Tolley® Exam Training: Adit Paper 1 Memory Joggers

Tolley® Exam Training
ADIT
PAPER 1
Principles of International Taxation
MEMORY JOGGERS
2020 Sittings
June and December
341
These Memory Joggers contain summaries useful for your ADIT paper.
The revision phase is all about practising questions. If you need help remembering
the key points of a topic, use the Memory Joggers rather than going back to the
study manuals.
As you practise more questions and gain confidence, you should start to rely on the
Memory Joggers less.
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Tolley® Exam Training CONTENTS
CONTENTS
PART I BASIC PRINCIPLES OF INTERNATIONAL LAW
CHAPTER 1 INTRODUCTION TO INTERNATIONAL TAXATION
CHAPTER 2 TAX AND TAX SYSTEMS
CHAPTER 3 CONNECTING FACTORS
CHAPTER 4 CAUSES OF INTERNATIONAL DOUBLE TAXATION
CHAPTER 5 METHODS OF RELIEF FROM INTERNATIONAL DOUBLE TAXATION
PART II DOUBLE TAX CONVENTIONS IN THE LIGHT OF THE OECD MODEL TREATY
CHAPTER 6 TYPES AND NEGOTIATION OF TREATIES
CHAPTER 7 THE FORMAT AND STRUCTURE OF A TAX TREATY
CHAPTER 8 OECD MODEL DTC PROVISIONS RELATING TO THE SCOPE OF A TREATY
CHAPTER 9 OECD MODEL DTC PROVISIONS RELATING TO RESIDENCE
CHAPTER 10 OECD MODEL DTC PROVISIONS RELATING TO PES
CHAPTER 11 OECD MODEL DTC PROVISIONS RELATING TO BUSINESS
CHAPTER 12 OECD MODEL DTC PROVISIONS RELATING TO INVESTMENT INCOME AND

GAINS
CHAPTER 13 OECD MODEL DTC PROVISIONS RELATING TO INDIVIDUALS
CHAPTER 14 OECD MODEL DTC PROVISIONS RELATING TO OTHER INCOME
CHAPTER 15 OECD MODEL DTC PROVISIONS RELATING TO ELIMINATION OF DOUBLE

TAXATION
CHAPTER 16 OECD MODEL DTC PROVISIONS RELATING TO NON-DISCRIMINATION
CHAPTER 17 MODEL DTC PROVISIONS RELATING TO DISPUTE RESOLUTION
CHAPTER 18 OECD MODEL DTC PROVISIONS RELATING TO CO-OPERATION
CHAPTER 19 OECD MODEL DTC PROVISIONS RELATING TO LIMITATIONS ON BENEFITS

FROM THE TREATY
CHAPTER 20 THE APPLICATION OF TAX TREATIES TO e-COMMERCE
CHAPTER 21 DOUBLE TAX TREATIES AND DOMESTIC LAW
CHAPTER 22 APPROACHES TO APPLYING A TAX TREATY
CHAPTER 23 INTERPRETATION OF TAX TREATIES
© RELX (UK) Limited 2019 I FA 2019

Tolley® Exam Training CONTENTS
CHAPTER 24 CONVENTIONS FOR ADMINISTRATIVE ASSISTANCE IN TAX ADMINISTRATION
PART III HARMFUL TAX RULES AND INTERNATIONAL TAX AVOIDANCE
CHAPTER 25 ENTITY CLASSIFICATION
CHAPTER 26 TAX HAVENS AND HARMFUL TAX PRACTICES
CHAPTER 27 CFC RULES AND SOME OTHER ANTI-AVOIDANCE APPROACHES
PART IV TRANSFER PRICING AND THIN CAPITALISATION
CHAPTER 28 INTRODUCTION TO TRANSFER PRICING
CHAPTER 29 OECD MODEL DTC PROVISIONS RELATING TO TRANSFER PRICING
CHAPTER 30 THE OECD TRANSFER PRICING GUIDELINES
CHAPTER 31 THIN CAPITALISATION
PART V MISCELLANEOUS TOPICS
CHAPTER 32 TAXATION AND INTERNATIONAL HUMAN RIGHTS
CHAPTER 33 MONEY-LAUNDERING LEGISLATION AND TAX EVASION
CHAPTER 34 INDIRECT TAXES AND INTERNATIONAL TAXATION
CHAPTER 35 CROSS-BORDER MERGERS: SOME OF THE ISSUES AND SOLUTIONS
CHAPTER 36 ESTATE AND GIFT TAXATION AND INTERNATIONAL ISSUES
© RELX (UK) Limited 2019 II FA 2019

Tolley® Exam Training ADIT PAPER 1 PART I CHAPTER 1
INTRODUCTION TO INTERNATIONAL TAXATION
KEY CONCEPTS
“Jurisdiction” means the competence of a state to consider legal issues within its legal
system.
“Public international law” covers laws or understandings or generally accepted legal

concepts that govern a sovereign state in the international sphere.
“Private international law” refers to a state's recognition of the existence of overseas law
and how the domestic courts interpret overseas legislation in the context of domestic
cases.
TAXATION AND INTERNATIONAL LAW CONCEPTS
Tax comes within the field of “public” law. There are no formal laws (eg conventions)
under public international law that inform a sovereign state how to raise taxes.
States normally raises taxes based on Residency and Source (see later chapter).
Double Tax Conventions (DTC) allocate taxing rights.
The International Court of Justice (ICJ) can hear cases relating to taxation.
TAX ENFORCEMENT
The competence of a state's courts would generally not extend to the enforcement of
another state's tax laws – the rule of Dicey and Morris (the Revenue Rule).
Changes to DTCs and International agreements relating to exchange of information can

be said to be eroding the Dicey and Morris rule.
ORGANISATIONS
Two of the most important international bodies are the United Nations (UN) and
Organisation for Economic Cooperation and Development (OECD).
Both organisations have produced DTCs – the OECD “Model Double Taxation Convention
on Income and Capital” and the UN “Model Double Taxation Convention between
Developed and Developing Countries” both updated in 2017.
The OCED has been involved in many important projects, including the BEPS project
looking at whether, and if so why, the international tax rules allowed for the allocation of
taxable profits to locations different from those where the actual business activity takes
place.
15 Action Points were identified which have led to many changes in domestic tax systems
around the world, changes in existing treaties, and updates to the OECD Model Treaty.
© RELX (UK) Limited 2019 2020 Sittings

TAX AND TAX SYSTEMS
Tax systems often have comment elements which include:
• direct and indirect taxes
• source and residence concepts
• loss relief
• special rules for groups of companies
• double tax relief and
• anti-avoidance rules
The following should be present in all efficient tax systems (Adam Smith):
• Equality
• Certainty
• Convenience of Payment
• Economy of Collection

CONNECTING FACTORS
CONNECTING FACTORS
Source and Residence are connecting factors for taxation.
The “source” of something is simply from where it arises or where its origin lies.
“Situs” is a part of the source concept and specifically relates to location.
All countries use source taxation.
“Residence” has different meanings in different countries.
Nationality, Domicile and Citizenship can also be used as connecting factors.
SOURCE
Business Income
Business income is normally taxed net of deductions, allowances and reliefs.
It is necessary to determine where, in essence, the activities are carried on.
The concept of a PE is recognised as being a connecting factor that can give rise to
assessment to tax.
Investment Income
Investment income is normally taxed on a gross basis with no deductions or reliefs and is
often subject to a one-off withholding tax due to the state where the income arises.
When looking at the source of investment income, the two main rules are the “pay rule”
and the “use rule”. A combination of the two can be used.
The pay rule looks at who is making the payment.
The use rule looks at the underlying asset out of which the income arises or is associated
(eg the location of a patent).
Key Case
Westminster Bank Executor & Trustee Co (Channel Islands) Ltd v National Bank of Greece
SA (the Greek Bank Case). The London branch of a Greek bank paid interest, as
guarantor, on some bearer bonds. The payment was held to be income from an overseas
security and not subject to withholding tax in the UK. This case took a multifactorial
approach and led to guidance from HMRC on the key factors to be considered. A key
factor was stated to be the residence of the debtor and the location of his/her assets.
Other important factors are: the place of performance of the contract and the method of
payment; the competent jurisdiction for legal action and the proper law of contract; the
residence of the guarantor and the location of the security for the debt.

