (not employment contracts) to perform
technical work (electrical installations, repairs, etc.) in Slovakia. These individuals were not
registered as entrepreneurs in Poland.

The taxpayer sought confirmation from the Polish tax authorities that this remuneration was
taxable only in Slovakia under Article 15 (Dependent Personal Services) of the Poland–
Slovak Republic Tax Treaty, and therefore not subject to Polish tax.

Key Legal Issue

Did the services provided by the Polish subcontractors qualify as:

1. Dependent personal services (employment income, under Article 15), taxable where
the work is performed, or
2. Independent personal services (Article 14), taxable only in the State of residence
unless there is a fixed base in the source State?

Legal Principles Applied

 Article 14(1): Independent professional or similar activities are taxable only in the
resident State, unless there is a fixed base in the other State.
 Article 15(1): Employment income is taxable in the work State, unless certain
conditions in Article 15(2) apply.
 According to Article 3(2) of the treaty, undefined terms (like “employment”) must be
interpreted according to domestic law.

Court’s Analysis

 The individuals were not employees; there was no employment contract, no

employer-subordinate relationship, or directive authority.
 Under Polish domestic law, such civil contracts fall outside the scope of
“employment”.
 Even though the individuals were not formal entrepreneurs, the Court viewed their
services as “independent” in nature, qualifying under Article 14, not Article 15.

The Court emphasized that legal form matters: tax treaty protections under Article 15 apply
only to formal employment contracts. The fact that the contractors were paid through the
Polish entity was irrelevant, as the legal nature of the relationship controlled.

33
Conclusion / Holding

The Court ruled in favour of the tax authorities:

 Article 14 (Independent Personal Services) applied.

 Because the subcontractors had no fixed base in Slovakia, their income was taxable
only in Poland.
 Article 15 (Dependent Personal Services) was inapplicable, as the services were not
employment-based.

Key Takeaways

 Article 14 remains applicable under older treaties, even though deleted from the
OECD Model in 2000.
 The classification of services under Article 14 or 15 depends primarily on the form of
engagement (employment vs. independent).
 Subcontractors without a fixed base abroad remain taxable in their State of
residence under Article 14.
 Domestic law determines what qualifies as employment when the treaty is silent.

2. Article 15 – Income from Employment

General Rule (Art. 15(1)):

 Taxable only in the residence state, unless employment is exercised in the source
state, then the source may also tax.

Exception – 183-Day Rule (Art. 15(2)):

The source state cannot tax employment income if:

1. The employee is present <183 days in any 12-month period.

2. The employer is not a resident of the source state.
3. The remuneration is not borne by a PE or fixed base in the source state.

All three must be satisfied for exclusive residence taxation.

Employment on Ships/Aircraft (Art. 15(3)):

 Exclusive taxation in residence state if the employment is aboard a ship or aircraft in

international traffic.

34
Case Summary: BNB 2019/164 (Netherlands Supreme Court)

Issue:
Was a Dutch resident’s salary for work done in South Korea exempt from Dutch tax under
Article 15(2)(c) of the OECD Model?

Facts:

 Dutch employee worked for Swiss company in Korea for under 183 days.
 Korea taxed the salary; employee claimed Dutch tax relief.
 Dutch tax authority denied relief, arguing the Swiss employer had no permanent
establishment (PE) in Korea.

Decision:

 The Court agreed with the tax authority:

o No PE existed in Korea.
o Salary was not borne by a Korean PE, so Article 15(2)(c) conditions weren’t
met.
 Result: Salary was taxable in the Netherlands.

Relevance to Article 15:

All three conditions of Article 15(2) must be met for exemption. Without a PE in the work
state bearing the salary, the residence state can tax the income.

3. Article 16 – Directors’ Fees

Rule:

 Taxable in the residence state of the company (source), but the director’s residence
state may also tax.

Scope:

 Applies to income from board membership only (not consultancy or employment)

 May include cash, in-kind benefits, or profit shares

Example: Director in Kenya receives board fees from a South African company. South Africa
can tax under Art. 16. Kenya must offer relief for double taxation.

35
Case: Netherlands – 20/00768 (3 Nov 2021)

Treaty Article: Article 16 OECD MTC (Directors’ Fees)

Facts: A Dutch resident received remuneration in 2017 linked to work done for Brazilian and
Argentinian group companies. The taxpayer was a statutory director only of the Swiss
parent company, not the South American subsidiaries.

Issue: Could the payment be taxed in Brazil or Argentina under Article 16, even though the
taxpayer was not formally a director there?

Ruling:

 Only statutory directors qualify under Article 16. The taxpayer was not formally
appointed in Brazil or Argentina.
 The Swiss parent’s directorship didn’t cover work for its subsidiaries under Article 16.
 No salary split was allowed because the subsidiaries didn’t bear the cost of the
taxpayer’s remuneration.

Conclusion: The payment was not covered by Article 16 and was fully taxable in the
Netherlands, the state of residence.

4. Article 17 – Entertainers and Sportspersons

Rule (Art. 17(1)):

 Income derived by entertainers or athletes is taxable in the country where the

performance occurs, regardless of where the contract or payment source is.

Look-through Rule (Art. 17(2)):

 If income is paid to a third party (e.g. a company), source state may still tax, as long
as it's connected to personal activities in that state.

Example: A singer resident in Greece performs in the UK. UK may tax performance income
under Art. 17(1). Royalties from musical reproductions, however, fall under Art. 12
(royalties).

Core Principle of Article 17

Article 17 allows the source state to tax income derived by entertainers and sportspersons
from their personal activities performed in that state, even if they do not have a
permanent establishment.

36
The key interpretive principle is the “closely connected” test, which assesses whether the
income is directly or indirectly linked to the performance activity.

Notable Case Law by Country

1. Netherlands

 HR 23 Nov. 1983 (BNB 1984/33): Background musicians are included under

“personal activities” – rejecting limitation to only lead performers.
 HR 3 May 2000 (BNB 2000/328c): Bridging pension from a sportsperson’s salary falls
under Article 17.
 HR 7 May 2010 (BNB 2010/245): Transfer fee (likely Zlatan Ibrahimović) was taxable
as it related to prior sporting performance.

2. Germany

 BFH 11 Apr. 1990: Initially included stage managers under Article 17, based on
indirect performance.
 BFH 2 Dec. 1992 & 8 Apr. 1997: Reversed stance – excluded stage painters and
opera directors, not being public performers.
 FG Bayern 30 June 1995: Chess player excluded – rejected as sportsperson
(contradicts OECD).
 FGN Niedersachsen 24 Nov. 2004: Tennis umpire excluded as not a sportsperson.
 FGNWM Münster 19 May 2004: Orchestra director included – seen as a public
performer.

3. Canada

 Cheek v. Her Majesty the Queen (2002): A baseball broadcaster was not deemed an
“entertainer” – considered more like a reporter.
 Khabibulin v. Her Majesty (1999): Signing bonus for a hockey player taxed under
Article 17 – closely connected to future performance.

4. South Africa

 Gauteng Tax Court 4 Mar. 2002 (64 SATC 455): Golfer held to be a “sportsperson”
under Article 17.

5. France

 Jacques Santini v. Minister (2001): A football coach was not taxed under Article 19
as he didn’t perform in Switzerland. If he had, likely would fall under Article 17.

6. Belgium

37
  TPIA Arlon 16 Mar. 2009: Models in catalogues not covered; only models in fashion
shows might fall under Article 17.
 HvBA Antwerp: Training, competition, travel days are duty days, hence taxable
under Article 17.
 HvBG Gent: Solo training days not covered as not contractually required.

7. India

 PILCOM v. CIT (2010); Indcom v. CIT (2011): Referees and umpires excluded as not
athletes; treated as providing technical services.
 ITAT Mumbai (2005): Guarantee fees for match performance fell under Article 17.

8. United States

 Peter Stemkowski (1982): Training and playoffs for an NHL player were part of
performance; income covered.
 Paul Newman case (1989): “On-call” days for actors qualified as taxable under
Article 17.

9. Finland

 KHO 6 Jan. 2005: Championship prize for a sportsperson was taxable under Article
17 – linked to personal activity.

10. Austria

 BFG (date not specified): Severance pay for a football player mostly not taxable
under Article 17 as there were no public performances.