In the case of dividends the source state is normally that of the paying company's place
of residence (ie the pay rule applies), although there can be exceptions (eg US rules and
anti-avoidance rules).
RESIDENCE
Personal connection may give taxing rights to a state, including residence.
Many different tests are used to determine the residence of individuals including:
• the ownership or availability for use of a property (permanent, habitual or otherwise);
• the location of close relations;
• days spent in a country;
• the location of substantive wealth and possessions; and
• performing certain business or employments.
Countries have different approaches for determining the residence of companies

including:
• incorporation;
• legal seat;
• central management and control; and
• place of effective management (POEM).
Change of residency can lead to taxation issues such as payment and collection of
outstanding taxes and exit taxes on capital assets.
Dual residency for companies can be used as an avoidance strategy – many countries
have anti-avoidance rules to prevent this.

CAUSES OF INTERNATIONAL DOUBLE TAXATION
Double taxation can be caused by conflicting definitions of the connecting factors of

source and residence:
• Two states can claim to be the source of income; or
• Two states can claim that a person is resident there.
In addition, there can be a conflict between the connecting factors - one state can claim
to tax based on source and another state can claim to tax based on residence.
DTTs will resolve the conflicts in many cases or give double tax relief.
Conflicts of qualification arises when the two contracting states apply different
interpretations with regard to a particular income, such that it is treated as falling into
different articles of the treaty.
Anti-avoidance provisions aimed at dual resident companies (DRCs) may cause

expenses/losses to be denied in more than one location, with the result that possibly no
location gives relief for losses or expenses.

METHODS OF RELIEF FROM INTERNATIONAL DOUBLE TAXATION
TYPES OF DOUBLE TAXATION (DT)
Juridical: a taxpayer is taxed by two states on the same income.
Economic: the same income is taxed in the hands of different people.
TYPES OF TAX SYSTEM
Classical System: the normal system of taxation that applies if states take no particular
notice of the interaction between shareholders and their shareholdings. For example:
when a shareholder receives a dividend then no account is taken of the fact that the
company is paying the dividend out of taxed profits.
Imputation System: does take account of the fact that corporation tax has been paid on
the profits that are used to pay dividends. Generally only applies to domestic
shareholdings in local resident companies and effectively imputes the corporate tax, or
part of it, as a tax credit to the shareholder.
Overseas income is normally assessed gross of all overseas taxes paid.
The state of residence usually gives relief for DT.
METHODS OF RELIEF
Relief for DT can be in the form of credit, exemption, deduction or tax sparing.
Credit Relief
The foreign tax paid on the income is credited against the tax charged by the country of
residence. The credit is often capped at the lower of the overseas tax paid and the
domestic tax payable on the income. Full credit relief would allow relief greater than the
domestic rate of tax.
Credit relief is normally given for WHT. It can be extended to “Underlying Tax” for dividends
to recognise that they are paid out of taxed profits.
Credit relief can be given for business profits taxed at source, for example where there is a
Permanent Establishment.
Relief by Exemption
The country of residence does not tax the overseas income earned – it exempts it from
charge. Where a state applies a progressive tax system (under a rate band system,
charging different tax rates dependent on the level of profits) then the exemption for
foreign income might apply ‘with progression’.
Relief by Deduction
Relief is given by deduction against the assessable foreign income. This can be useful if
there are losses so credit relief cannot be used. As a general rule it is less efficient for the
taxpayer than relief by credit or exemption.

Tax Sparing (also known as “pioneer relief”)
This normally arises where a tax holiday is given in a country to encourage foreign inward
investment. Many developing countries concluded treaties specifying the relevant
legislation. The country of residence allows credit relief for the foreign tax that would have
been paid on a source of income or profits had it been liable to normal taxation.
ECONOMIC ISSUES
Two economist concepts used to look at DT are Capital Export Neutrality (CEN) and
Capital Import Neutrality (CIN).
CEN requires that the seller/investor faces the same tax rate wherever he sells his
goods/invests capital, thus maximizing the choice of outbound investment opportunities.
CEN is attained in the market place where the company faces the same effective tax rate
in whatever location it may wish to invest its capital.
CIN requires sellers/investors in a particular location to face the same tax rate no matter
where they are located, thus maximising the choice of inbound suppliers for consumers,
and inbound capital investment (savers). It could be said that CIN is based on the ‘source’
principle of taxation.
A further concept is National Neutrality, ie from a national perspective the best approach
is to tax foreign income (so apply worldwide taxation) but to allow a deduction for foreign
taxes against taxable profits (rather than giving a credit or allowing exemption of income).
This would mean that investors would be neutral when considering the pre-tax return on
domestic investments, as compared to the return on foreign investments after paying
foreign taxes.
To achieve CEN and CIN simultaneously there would need to be ‘Effective Tax Rate’
Equalisation which would mean that the product of the tax rates and tax bases in each
country should produce the same tax burden for a particular taxpayer in relation to a
particular economic outcome.

TYPES AND NEGOTIATION OF TREATIES
TYPES OF TREATY
The Main models are: US, UN, and OECD.
Treaties can be comprehensive or specific to shipping, aircraft and transport.
Multilateral treaties are becoming more common.
NEGOTIATION OF TREATIES
There is no one set of rules for negotiating a treaty – treaties are normally negotiated by
government representatives and can take many years to agree.
The treaty itself will have effective dates from which the treaty articles come into force,
once both contracting states have ratified the treaty.
Guidance as to the signing and initialling of tax treaties is given by the Vienna Convention.
Copies of nearly all international treaties between countries are held by the UN.

THE FORMAT AND STRUCTURE OF A TAX TREATY
OECD MODEL TREATY
There is a logical structure to the OECD Model Treaty. It identifies the areas that need to be
analysed in order to arrive at:
1. the scope and the definition articles
2. the intentions of the contracting states
3. benefits to individuals, businesses and possibly other entities
4. efficient administration and co-ordination
5. the starting dates/periods
UN MODEL TREATY
This follows the same format as the OECD Model Treaty.
However, the UN Model Treaty:
• Gives more weight to the source principle;
• Has a broader definition of a PE. It also recognises a limited “force of attraction” which
allows sales in a country of a similar kind that are not necessarily earned directly
through an existing PE to be attributed under the business profits article to the PE;
• Contains a royalty article which tends to encourage tax to be withheld in the source
country on the payment of royalties;
• Does not place limits on the withholding tax rates on source interest and dividends.
US MODEL TREATY
The US Model Treaty, which has been influenced by the OECD Model Treaty, plays an
important role in the negotiation of US tax treaties.
It contains a “Limitation on Benefits” article which is aimed at countering the abusive use
of treaties. Another distinctive feature is that it refers to US citizens.
OTHER MODELS
These include the Dutch Model, the Nordic Model and the 1987 Intra-ASEAN Model.
MULTILATERAL INSTRUMENT (MLI)
The MLI is the outcome of BEPS Action Point 15. It entered into force on 1 July 2018.
It works alongside existing DTCs to implement BEPS outcomes.
The MLI allows an existing tax treaty to be amended if the two signatories take the same
position (regarding the areas of choice) when they sign it.

OECD MODEL DTC PROVISIONS RELATING TO THE SCOPE OF A

TREATY
Article 1 sets down the persons within the scope of the treaty. Access to a treaty can be
denied in cases of abuse.
The 2017 update made it clear that the treaty does not limit a state’s right to tax persons it
considers tax resident, except where the treaty specifically limits such right.
Article 2 details the taxes covered – it is drafted widely to prevent a need to amend the
treaty when new taxes are imposed by the states.
Article 3 provides some general definitions eg a ‘person’ is an individual, a company or

any other body of persons.
Article 30 “Territorial extension” article is to permit certain other parts of a territory to come
within the terms of a treaty if the contracting states so agree at a future date to do that.
Article 31 provides that a treaty enters into force upon exchange of instruments of
ratification and the various provisions may have effect from certain predetermined dates
as stated in the treaty.

OECD MODEL DTC PROVISIONS RELATING TO RESIDENCE
A person’s residence for treaty purposes is a key consideration.
INDIVIDUALS
Article 4(2) sets down a hierarchy of “tie-breaker” tests:
1. permanent home;
2. closest personal and economic ties (ie “centre of vital interests”);
3. habitual abode;
4. nationality; then failing all else
5. the mutual agreement procedure whereby the competent authorities of each state
decide the matter.
COMPANIES OR OTHER ENTITIES
Article 4(3) provides the tiebreaker for cases other than individuals.
Following the 2017 update, the OECD Model Treaty applies a mutual agreement
procedure (MAP) in place of the previous Place of Effective Management (POEM).
POEM will still be used if necessary as part of MAP and countries can continue to use POEM
as a tie-breaker if preferred.
Key Case
HMRC v Smallwood and Anor [2010]: Determined that the POEM is the place where key
management decisions are taken. It will normally be the place where senior management
make decisions. There is no definitive rule and all facts and circumstances must be
considered. There can only be one POEM at any one time.

OECD MODEL DTC PROVISIONS RELATING TO PES
PERMANENT ESTABLISHMENT
Where an enterprise isn’t resident in a state, it may still have a taxable presence if it has a
permanent establishment (PE) there.
Article 5 establishes when an enterprise has a PE in another state.
There are two main type of PEs: Fixed place of business (FPB) and Agency.
Even if there is a PE in a state, profits will only be taxed there if the main business of the
enterprise is carried out through the PE.
ARTICLE 5
5(2): Lists examples of a FPB – this is a non-exhaustive list.
5(3): Construction Site PE – a building/installation project only constitutes a PE if it lasts > 12

months. Amendments to the commentary (2017) prevent splitting up of contracts in order
to prevent the creation of a PE. The Principal Purpose Test in Article 29(9) could counteract
such actions.
5(4): Provides exclusions to the definition of both FPB and Agency PEs where the activity is
preparatory or auxiliary. The exclusions were narrowed in the 2017 update and an anti-
fragmentation rule was added to prevent abuse of the exceptions.
5(5): Sets down the concept of an Agency PE. An Agency PE exists where a person
habitually concludes contracts or habitually plays the principal role leading to the
conclusion of contracts. The 2017 additions of the ‘principal role’ test aims to prevent
avoidance of a PE by way of commissionaire arrangements.
5(6): Determines that a PE does not exist where business is carried on via an independent
agent acting in ordinary course of its business. The agent cannot be acting exclusively or
almost exclusively. The tightening of the definition of independent (2017) also prevents
avoidance by way of commissionaire arrangements.
5(7): Establishes that a subsidiary isn’t automatically a PE but can be. Similarly, a parent
can be a PE of a subsidiary.
5(8): The definition of a closely related party was added as part of the 2017 update. It is
based on control looking at beneficial ownership of more than 50%.
KEY CASES
(Note that although this case law pre-dates the 2017 update to the treaty, it is still relevant)
Roche Vitamins (STS 201/2012) Spanish case January 2012: Business restructured from
manufacturer and fully-fledged distributor to contract manufacturer and agent for sales.
Courts held that the Spanish subsidiary was a PE after the reconstruction. Found that the
Spanish subsidiary operated as a dependent agent of the Swiss entity, as it carried on,
under the two contracts, the activity which could have been done directly through a fixed
place of business (being the sale and distribution of the goods produced).

Director of Income Tax v e-Funds IT Solutions. Indian High Court 2014/Supreme Court 2017:
Held that an (indirect) Indian subsidiary of a US company was not a PE. Looked at US-India
DTC. Held Indian Revenue could not prove “right of use” and “at the disposal of”.
GE Energy Parts Inc v ADIT (ITA No. 671/Del/2011) Indian Tax case July 2014: The ITAT
(Indian tax tribunal) held that the LinkedIn profiles of the employees of the GE group
submitted by the tax authorities were admissible as evidence.
Kammarrätten i Göteborg Swedish case 2016: A foreign company which regularly

conducted business from the same place in Sweden had a PE there. The company
annually performed tests in winter conditions in Sweden, and the test results were then
used for software development in Germany. The annual testing period ranged from three
to four months, but the company was only on the ground for a few weeks at a time.
AB LLC and BD Holdings LLC v SARS South African case 2015: Looked at services PE under
US-South Africa treaty. PE on two counts: (1) 183 day test for employees (2) use of
boardroom.
Re Japanese Taxation of Internet Sales Japanese case 2016: Looked at auxiliary and
preparatory. US resident company sold automobile accessories over the internet. Products
were packaged and a manual inserted in Japan. Held to be a PE in Japan. Discussion on
structure of exception and whether all aspects need to be auxiliary and preparatory.
Al Hayat Publishing Co Ltd French case 2014: Court considered the application of Article
5(4) in the France-UK treaty. A Paris bureau researched French current affairs and wrote
articles for publication in the newspaper. These activities were not part of core activity
therefore a PE did not exist.
Formula One World Championship Ltd. v Commissioner of Income Tax, International

Taxation 3 Delhi & Anr. Appeal Indian case 2017: The existence of a PE was upheld as the
Court found that the racing circuit constituted a fixed place from which a
business/economic activity was conducted. The duration of the event and the number of
days for which the UK company's personnel had access to the circuit would not make any
difference.
Aska Gmbh Danish case 2017: A sales manager was required to work from home in
Denmark. The Danish tax board ruled that the manager’s use of a home office for
administrative work (for which he was not reimbursed) constituted a PE of his German
employer. Held that there must be recurring work from the home office not just sporadic or
occasional.
Wolf v R Canadian case 2018: Application of a services PE within US-Canada treaty, similar
to that found in the OECD Commentary. Art 5(9) deemed services to be provided through
a PE if the 183 days of presence and the 50% of gross active business revenue tests were
both met. Mr Wolf had spent 188 days in Canada and failed to prove that more than 50%
of the gross active business revenues were not derived from services performed in
Canada. The Court concluded that Mr Wolf had a single enterprise from which all the
various sums were derived so his fees were taxable in Canada.

OECD MODEL DTC PROVISIONS RELATING TO BUSINESS
BUSINESS PROFITS (ARTICLE 7)
The business profits article set out the limits of the source state’s taxing rights in relation to
business profits.
7(1): An enterprise can only be taxed in the state of residence unless there is a PE in the
other state.
7(2): A PE is to be treated as a separate and independent enterprise for dealing with other
parts of the same enterprise.
7(3): Corresponding adjustments can be made to eliminate double taxation.
7(4): Other articles of the treaty take precedence, if an item of income is dealt with under
that other article.
Authorised OCED Approach (AOA)
A key concept of the 2010 Report on the Attribution of Profits to PEs (the 2010 report) is that
a PE should be considered a separate and independent enterprise, (per Article 7(2)).
A PE will be attributed with the profits which it would have earned if it had been a separate
legal enterprise on the assumption that dealings with the rest of the enterprise are
conducted on arm’s length terms.
Domestic law will determine the allowable deductions of a PE.
The AOA is a two step process:
– firstly the PE has to be hypothesised as a separate and independent enterprise (by

drawing up a Functional Analysis and identifying the significant people functions);
– then the OECD Transfer Pricing Guidelines are applied by analogy.
The 2010 report also looks at Dependent Agent PEs (DAPEs).
Internally generated assets such as IP will need to be considered to determine to what

extent they “belong” to the PE. Allocation of assets will impact on allocation of profits.
The 2010 report states that in most cases there should not be a deduction for internal
interest. The exception will be where there are treasury dealings. To determine interest
deduction the amount of “free capital” (share capital) a PE would have as an
independent enterprise needs to be considered.
Following the final report on Action Point 7 of the BEPS project, additional guidance on the
appropriation of profits was issued in 2018. The additional guidance recognises that not all
countries follow the AOA. The application of the separate and independent enterprise
approach should be used whether or not the AOA is used.
The additional guidance provides high level guidance on PEs resulting from Article 5(4.1)
(anti-fragmentation) and the amendments to Article 5(5) to deal with commissionaire style
arrangements.