11. Switzerland

 BGTF: Athlete’s fixed salary not linked to races → excluded from Article 17 due to
lack of performance-based remuneration.

Case: Switzerland – 9C_682/2022 (23 June 2023)

Treaty Article: Article 17 OECD MTC (Entertainers and Sportspersons)

Facts: A Swiss-resident footballer received a severance payment in 2017 from a UAE club,
years after their contract was terminated in 2013. The UAE club had refused to pay earlier
installments, but was ordered to pay by arbitration in 2017.

Issue: Could the UAE tax the payment under Article 17, and did Switzerland have to exempt
it?

Court’s Ruling:

38
  No taxing right for UAE under Article 17, because the payment was not linked to
actual sports performances in the UAE.
 Switzerland could tax it in 2017, as income was only received then.
 The Court rejected reliance on updated OECD Commentary (2014) since the treaty
was signed earlier, affirming a static interpretation.

Conclusion: Severance pay not tied to performance in the source state is not taxable under
Article 17. Payment was fully taxable in Switzerland.

5. Article 18 – Pensions
Rule:

 Pensions from private past employment are taxable only in the residence state of
the recipient.

Scope:

 Covers periodic and lump sum payments that replace pensions

 Excludes refunds of contributions, which are not "similar remuneration"

Double Tax/Double Non-Tax Risks:

 If pension is taxed in the payment state but not in the residence state, there may be
double taxation or non-taxation, depending on pension contribution/tax rules.

CASE: Case: Belgium – F.23.0114.N (6 Sept 2024)

Treaty Article: Article 18 OECD MTC (Pensions)

Facts: A Belgian resident received a lump-sum pension payout from a Dutch company.
Although 34.5% of the amount was exempt from Dutch income tax, it was still subject to the
Dutch tax regime.

Issue: Was Belgium required to exempt the entire payment under Article 23, even though
part was not taxed in the Netherlands?

Ruling:

 The Court held that income is considered “taxed” in the source state if it is subject
to the normal tax regime, even if partly exempt.
 Therefore, Belgium had to exempt the full pension amount from its tax, applying
the “exemption with progression” method.

39
Conclusion: Under Article 18, pensions paid to a resident for past employment are only
taxable in that resident’s state. Here, Belgium could not tax the Dutch pension payout due to
treaty relief.

6. Article 19 – Government Service

Salaries (Art. 19(1)):

 Government salaries are taxable only by the paying state, unless the services are
rendered in the other state and:
o The individual is a national of that state, or
o Did not become a resident solely to perform the work

Pensions (Art. 19(2)):

 Government pensions are also exclusively taxable by the paying state, unless the
individual is both resident and a national of the receiving state.

Art. 19(3):

 If work is done for a government-owned business, then Arts. 15–18 apply instead.

Example: A French embassy worker in Russia, resident since 1995, retires in 2014 and
remains in Russia. France alone may tax the pension under Art. 19(2)(a).

CASE

Italy – Case 25608 (Supreme Court, 25 September 2024)

Relevant Article: Article 19(1) – Government Service (Italy–France Tax Treaty)

Court: Corte Suprema di Cassazione (Italian Supreme Court)
Decision: In favour of the tax authorities

Facts

The taxpayer was an Italian national residing in France. He worked as a public employee for
an Italian municipality located in the frontier zone (Ventimiglia) during the tax years 2000–

40
2003. He requested a refund of Italian income tax, arguing that his employment income was
only taxable in France, under Article 15(4) of the Italy–France tax treaty, which applies to
frontier workers. The Italian tax authorities denied the refund, claiming exclusive Italian
taxing rights under Article 19(1)(a) (Government Service).

Issue

Does Article 15(4) (Frontier workers) or Article 19(1) (Government service) of the Italy–
France tax treaty govern the taxation of employment income received by a frontier worker
employed by a public Italian authority?

Ruling

The Italian Supreme Court ruled that:

 Article 19(1)(a) governs the situation.

 Government salaries (excluding pensions) paid by a public authority fall under Article
19, even for frontier workers.
 Article 15, including paragraph 4 on frontier workers, is subject to Article 19, as
indicated by its opening clause.
 Therefore, Article 19 overrides Article 15(4), meaning that Italy retains exclusive
taxing rights over the income in question.