INTERNATIONAL SHIPPING AND AIR TRANSPORT (ARTICLE 8)
Updated in 2017. Previously taxation was based on the place of effective management.
8(1): The profits of a shipping/aircraft enterprise which is tax resident in a state are only
taxable in that state.
8(2): The principle in 8(1) is extended to profits from the participation in “a pool, joint
business or international operating agency”.
Bare-boat chartering of a ship or aircraft comes under the business profits article.
The leasing of a fully manned and equipped ship or aircraft comes within the shipping and
aircraft article, as do closely related activities.

OECD MODEL DTC PROVISIONS RELATING TO INVESTMENT

INCOME AND GAINS
Article 29 which introduces anti-avoidance provisions, such as a treaty PPT and LOB
clause, can apply to persons claiming the benefit of the investment income articles of a
treaty.
BENEFICIAL OWNERSHIP
To benefit from the reduced treaty rates, the recipient needs to be the “beneficial owner”
(BO) of the dividend/interest/royalty.
Paragraphs 12.1 – 12.7 of the commentary to Article 10 discuss BO and state that there is
no intention to have a narrow technical meaning. The discussion is repeated for Articles 11
and 12. The recipient of the dividend/interest/royalty is the BO if he has the right to use and
enjoy the income, unconstrained by a contractual or legal obligation to pass on the
payment received to another person.
Key Cases
Indofood International Finance Ltd v JP Morgan Chase Bank NA: This was a case on interest
payments and the steps that could be taken to reduce WHT. The proposal was to use a
Dutch SPV to get a treaty benefit. When looking at the meaning of BO, it was held that the
international fiscal meaning needed to be applied rather than the narrow technical
meaning in domestic law.
Prévost Car Inc. v The Queen: The Tax Court of Canada: This case took the view that where
a company had discretion as to the application of the dividends received, then it was the
BO.
Registers of BO
The UK has created registers of BO which are (generally) publicly available. The G20
countries are taking steps to identify BO but have not introduced a register as yet.
EU Member States are required to keep public registers; under AML 5 public access is
permitted.
The OECD have published a beneficial ownership toolkit.
DIVIDENDS (ARTICLE 10)
The dividends article limits the amount of tax that the source state can charge on the
payment of a dividend from a company resident in that state.
10(1): Dividends may be taxed in the residence state of the recipient.
10(2): The source state may also tax the dividend but source taxation may be limited
where the beneficial owner BO is resident in the other state. The source tax cannot exceed
5% where the BO is a company and holds at least 25% of the capital paying the dividends
and 15% otherwise.
10(3): Provides a definition of dividends.

10(4): Applies where the BO of a dividend is a PE in the state of the Payee. In that case the
taxation of the PE in respect of the dividend is not restricted by 10(2).
10(5): Prohibits the “extra-territorial” taxation of dividends. This stops a state from taxing a
dividend on the basis that the source of its profits, or part of the source of its profits, arises in
that state even though the dividend does not emanate from a company resident in that
state.
The EU Parent-Subsidiary Directive may also reduce WHT dividends.
INTEREST (ARTICLE 11)
The interest article aims to limit the tax imposed by the source state and counters treaty
benefits where there is an excessive payment of interest arising from a “special
relationship”.
11(1): The resident state has unlimited taxing rights on the interest.
11(2): The source state can tax the interest but the maximum rate of tax that can be
applied where the recipient is the BO is 10%.
11(3): Provides a definition of interest.
11(4): If the recipient of the interest has a PE in the other state then the other state may tax
that interest at the normal income/corporate tax rates.
11(5): Sets out the circumstances when interest “arises in” a state.
11(6): Excessive interest payments arising under a special relationship, having regard to
the debt claim on which the interest is paid, will not get the benefit of the reduced WHT.
Some treaties have WHT of zero for interest.
The EU Interest and Royalties Directive prohibits WHT on interest in certain cases.
ROYALTIES (ARTICLE 12)
The source state cannot apply a tax on the payment of a royalty.
12(1): The state of residence of the BO of the royalty has the only taxing right.
12(2): Provides a definition of royalties.
12(3): Where the BO of the royalty has a PE in the other contracting state through which
the royalties arise then the PE state may tax such royalties at the normal
income/corporation tax rates.
12(4): Royalty payments arising under a special relationship which are excessive, taking
into account “the use, right, or information” for which they were paid, are denied the
benefits of the Article.
The EU Interest and Royalties Directive prohibits WHT on royalties in certain cases.

Key Cases
DIT v Infrasoft Ltd: The purchase by the end-users was found to be a payment for the right
to use the copyrighted material, and so was not a royalty payment. In this case the
licence was non-exclusive, non-transferable and the software had to be used in
accordance with the agreement.
Task Technology Pty Ltd v Commission of Taxation: Payments for the use of software were
held to fall within Article 12(2) of the Canada-Australia DTC. The fact that Task was granted
the right to make copies of the software for distribution made it clear that the payment
was a copyright royalty.
CAPITAL GAINS TAX (ARTICLE 13)
13(1): The source state has the right to tax “gains” from the “alienation” of “immovable
property” (see Article 6).
13(2): The source state can tax gains on the sale of movable property associated with a PE
or on the sale of the PE itself.
13(3): Following the 2017 update to the OECD Model Treaty, in the case of the alienation
of ships and aircraft which an enterprise of a state operates in international traffic, only the
state where the enterprise is resident has the taxing rights. Previously it referred to the
place of effective management.
13(4): The source state can tax the gains on the sale of shares in a company, or
comparable interest in partnerships or trusts, owning immovable property situated in the
source state where that property forms more than 50% of the value of the company
subject to a time limit (shares are, however, generally regarded as movable property). This
covers ‘real estate’ companies.
13(5): In cases not covered by the above, the state of the seller is only able to tax the gain.
The meanings of “gain” and “alienation” in paragraph 1 are not clear.
INCOME FROM IMMOVABLE PROPERTY (ARTICLE 6)
Immovable property includes land and buildings.
6(1): Income from immovable property may be taxed where the property is situated.
6(2): Domestic law is used to define immoveable property.
6(3): The Article applies to income from direct use, letting or use in any other form.
6(4): The Article also applies to income belonging to enterprises eg land held by a
company.

OECD MODEL DTC PROVISIONS RELATING TO INDIVIDUALS
EMPLOYMENT INCOME (ARTICLE 15)
A person is generally only taxed on their employment income in the state of residence,
unless work is undertaken in the other state, then both states can tax (subject to DTR).
15(1): A person is taxed on employment income where the employment is exercised.
15(2): However, where employment income is exercised in another state, it may be taxed
in the other state if:
– physical presence of more than 183 days in a 12 month period in the other state; or
– he/she is employed through an employer resident in the other state; or
– his/her remuneration is borne by a PE in that state.
15(3): Exception for remuneration derived from employments on ships and aircraft
operating in international traffic, such remuneration is taxed in the resident state of the
employee (2017 update – previously, this was taxed where the effective management of
the craft was).
Treaty issues can arise in the case of payments made after the termination of the
employment eg bonuses accrued during employment; payments for unused vacation or
sick days; severance payments (etc).
The key to allocating these is to identify the real consideration for the payment, to
determine if it falls within the article.
DIRECTOR’S REMUNERATION (ARTICLE 16)
The fees of a director resident in one state may be taxed in another state, if they are
derived from a company resident in that other state.
PENSIONS (ARTICLE 18)
Pensions from employment are taxed where the recipient is resident.
INDEPENDENT PERSONAL SERVICES (ARTICLE 14)
Deleted as superfluous
ENTERTAINERS AND SPORTSPERSONS (ARTICLE 17)
17(1): Entertainers and sports persons are taxed where their activities are performed.
17(2): If the income accrues to another person, then if the performance state cannot look
through to the entertainer/sportsperson the other person is taxed. If the other person is
carrying on a business then they can be taxed in the state of performance of the activities
even if there is no PE. This is an anti-avoidance provision to stop the use of “rent a star”
corporate entities.