Legal Reasoning

 Textual Interpretation: Article 19(1)(a) applies to all salaries paid by public entities,
excluding pensions.
 The introductory phrase of Article 15 (“Subject to the provisions of Articles 16, 18,
19…”) means Article 19 prevails where both may apply.
 The status of being a frontier worker becomes irrelevant for income governed by
Article 19.

Impact

 The ruling sets a precedent: employment by a public authority overrides frontier

worker status under Italian treaty law.
 This creates a potential conflict with the special treatment granted to frontier
workers under Article 15(4).
 The ruling aligns with a strict textual approach rather than a teleological (purpose-
based) interpretation.

41
Comparison with Prior Case

In Decision 12595 (8 July 2004), the Italian Supreme Court took the opposite approach,
holding that Article 15(4) prevailed over Article 17 (Artists and sportsmen) due to its more
specific nature. However, in Case 25608, the Court adopted a different interpretive
approach, placing emphasis on the treaty’s structure and wording.

7. Article 20 – Students
Rule:

 Payments received by a student (for maintenance, education, or training) from

foreign sources are exempt from tax in the host state.

Conditions:

 Student must have been a resident of the sending state immediately before arrival
 Must be present solely for education/training

CASE SUMMARY: Article 20 – Students

Case: Vitaly Nicolaevitch Baturin v. Commissioner of Internal Revenue

(US Tax Court, 153 T.C. No. 10, 18 December 2019)

Issue:
Are wages received by a Russian J-1 Research Scholar in the US exempt from US tax
under the US–Russia Treaty’s Article 20 (OECD equivalent)?

Principle:
Article 20 of the OECD Model exempts from tax payments received by a student or
trainee from abroad for education or training purposes, provided the funds come from
outside the host country.
The Court ruled in favour of the taxpayer, holding that the wages were “similar
payments” to a grant, as they were designated specifically for research and could not be
redirected, thus qualifying for treaty exemption.

8. Article 21 – Other Income (Residual Clause)

42
Rule:

 Any income not covered elsewhere in the treaty is taxable only in the residence
state.

Exception (Art. 21(2)):

 If the income is effectively connected to a PE in the source state, then Art. 7

(business profits) applies.

UN Model adds a source taxation rule for such income (Art. 21(3)).

Cross-Cutting Commentary
 Art. 15 often operates as an umbrella provision—when Art. 16–19 don’t apply,
income may fall back to Art. 15.
 Courts and OECD Commentary stress the need for subordination and lack of
entrepreneurial risk to distinguish Art. 15 (employment) from Art. 14 (independent
services).
 COVID-19 raised challenges for identifying the place of employment, but OECD
clarified treaties should be interpreted normally.

CASE SUMMARY: Article 21 – Other Income

Case: TOB “EVV Automotive Lviv” v. Ukrainian Tax Authority (Supreme Court of
Ukraine, Case № 1.380.2019.005098, 4 May 2023)

Issue:
Are payments received by an Austrian company for cross-border vehicle transport taxable
in Ukraine or only in Austria under Article 21?

Principle:
Article 21 of the OECD Model (reflected in the Ukraine–Austria Tax Treaty) provides
that income not covered by other Articles is only taxable in the recipient’s State of
residence—unless connected to a PE in the other State. Since the income (freight charges)
was not connected to a Ukrainian PE, it was only taxable in Austria. The Court ruled the
Ukrainian tax assessment invalid.

TOPIC 6
Part 1: UN Model Article 12A – Fees for Technical Services
(FTS)
43
Why it was introduced (UN MC 2017):

 Digital service provision without PE erodes tax base of source states.

 Non-resident service providers may enjoy unfair tax advantages over domestic
suppliers.
 Solution: Source-based taxation via withholding tax (WHT) on FTS.

Taxing Rights:

 Para 1: Residence state may tax FTS (non-exclusive).

 Para 2: Source state may also tax FTS, subject to a negotiated WHT rate (e.g. 10–
15%) on gross amount.

Definition – Para 3:

FTS includes payments for managerial, technical, or consultancy services, unless:

 (a) Paid to an employee (→ Art. 15/19)

 (b) For teaching
 (c) B2C (personal use by individuals)

🔑 Must involve specialised knowledge, skill or expertise, not routine tasks.