OECD MODEL DTC PROVISIONS RELATING TO OTHER INCOME
Article 21 may be described as the ‘dustbin’ article as it deals with any income that is not
covered in any other specific article.
21(1): Items of income of a resident not otherwise covered in the other articles of the
treaty will only be taxable in the resident's state. This includes income from other sources
and income from other classes.
21(2): If the income (other than from immovable property) is effectively connected to a PE
which the resident has in the other contracting state then it will be taxed under the
provisions of the business profits article, ie it will be taxed in the PE state.
The OECD recognises that there can be cases where neither states taxes income (see
paragraph 3 of commentary).
The commentary includes a paragraph 3 for the Article that can be used to deal with non-
traditional financial instruments where there is a special relationship.

OECD MODEL DTC PROVISIONS RELATING TO ELIMINATION OF

DOUBLE TAXATION
A key role of a DTC is to prevent double taxation (DT)
ARTICLE 23A
This Article provides relief by exemption as being a principal method for relieving DT.
Relief is given by the state of residence. Domestic law will set the detailed rules.
Key aspects of exemption systems include:
1. Identifying classes of foreign income that are to be exempted from tax
2. Acquisition costs (incl. finance charges) of shares qualifying for a tax exemption on
disposal or on associated dividends, may be allowed as a qualifying current year
expense, or partially/fully disallowed
3. “Exemption with progression” – this can mean that the overseas income still leads to
higher tax as it is included when calculating the rates of tax that will apply
ARTICLE 23B
Credit relief applies where exemption doesn’t apply.
It is given by resident state and domestic law will set the detailed rules.
Key aspects of credit systems include:
1. The criteria affecting the degree to which overseas taxes are creditable vary
2. Credit for foreign taxes may be given on a strict source by source basis, or may be
allowed against other taxes on income in the same “basket”.
3. Excess tax credit carryovers may be available for set off, (sideways, forwards, or
backwards)
4. Relief for underlying taxes incurred and withholding taxes paid on dividends through
various tiers of companies
TAX SPARING
This occurs when a taxpayer is treated for DTR purposes as having paid tax in an overseas
location where there is a tax holiday.
There are no standard tax sparing provisions within the OECD Model Treaty.
It is important to be aware of the potential for abuse of such provisions.

OECD MODEL DTC PROVISIONS RELATING TO NON-

DISCRIMINATION
ARTICLE 24
This article places non-discrimination requirements on the source country rather than the
residence state.
24(1): Nationals of one state should not face a tax liability or requirement more
burdensome than nationals of the other state;
24(2): Stateless persons, resident in one state, should not face tax burdens any worse than
nationals in each state;
24(3): A PE shall not be taxed in a less favourable manner than an enterprise based in the
same state;
24(4): Payments of interest, royalties and other disbursements deductible in one

contracting state when paid to residents of that state are equally deductible if paid to
residents of the other contracting state;
24(5): Enterprises of one state, owned or partly owned by residents of the other state,
should not face greater burdens than enterprises owned by residents of the former state;
24(6): The non-discrimination article applies to taxes of every kind and description (ie in
addition to those specifically stated in the treaty).
The discriminatory treatment must relate to taxpayers both of whom are resident. The
overall principle is to avoid a ‘disguised form of discrimination based on nationality’
(paragraph 1 of the commentary). Difficulties arise in selecting the correct comparator.
Key Cases
Boake Allen Ltd v Revenue and Customs Commissioners: UK-Japan Treaty. The Court took
a narrow approach. Was there discrimination as a result of there being a non-resident
shareholder? A non-resident parent is outside the scope of UK taxation (key element here)
hence is not comparable with a resident parent. No discrimination was found on the facts.
HMRC v FCE Bank PLC: US-UK Treaty. The Court took a wider approach. Again the non-
resident parent was outside the scope of UK tax, however the Court held this wasn’t
material to the rules of surrendering losses. Therefore, the companies were being
discriminated against and should be allowed to make the surrender.
TRIANGULAR SITUATIONS
Arise where a state A company has a PE in state B earning income in state C. The B-C
treaty cannot be used to deal with double taxation where state C taxes the income at
source and state B taxes the income as part of the PE, as a PE cannot claim treaty
benefits.
Whether treaty relief can be claimed in state B for state C withholding taxes will depend
on the non-discrimination article of the A-B treaty, and the company in state A making a
claim for equal treatment of its PE in state B.

The 2017 updated commentary paragraph 71 also cross refers to the LOB provisions in
Article 29, which limits the benefits of the treaty in triangular cases in certain
circumstances.

MODEL DTC PROVISIONS RELATING TO DISPUTE RESOLUTION
MUTUAL AGREEMENT PROCEDURE (ARTICLE 25)
The Mutual Agreement Procedure (MAP) set down in Article 25 is used to resolve
disagreements where there are differences of opinion in applying a double tax treaty.
25(1): Taxpayers who think the DTC has not been properly applied can present their case
to the Competent Authorities (CAs) of either state within 3 years
25(2): CAs to endeavour to reach a solution
25(3): CAs can use MAP to resolve problems eg a MAP APA
25(4): Provides for communication between the CAs
25(5): Provides for arbitration to be used if agreement has not been reached within 2
years. Added to the Treaty in 2008, updated in 2017 so that the application must be in
writing.
The Annex to the commentary includes a sample form of agreement that CAs may use to
implement the arbitration process.
ACTION POINT 14
AP 14 of BEPS contained 3 minimum standards:
1. To ensure that countries implement Article 25 of the OECD Model Treaty in good faith.
2. To ensure that domestic administrative procedures don’t block access to the MAP
process and promote timely resolution
3. To allow taxpayers access to the MAP process when the requirements at paragraph 1
of Article 25 are met.
AP 14 also contained best practices which are voluntary.
AP 14 called for a mandatory binding arbitration (MBA) procedure.
MULTILATERAL INSTRUMENT
The MLI is being used to update treaties for the changes to Article 25 as a result of AP 14.
The arbitration provisions in the MLI are optional – so far 25 countries have agreed.
The default position is arbitration by ‘final offer’ approach, although states may agree to
use the ‘independent opinion’ approach.

OTHER MEANS OF RESOLVING DISPUTES
EU Arbitration Convention considers double tax disputes arising due to transfer pricing
issues between associated parties – however this is time-consuming and its practical
application is limited.
A Directive on Tax Dispute Resolution Mechanisms was adopted in 2017 to build on the
Arbitration Convention and allows for dispute resolution in all situations giving rise to double
taxation.

OECD MODEL DTC PROVISIONS RELATING TO CO-OPERATION
EXCHANGE OF INFORMATION (ARTICLE 26)
Article 26 deals with exchanges of information between tax authorities for the prevention
of evasion of taxes.
26(1): Provides for exchange of foreseeably relevant information, which can be on

request, automatic or spontaneous
26(2): Details restrictions on disclosure of information exchanged
26(3): Limits the obligations of states to exchange information if at variance with their laws,
not allowed or would disclose trade secrets
26(4): There is a requirement to provide information requested by a state even if not

required by the other state
26(5): Overrides any bank secrecy laws of a state
Key Cases
Berlioz Investment Fund SA (C-682/15): CJEU held that ‘foreseeable relevance’ provides for
exchange of information to the widest possible extent without permitting ‘fishing
expeditions’. Both the requesting and requested states must assess whether this standard is
met.
Swiss Transfer Pricing case (2017): the Court ruled that ‘foreseeable relevance’ requires
presence of a reasonable possibility that the requested information is relevant at the time
of the request.
AXY and others v Comptroller of Income Tax (2018): Singapore Court of Appeal held that
the requested tax authority is not obliged to embark on an independent investigation of
the foreign tax authorities’ allegations. The validity of the request should be assessed at the
time it is made, but a person of interest should have the opportunity to raise concerns as to
its validity.
Swiss Falciani case (2017): the principle of good faith, as set down in Swiss law, and as
applicable in interpreting an international treaty, meant an information request from the
French authorities instigated by an investigation based on data obtained pursuant to a
Swiss criminal offence (being data stolen by Mr Falciani from HSBC Switzerland) could not
be allowed.
TIEA
The TIEA is not binding but sets out two models, bilateral and multilateral agreements, with
the aim to establish a standard for effective exchange of information.
Article 1 uses the same wording as Article 26 of the OECD Model Treaty.
It does not include automatic or spontaneous exchange although states are free to
negotiate such exchanges.

Like Article 26, the TIEA recognises the interaction with domestic law and the need for
confidentiality.
ASSISTANCE IN THE COLLECTION OF TAXES (ARTICLE 27)
Article 27 deals with “assistance in the collection of taxes”. This Article is increasingly being
adopted by states in new (and existing) treaties.
27(1): Provides for assistance in the collection of tax
27(2): Sets down the taxes covered by the Article
27(3): Sets down the conditions under which a request for assistance must be made. Tax
must be owed under the law of the requesting state and be collectible. The other state is
required to collect it as if it is its own tax
27(4): Sets down measures to conserve the claim
27(5): Determines the priority of claims
27(6): Establishes that the requested state doesn’t have to consider the validity of the
claim
27(7): Deals with a change of position following a request
27(8): Sets down limitations to the obligations placed on the requested state
The assistance foreseen by this Article is not restricted by the personal scope (Article 1) or
the taxes covered (Article 2) under the OECD Model Treaty.
Key Case
Ben Nevis (Holdings) Ltd & Anor v HMRC: Held that the application of the Article to taxes
arising before the double tax treaty came into force was not prevented by the revenue
rule. The revenue rule was concerned with the enforcement of taxes and did not
constitute an absolute proscription of the recognition of foreign revenue laws. Also stated
that the revenue rule did not exist for the benefit or protection of taxpayers.
JOINT INVESTIGATION OF TAXPAYERS
Joint investigation of taxpayers is becoming more normal.
The US, UK, Canadian, Australian and Japanese tax authorities put joint task forces in
place to increase collaboration and co-ordinate information about abusive cross-border
tax transaction structures (JITSIC). This now involves many more countries.

OECD MODEL DTC PROVISIONS RELATING TO LIMITATIONS ON

BENEFITS FROM THE TREATY
Anti avoidance provisions are required to stop the use of base and conduit companies in
order to get treaty benefits (ie low or no WHT) ie to stop treaty shopping.
Base companies: Collect income that would otherwise flow to a taxpayer eg Royalties.
Conduit companies: Channel income ie they have income paid to them and then pay it
out to another person.
ABUSE PROVISIONS IN THE MODEL TREATY
Historically abuse provisions in the OECD Model Treaty (denial of benefits, beneficial
ownership requirements and look through provisions) have not been fully successful.
The 2017 update to the Treaty added Article 29 (per BEPS Action Point 6).
Article 29 includes a Limitation on Benefits (LoB) provision (see first 7 paragraphs) and a
Principle Purpose Test (PPT).
Article 29 sets down objective tests but leaves the detail to the states.
Article 29(8) limits treaty benefits where the income of a resident of contracting state is
received by a PE in a third state which is subject to low, or no, taxation.
LOB OUTSIDE OF THE MODEL TREATY
LoB clauses can be found in domestic law and most famously in the US Model Treaty.
The LoB article in the US Model Treaty restricts access to the treaty for certain classes of
“qualifying persons” persons. The provisions are very detailed and look in detail at the
person wanting to use the treaty benefits.
Domestic law and treaty override responses have not been fully successful in combatting
treaty abuse.
Using a GAAR is another approach. The new PPT in the 2017 OECD Model Treaty is a
‘treaty GAAR’.

THE APPLICATION OF TAX TREATIES TO e-COMMERCE
E commerce relates to commercial transactions undertaken electronically.
OTTAWA CONFERENCE
The Ottawa Conference concluded that tax shouldn’t be a barrier to e commerce and
that tax authorities should use technological developments to the benefit of the
administration of tax.
It was determined that a number of areas needed reviewing including the concept of a PE
and the characterisation of income.
PERMANENT ESTABLISHMENTS
A discussion paper on PEs was issued in February 2001.
This looked at 4 scenarios: stand alone server; mirror server; server as part of an existing PE;
and a PE that has developed Intangible assets essential to the business and owns
hardware/software.
In many instances if there is a PE the attribution of profits would not be high.
The 4th scenario of a PE with Intangibles owning hardware and software is the one likely to
lead to attribution of profits.
BEPS PROJECT
The BEPS project decided not to treat the digital economy as a separate issue.
Issues concerning the digital economy are being dealt with via the outcomes of Action
Point 3 – CFCs; Action Point 7 – PEs; and Action Points 8 to 10 – Transfer Pricing.
Going forward the task force on the digital economy is looking at key areas including:
– revenue characterisation;
– impact of business innovations;
– consideration of how to tax value created or attributable to individuals’ data;
– the possibility of a ‘virtual’ as opposed to a physical nexus for tax purposes;
– equalisation levies on digital businesses operating in a country without being physically

present.

RECENT DEVELOPMENTS
A key aim is to align taxation with value creation.
March 2018 OECD Task Force Interim Report:
– Accepted differences exist between countries on the actions needed
– In-depth analysis of new business models/value-creation; how digital platform creates

‘size without mass’/extensive use of intangibles/exploitation of data
– users create value for platform business
– Further review needed of the ‘nexus’ and ‘profit allocation’ rules
– Effect on other areas of tax system (online forms/payments/submission of returns etc)
2019 work programme is based on two pillars.
Lack of consensus/ immediate global action has driven many countries to unilaterally
introduce their own rules.
EU approach – March 2018:
Long term – platform has taxable 'digital presence' or virtual PE if it fulfils one out of:
– €7m in annual revenues in a Member State;
– more than 100,000 users in a Member State in a taxable year; or
– over 3,000 business contracts for digital services in a taxable year.
Short term – tax on revenues where users play a major role in value creation:
– Tax in Member State of users
– Companies with annual global revenue of €750m and EU revenue of €50m
– Suggested tax rate of 3%
The EU has not, as of mid 2019, reached agreement on DST.
UK approach – March 2018 CT and the digital economy:
– How user participation creates value: generation of content/engagement contributes

to the brand
– Preference: reform of international framework to reflect value of user participation
– In meantime: use revenue-based taxes, identify user location, tax net revenues for
conduits and pass-throughs
– DST implemented at 2%, from 2020
India approach – implementation of significant economic presence PE test as from 2019.