Source Rules (Paras 5 & 6):

 FTS arises in a State if the payer is a resident or if it is borne by a PE or fixed base in

that State.
 FTS does not arise if:
o Payer is resident in State S but the fee is borne by a PE/FB in State R.

Exceptions – Para 4:

 If FTS is effectively connected to a PE or fixed base, then Article 7 (Business Profits)

or Article 14 (Independent Personal Services) applies instead.

Anti-Abuse – Para 7:

 Limits FTS to arm’s length amount. Excess is taxed per domestic law, possible
recharacterisation and dispute resolved via MAP.

Examples:

44
 1. Heart Surgeon paid by individual → Not FTS (excluded under Para 3(c)).
2. Heart Surgeon hired by company → FTS applies.
3. Access to database → FTS if service requires expertise; may fall under Art. 12
(Royalties) if access to proprietary info.

Part 2: UN Model Article 12B – Automated Digital Services

(ADS)
Introduced in UN MC 2021:

 Reflects the need to tax digital giants with no physical presence but substantial user
base.
 Captures income from platforms, cloud, streaming, online marketplaces, etc.

Taxing Rights:

 Para 1: Residence state may tax.

 Para 2: Source state may also tax via gross-based WHT, subject to a negotiated cap.
 Para 3: BO may opt for net profit taxation (elective clause).
 Para 5: Must be automated, with minimal human involvement.
 Para 6: Includes (not exhaustive) online ads, search engines, cloud services.

Exceptions:

 Para 7: If income qualifies as royalties or FTS, Art. 12/12A applies first.

 Para 8: If ADS income is effectively connected to a PE or FB in the source state, Art. 7
or 14 applies.
 Paras 9–10: Source rules similar to Art. 12A

Anti-Avoidance – Para 11:

 Caps the income taxed under 12B at the arm’s length value, adjusting inflated
payments due to special relationships.

Part 3: Article 23 – Elimination of Double Taxation (OECD

Model)
45
1. Exemption Method – Art. 23A

 Residence state exempts foreign income, but may consider it for tax rate
progression.
 Used when:
o Income is taxed in source state
o Treaty allocates taxing rights to source

Effects:

 Ensures capital import neutrality

 Risk of double non-taxation if source state does not tax
 Potential to recapture foreign losses in future years

2. Credit Method – Art. 23B

 Residence state includes foreign income, but allows tax credit for foreign tax paid.
 Limited to the domestic tax payable on that foreign income.

Example:

Italian company earns income in India, which imposes 10% WHT. Italy uses credit method
but India’s WHT not treaty-compliant → No credit → Must apply for refund or use MAP.

3. Switch-Over Clauses:

 Permit the residence state to switch from exemption to credit when:

o Source state doesn’t tax income
o Income arises from mismatches, leading to double non-taxation

4. Special Relief Mechanisms:

 Matching Credit: Credit is granted even if tax is not actually levied in the source state
(common in treaties with developing countries).
 Tax Sparing: Residence state grants credit based on notional tax that would have
been paid if no exemption applied.

5. Conflicts of Qualification:

46
  Occurs when source and residence states classify the same income differently, e.g.
dividend vs capital gain.

OECD Commentary:

 If both states apply the treaty in accordance with their laws, residence state should
still grant relief.

🧑‍⚖️1. VwGH Decision 97/14/0109 (7 August 2001)

Topic: Application of the credit method for foreign tax relief

Relevant Treaty: Austria–Japan tax treaty
OECD Article Involved: Article 23B (credit method)

🔹 Facts:

 An Austrian resident had mixed income (employment, investment, business, and

partnership).
 The partnership income was negative, but royalties from Japan (taxed at 10%) were
part of the overall positive income.
 The taxpayer claimed a credit for the Japanese withholding tax.

🔹 Holding:

 The court allowed the tax credit despite the partnership loss because the overall net
income (including Japanese royalties) was positive.
 The formula used was:

Maximum credit=Austrian tax on total net income×(foreign net incometotal net inco
me)\text{Maximum credit} = \text{Austrian tax on total net income} \times \left(\
frac{\text{foreign net income}}{\text{total net income}}\
right)Maximum credit=Austrian tax on total net income×(total net incomeforeign net
income)

 The tax authority’s broader interpretation (requiring netting of all income sources
within a basket) was rejected.