DOUBLE TAX TREATIES AND DOMESTIC LAW
The process of domestic recognition of a tax treaty is different in every country.
Countries will also have specific provisions enabling the treaty to have force of law.
Tax treaties can have:
– Direct effect (monistic) – they automatically become part of the domestic law.
Examples include: France, Japan, Luxembourg, Spain, Switzerland
– Indirect effect (dualistic) – they need to be enacted into domestic law and require
special legislative steps, in order for them to be enforceable within that jurisdiction.
Examples include: Australia, Canada, UK, India, New Zealand, Sweden
In the US, once the Senate has given its consent the President, acting as chief diplomat,
has discretion as to whether to ratify the treaty.
As a general rule, a treaty supersedes domestic law. However, this isn’t always the case.
Tax treaties have a dual purpose: to avoid double taxation and prevent the evasion of
tax.
Tax treaties also have a dual nature as they are instruments of both international and
domestic law.

APPROACHES TO APPLYING A TAX TREATY
There is no single set approach to applying a tax treaty in a live practical situation.
A significant understanding of the domestic laws of each country is necessary.
We can summarise the general approach as follows:
1. Identify the person or persons and the territories/states under consideration; then
2. Determine the territory/state from which the income and profits (or capital) under
consideration arise; then
3. Determine whether the respective state taxes on the income/profits or capital under
consideration affect the same person in the state of residence (first step above) as
well as in the source state (second step above) and come within the terms of the
same tax treaty.
Care also needs to be taken as to what the official language of a tax treaty is.

INTERPRETATION OF TAX TREATIES
There is no single general approach for interpreting tax treaties.
It is generally a matter for the domestic courts.
The following should be taken into account:
– The OECD Model Treaty is a tool
– The OECD Model Treaty is not necessarily a legally binding document
– A jurisdiction's private international law is a key factor in interpretation
– The Vienna Convention on the Law of Treaties (“VCLT”) may be regarded as

customary international law for the purposes of domestic legislation.
Key Cases
RC v Commerzbank AG summarised in Memec plc v IRC
– Purposive approach
– Clear regard for international nature of a treaty
– Regard to Article 31 Vienna Convention
– Recourse may be had to supplementary aids to interpretation (this is not mandatory)
– Commentaries and decisions of foreign courts may be useful, but generally have
persuasive value only.
Bayfine (UK) v HMRC: judges took a purposive approach when looking at fiscal evasion.
Kljun (UK) v Revenue and Customs: The courts took a substance over form approach when
looking at who the employer was.
THE VIENNA CONVENTION ON THE LAW OF TREATIES
Article 31
Good faith is to be used when interpreting a treaty and the ordinary meaning is to be
given to treaty terms in their context and in light of the object and purpose of the treaty.
The context includes the text plus agreements made by the parties in connection with the
conclusion of the treaty plus any instrument made by one or more parties in connection
with the conclusion of the treaty and accepted by the others as an instrument relating to
the treaty.
Special meanings are given to terms if it is established that the parties intended this.
Article 32
Supplementary means of interpretation can be used to confirm the meaning under Article
31 or to determine the meaning where, usually after applying Article 31, the meaning is
ambiguous/obscure or manifestly absurd/unreasonable.

Under a “static“ approach, only the commentary applicable at the time the treaty was
negotiated would be considered.
With an “ambulatory” approach, later amendments to the commentary (after the date of
the treaty) would be considered.
The commentary to the OECD Model Treaty supports an ambulatory approach.
Key Cases
Trevor Smallwood Trusts v R&C Commrs: In looking at POEM and a treaty with a non OECD
member, it was concluded that the use of the commentary was problematic. The
approach needed was to read later commentary then decide in the light of its content
the weight it was to be given.
Indofood International Finance Ltd v JP Morgan Chase Bank NA: In contrast, in this case
neither party (Indonesia, Mauritius) was an OECD member but the commentary was used
to interpret beneficial ownership.
FCE Bank PLC: In this case looking at the non-discrimination article the judges were wary of
the use of the later commentary. The court did accept foreign judgments as an aide.
ARTICLE 3(2) OECD MODEL TREATY
This clause determines how the meaning of some of the terms not defined in the treaty
shall be established.
The term will have the meaning under the law of the state.
Many terms in the treaty are not defined eg management and control in Article 9.
It will be necessary to use domestic law and private international law.
Countries will use static or ambulatory approach.
MUTUAL AGREEMENT PROCEDURE (MAP) (ARTICLE 25 OECD MODEL TREATY)
The aim of the MAP is to deal with issues arising on the application of the treaty.
There is no obligation to reach agreement.
Mandatory Binding Arbitration is encouraged by the OECD.
DUAL NATURE
Dual nature of Treaties needs to be taken account of when interpreting them.
They are part of domestic law and part of public international law.

CONVENTIONS FOR ADMINISTRATIVE ASSISTANCE IN TAX

ADMINISTRATION
CONVENTION ON MUTUAL ASSISTANCE IN TAX MATTERS
This was developed by the OECD and the Council of Europe.
The object is to promote international cooperation. It covers all forms of administrative

cooperation, including assessment and collection. Article 6 provides for automatic
exchange of information and is the basis of the various MCAAs.
It is wider in scope than DTTs and the EU Directive on Mutual Assistance.
MARD (RECOVERY DIRECTIVE)
The MARD covers all entities established and persons residing in the EU. It provides
assistance in the recovery of tax claims, including precautionary measures (such as
freezing orders).
It includes all national taxes and duties, local taxes and motor taxes and it permits Member
States to exchange information without request on refunds (except VAT). It allows tax
officials from one Member State to attend or participate in administrative enquiries in
another Member State.
EU DIRECTIVE ON ADMINISTRATIVE COOPERATION (DAC)
The DAC acts alongside bilateral treaties. It has been updated as part of the work of the
EU on Transparency and on Anti-Avoidance.
It has wider powers than DTTs and can be used to help 3rd party states (on agreements).
The DAC allows for information on request, exchange and spontaneously.
It also has mandatory exchange for specific categories of income:
• employment income, director's fees, life insurance products (DAC1);
• certain financial information eg interest, dividends (DAC2);
• advance cross border tax rulings and advance pricing arrangements (DAC3);
• country-by-country reporting (DAC4);
• access with regard to money laundering information (DAC5); and
• with regard to disclosure of tax planning arrangements (DAC6).
FATCA
This is a US provision aimed at foreign financial institutions (FFIs) and other financial
intermediaries to prevent tax evasion by US citizens and residents through the use of
offshore accounts.
It requires non-US entities to report information about US accountholders and investors to

the IRS. Entities that do not comply could be subject to a 30% WHT on certain payments.

Some non -financial payments are exempt from withholding.
FATCA distinguishes between FFIs and non-financial foreign entities. FFIs are generally
subject to more substantial requirements.
IGAs signed by US with many countries (including France, Germany, UK) exempt FFIs in that
territory from the withholding requirements. The IGA allows for information sharing pursuant
to a DTT.
THE COMMON REPORTING STANDARD (CRS)
The legal basis for the CRS is the Convention on Mutual Assistance in Tax Matters.
The CRS includes the model competent authority agreement (CAA) containing detailed
rules on the exchange of information.
The CRS does not impose WHT. Countries enter CAAs (bi or multilateral) to provide CRS
information. Financial institutions are required to provide information which is exchanged.
Reportable income includes for example interest, dividends, account balances and sales
proceeds from financial assets. Reportable accounts include those held by individuals,
trusts and foundations and other entities. There is a requirement to look through passive
entities to controlling persons.