CASES

2. VwGH Decision 99/14/0217 (25 September 2001)

Topic: Treatment of foreign losses under the exemption with progression method
Relevant Treaty: Austria–Germany tax treaty
OECD Article Involved: Article 23A (exemption method)

🔹 Facts:

47
  An Austrian taxpayer had a German partnership loss and domestic income.
 The taxpayer wanted to deduct the German loss fully under domestic rules.
 The tax authority allowed only negative progression (reducing the rate, not the
base).

🔹 Holding:

 The court allowed offsetting the foreign loss against domestic income, contrary to
its earlier case law.
 But it warned against double-dipping, suggesting that if the loss is later used in
Germany via carry-forward, Austria must recapture the benefit.
 The decision aligned Austrian law with EU principles of freedom of establishment,
indicating that tax treaties shouldn’t penalize cross-border activity.

23A
Case Summary: Belgium Supreme Court Case F.20.0108.F (24 October 2024)

Relevant Treaty Provision:

Article 23A OECD Model Convention – Exemption method for the elimination of double
taxation
(Article 22(2)(a) of the Belgium–Congo (Dem. Rep.) Tax Treaty)

Facts

The taxpayer, a Belgian resident, worked as a teacher in the Democratic Republic of Congo
(DRC) from September 2012 to August 2013. He was employed by a Belgian nonprofit
organization and received income for his services in DRC.

The taxpayer sought exemption from Belgian income tax under Article 22(2)(a) of the
Belgium–Congo tax treaty, claiming his income was taxable in Congo. However, he had not
actually paid income tax in Congo, as a Memorandum of Understanding (MOU) between
the two countries provided for tax exemption for Belgian teachers working in DRC.

Key Legal Issue

Did the teacher’s Congolese-source employment income, which was exempt from tax under
the MOU, still qualify as “taxed in Congo” for the purposes of Article 22(2)(a), such that
Belgium would be obliged to exempt it under the exemption method (Article 23A
equivalent)?

48
Court's Analysis

 Treaty text uses the phrase “are taxed”, not “may be taxed.” This indicates a
requirement of actual (effective) taxation in the source state to trigger exemption in
the residence state.
 The OECD Commentary (para 35 on Art. 23A/B) supports requiring effective
taxation to avoid double non-taxation.
 The explanatory memorandum to the Belgian ratification law also emphasized that
Belgian exemption applies only when the foreign income has been effectively taxed
abroad.
 The MOU exemption did not satisfy the “are taxed” condition, since no Congolese
tax was levied or paid on the income.

Holding / Outcome

The Belgium Supreme Court ruled in favour of the tax authorities:

 The taxpayer’s Congolese-source income was not effectively taxed in Congo.

 Consequently, Belgium was not obliged to exempt the income under Article 22(2)(a)
of the Belgium–Congo treaty.
 The taxpayer remained liable to Belgian tax on the income.

23B
Case Summary: Lin v. Commissioner of Inland Revenue [2017] NZHC 969 (New
Zealand High Court)

Relevant Treaty Provision:

Article 23B OECD Model Convention – Credit method for eliminating double taxation
(New Zealand–China Income Tax Treaty 1986, Art. 23(2) & (3))

Facts

Ms Lin, a New Zealand tax resident, held a 30% stake in two Bermuda-based companies,
which owned five Chinese resident companies. These Chinese entities qualified as
Controlled Foreign Companies (CFCs) under New Zealand law.

For the tax years 2005–2009:

 Ms Lin was attributed NZD 4.605 million in CFC income under New Zealand’s CFC
attribution rules.

49
  She was assessed NZD 1.796 million in New Zealand income tax on this attributed
income.
 The CFCs had paid NZD 926,968 in Chinese taxes and received Chinese tax
concessions sparing NZD 588,135 from tax.

Ms Lin sought a foreign tax credit for both the tax paid and the tax spared under Article 23
of the China–New Zealand treaty.

Legal Issues

1. Does Article 23(2)(a) of the treaty allow a credit for tax paid by the CFCs on
attributed income?
2. Does Article 23(3) allow a tax sparing credit for Chinese tax concessions benefiting
the CFCs?

Court Findings

Issue 1: Tax Paid by CFCs Qualifies for Credit

 The Court held that the phrase “in respect of income” in Article 23(2)(a) does not
require the tax to be paid directly by the taxpayer (Ms Lin).
 It was sufficient that the Chinese tax was paid by the CFCs on income that was,
under New Zealand CFC rules, attributed to Ms Lin.
 This aligned with New Zealand domestic law (Income Tax Acts of 2004 and 2007)
deeming tax paid by the CFC as relating to the taxpayer’s attributed income.

Issue 2: Tax Sparing Credit Allowed

 The Court found that Article 23(3), when read with Article 23(2), included tax
deemed to be paid by the New Zealand resident.
 Thus, even tax spared under Chinese tax law could be credited against Ms Lin’s New
Zealand tax liability, because the income was deemed hers and the spared tax was
part of a treaty benefit.

Conclusion / Holding

The High Court ruled in favour of Ms Lin:

 She was entitled to a foreign tax credit for both actual Chinese tax paid and tax
spared under Chinese concessions, on income attributed to her under New Zealand
CFC rules.

50
  The Court reinforced the broad and purposive reading of Article 23, to ensure relief
from juridical and economic double taxation.

Key Takeaways

 Article 23B (Credit method) applies to income attributed under CFC regimes,
allowing a tax credit even if the tax was not directly paid by the taxpayer.
 Tax sparing credits may be granted under treaty provisions where the tax benefit is
deemed to relate to income attributed to the taxpayer.
 The case supports a substance-over-form approach, ensuring treaty relief aligns
with modern CFC and anti-avoidance rules.

TOPIC 7
1. Article 24 – Non-Discrimination
What it Prohibits:

 Unequal or more burdensome tax treatment of:

o Nationals (Art. 24(1))
o Stateless persons (Art. 24(2))
o Permanent establishments (Art. 24(3))
o Cross-border payments (Art. 24(4))
o Foreign-controlled enterprises (Art. 24(5))

Key Points:

 Protects against both direct and indirect discrimination.

 Applies to “taxes of every kind and description”, not just income tax (Art. 24(6)).
 "In the same circumstances" limits application – e.g., residence status matters.

Example:

In Addy v Commissioner of Taxation, the Australian court held the backpacker tax
discriminatory as it imposed harsher tax rates based solely on nationality.

CASE SUMMARY: Article 24 – Non-Discrimination

Case: Susquehanna International Securities Ltd & Others v. The Revenue Commissioners
(High Court of Ireland, [2024] IEHC 569, 2 October 2024)

Issue:
Could Irish subsidiaries claim group tax relief under Irish law, and invoke Article 24 of the
Ireland–US Tax Treaty, where their US parent was a fiscally transparent LLC?

51
Principle:
Article 24 of the OECD Model (Non-Discrimination) prohibits more burdensome taxation on
foreign nationals or enterprises than on local ones in similar circumstances.

The Court held that the US LLC was not a “resident” under the treaty (Article 4) since it was
not “liable to tax” in the US. Therefore, Article 24 protections did not apply. The Court
rejected a purposive interpretation and applied a strict literal reading, siding with the tax
authority.

Outcome:
Non-discrimination protection under the treaty was denied. Decision in favour of the tax
authorities.

2. Article 25 – Mutual Agreement Procedure (MAP)

Purpose:

 Resolves cases where a taxpayer is subject to taxation not in accordance with the
DTC.
 Ensures consistency and fairness in treaty interpretation and application.

Key Provisions:

 Para 1: Taxpayer may file a case within 3 years from first notification.
 Para 2: Competent authorities must attempt resolution via MAP.
 Para 3: Covers both interpretation disputes and cases not provided for.
 Para 4: Direct communication between authorities allowed.
 Para 5: Unresolved issues after 2 years go to mandatory arbitration, unless resolved
by courts.

Arbitration Clause:

 Optional under OECD MC

 Must be accepted by the taxpayer
 Binding but non-precedential

BEPS Action 14 & MLI:

 Promotes stronger, more effective MAP

 Allows filing with either competent authority
 Standardizes 3-year time frame

52
 CASE SUMMARY: Article 25 – Mutual Agreement Procedure

Case: Netherlands v. Taxpayer (undisclosed)

(Gerechtshof 's-Hertogenbosch, Case 17/00214, 23 July 2020)

Issue:
Can information obtained via a criminal mutual assistance request (not a tax treaty
request under Article 25) be used for tax assessment purposes when such use was not
disclosed to the requested state?

Principle:
Article 25 of the OECD Model allows competent authorities to resolve tax disputes
through mutual agreement, including exchange of information. However, this
cooperation must respect good faith and treaty limits.

The Court ruled that using information obtained through a criminal request for tax
assessments—without disclosing that intention—violated the principle of good faith and
the Mutual Assistance Treaty. The use of such information was barred.

Outcome:
Decision in favour of the taxpayer. The tax assessment was annulled.

3. Article 26 – Exchange of Information (EOI)

Purpose:

 Prevents tax evasion and avoidance by ensuring access to relevant taxpayer

information between jurisdictions.

Scope:

 Applies to all taxes (Art. 26(1))

 Includes automatic, spontaneous, and on-request exchanges
 Allows use of information for non-tax purposes if permitted by both states (Art.
26(2))

Safeguards:

 Confidentiality (Art. 26(2))

 No obligation to:
o Violate domestic laws (Art. 26(3))
o Collect info not normally accessible
o Disclose trade secrets or breach public policy

53
Prohibits “Fishing Expeditions”:

 Requests must be foreseeably relevant

 Group requests allowed if well-defined (Commentary para. 5.2)

Timelines (OECD Standard):

 2 months if info already held

 6 months if info must be gathered


CASE SUMMARY: Article 26 – Exchange of Information

Case: Laetitia Smet v. United States of America

(US District Court, Arizona, Case MC-20-00055-PHX-JJT, 29 October 2021)

Issue:
Can the US IRS enforce summonses issued at the request of French tax authorities under
Article 26 (Exchange of Information) when the taxpayers claim they were not French
residents?

Principle:
Article 26 of the OECD Model requires countries to exchange foreseeably relevant tax
information, even if one country has no direct tax interest.

The Court upheld the IRS summonses, finding the information request valid. The IRS met
all legal requirements, and the taxpayers failed to prove abuse of process or show they
were not French residents. The Court emphasized that foreign residency disputes do not
prevent valid information exchange.

Outcome:
Decision in favour of the tax authorities. Summonses enforced.

4. Article 27 – Assistance in Collection of Taxes

Purpose:

 Provides for cross-border enforcement of tax debts and conservancy measures

(e.g., asset freezes).

Revenue Claim Includes:

 Any tax, interest, penalty, or collection cost (Art. 27(2))

54
  Can relate to taxes owed before the treaty entered into force

Mechanisms:

 Para 3: Collection of enforceable tax debts by the other state

 Para 4: Conservancy measures (e.g. freezing assets) even before debt is fully
enforceable
 Para 5: Removes application of local priority rules or time limits
 Para 6: Courts in requested state cannot review the underlying debt
 Para 7: Requires notification if the debt is no longer enforceable
 Para 8: Limits obligations if they conflict with public policy, laws, or create
disproportionate burdens

Departure from Revenue Rule:

 Traditionally, countries do not enforce foreign tax laws

 Art. 27 overrides this by agreement

CASE SUMMARY: Article 27 – Assistance in the Collection of Taxes

Case: Paul M. Retfalvi v. United States

(US Court of Appeals, Fourth Circuit, Case No. 18-2158, 16 July 2019)

Issue:
Can the IRS enforce a Canadian tax debt against a US resident under Article 27
(equivalent: Article XXVIA in the US–Canada Tax Treaty), and does this treaty-based
enforcement violate US constitutional provisions?

Principle:
Article 27 of the OECD Model allows countries to assist each other in collecting tax
debts, treating the claim as if it were domestic. The Court upheld that the IRS may
collect Canada's final tax claim using US enforcement mechanisms.

The Court rejected the taxpayer’s constitutional challenges under the Origination Clause
and Taxing Clause, held that the treaty is self-executing, and confirmed that IRS
procedures under the Internal Revenue Code can be used to collect foreign revenue
claims.

Outcome:
Decision in favour of the tax authority. Collection under the treaty was valid and
enforceable.

55