ENTITY CLASSIFICATION
Entity classification as ‘opaque’ or ‘transparent’ will impact on when and on whom profits
are taxed.
Single or opaque entities are treated as a separate person for taxation
Transparent entities are “looked through” – they do not pay taxation and the taxation is
levied on the “interest holders” or “participants”.
Countries have different rules for classifying entities.
Key Cases
Memec plc v CIR: UK case classifying a German silent partnership. On the facts the
German partnership was treated under UK rules as a separate opaque entity which
impacted on a claim for DTR. The case lead to guidance from HMRC. Many factors are
looked at, these include; is there a separate legal existence, is there share capital, who
carries on the business, are profits available to interested parties as soon as they arise, who
is responsible for debts, who owns the assets. Other countries will ask similar questions.
Anson (formerly Swift) v HMRC: Another UK case concerned a US LLC. HMRC treats LLCs as
opaque. The Supreme Court found this LLC to be transparent. This case rested on the
findings of fact based on the documentation (the operating agreement) for that
particular LLC and not every US LLC will be the same. HMRC therefore did not revise its
general approach to the categorisation of US LLCs for UK tax purposes.
PARTNERSHIPS
The OECD has recognised the practical difficulties in applying DTTs to partnerships.
The BEPS project recommended changes for transparent entities which expand on the
earlier OECD reports.
Key Case
Tiger Securitisation Speciality Co Ltd v Chief of Yeoksam District Tax Office: The Korean
Supreme Court applied a look through approach to a limited partnership entity to
ascertain whether any of its underlying investors benefited from the Korea-Germany treaty.
HYBRID ENTITIES
Hybrid entities are entities that are regarded as a single entity in one jurisdiction and
transparent in another.
Hybrids can be used for tax avoidance – they can mitigate or avoid withholding taxes,
alter the nature of payments in the hands of the recipient or payer and can give rise to
double deductions for interest.
BEPS Action Point 2 recommended changes to domestic law and the OECD Model Treaty
to combat hybrid mismatch arrangements.

The anti-mismatch rules aim at stopping:
– deductions with no income being taxed (D/NI); and
– double deductions in two jurisdictions (D/D).
Countries are introducing legislation based on the recommendations. The legislation is

divided into avoiding hybrid mismatches and neutralising the impact of hybrid
mismatches.
The 2017 update to the OECD Model Treaty includes amendments to Article 1 to deal with
fiscally transparent entities and to Article 4 to deal with dual resident entities.
The EU Anti-Tax Avoidance Directive (ATAD) includes minimum standards with regard to
countering hybrid mismatch arrangements.
CONFLICTS OF QUALIFICATION
Hybrids can work to the disadvantage of the taxpayer. They can lead to conflicts of
qualification under a DTC. Other types of conflict can similarly give rise to problems. For
example when there is disagreement on the classification of income and/or the
qualification of a person/entity to claim relief under the DTC. Examples include dividend v
interest.

TAX HAVENS AND HARMFUL TAX PRACTICES
IDENTIFICATION OF TAX HAVENS
Tax Havens are seen as having an unfair advantage over other jurisdictions.
Countries which are identified as tax havens can be put on a black list.
Tax havens are normally a low or no tax territory, with no exchange controls, and with a
good legal network, banking system and good transportation links.
HARMFUL TAX COMPETITION REPORT
The OECD report in 1998 led to changes in how tax havens operate and the black list
being reduced down to zero over time.
It led to changes in DTTs (regarding exchange of information and assistance in collection

of taxes) and also in domestic legislation eg CFC rules.
Members of the OECD had tax haven territories and in some cases preferential regimes.
Changes have been made to reduce these.
OTHER INITIATIVES
BEPS Action Point 5 focused on substantial activity and transparency. It suggested a

modified nexus approach for regimes, such as IP ‘patent boxes’. Countries are
implementing measures to achieve this.
The EU Directive on Administrative Cooperation (DAC) has improved information

exchange and transparency with regard to tax rulings (DAC3).
Tax inspectors without borders was launched by OECD to aid developing countries. It
matches requests for help with complex tax audits with the supply of international experts.
This results in a joint team and a learning by doing approach.
EU CODE OF CONDUCT
This sets out to identify unfair tax practices in the EU. There are 5 clear commitments
1. Standstill – no new harmful measures will be introduced
2. Rollback – existing measures will be reviewed with a view to removing harmful

measures
3. Provision of relevant information – between states regarding harmful measures
4. Procedures – to assess the measures falling within the code; and
5. Geographic extension – to associated territories.
The work is wider than that of the OECD. It has led to many changes eg the Savings
Directive (now abolished) and amendments to the DAC (eg DAC2 covers financial
information exchange).

CFC RULES AND SOME OTHER ANTI-AVOIDANCE APPROACHES
CONTROLLED FOREIGN COMPANIES (CFC)
Domestic legislation to combat CFC is encouraged by OECD (per 1998 report on Harmful
Tax Competition and the BEPS project).
CFC rules normally have the following characteristics:
– control test
– lower level of taxation tests
– identification of income
– exemptions
BEPS Action Point 3 identified 6 ‘building blocks’ as the design principles for CFC rules:
– definition of a CFC
– threshold requirements and exemptions
– definition of CFC income
– rules for computing income
– rules for attributing income
– elimination of double taxation
Profits of CFC are normally attributed and taxed in state of residence of the controlling
company.
Where there is a Foreign Personal Holding Company (FPHC), the income is attributed to
individuals rather than corporates.
The commentary to Article 1 of the OECD Model Treaty considers that CFC rules are
compatible with the treaty. Income attribution is a matter for domestic law.
Key Case
Bricom Holdings Ltd v IRC: UK rules were held not to be in breach of the treaty because of
the way they were written. UK rules were amended after being found to be incompatible
with EU freedom of establishment.
MANDATORY DISCLOSURE RULES
Mandatory disclosure rules are also encouraged by OECD to combat avoidance.
BEPS Action Point 12 considers a hallmark approach for deciding what needs to be
disclosed, together with a tax avoidance main purpose threshold and a de minimis filter.
The EU adopted transparency rules (under DAC6) for designers and promoters of tax
planning schemes. EU members will automatically exchange the information that they
receive, as from 2020.

DIVERTED PROFITS TAX (DPT)
Some states took action regarding anti-avoidance ahead of the BEPS reports eg the UK.
In the UK, DPT is a penalty tax for artificial diversion of profit and avoidance of PE status.
The UK believes that DPT is compatible with DTTs.
Australia also has DPT rules.
EU ANTI-AVOIDANCE DIRECTIVE
The Directive provides minimum standards for rules regarding 5 domestic tax measures:
– CFC rules (recommends a 50% control test; an effective 50% test to determine whether
a low tax state exists and a substance carve out)
– The tax deductibility of interest
– Hybrid mismatches
– Exit taxes
– GAAR
US TAX REFORMS OF 2017
Overhaul of US tax system – reduced corporate tax rate to 21%, 100% exemption for
foreign dividends – in attempt to attract businesses back to US.
Combined with key anti-avoidance rules:
– One-off mandatory repatriation of CFC profits
– Interest restriction at 30% EBITDA
– Further tax on interest/royalties/management fees paid overseas (BEAT)
– Additional tax on CFC income on depreciable tangible assets (GILTI)

INTRODUCTION TO TRANSFER PRICING
Transfer prices are prices charged between related enterprises.
Transfer prices offer the opportunity for tax avoidance.
Many countries have domestic legislation to counter tax avoidance via transfer prices.
The arm’s length principle (ALP) is the price that would be charged between
unconnected enterprises acting at arm’s length.
Domestic legislation often uses the OECD approved methodologies. It will have
documentation and compliance requirements, provisions for audits and penalties,
together with provision for advanced pricing arrangements (see below). The rules often
contain provisions relating to Thin Capitalisation (see later chapter).
ADVANCED PRICING ARRANGEMENTS (APAs)
APAs are agreements entered into by enterprises and tax authorities.
They can be unilateral, bilateral or multilateral.
Unilateral APAs can result in economic double taxation.
APAs do not set transfer prices – they normally just set the methodology to be used to
establish such prices.
APAs can be revoked or cancelled if the critical assumptions change.
APAs will normally last between 3 and 5 years and need to be renewed.
The BEPS project encouraged the use of bilateral or multilateral APAs.
APAs can be classed as tax rulings for information exchange (under BEPS Action Point 5).
This is also the case under the EU Administrative Cooperation Directive.
KEY CASES
DSG Retail v HMRC: The sale of warranties by a retailer was held to be a “provision” (as
defined by UK law) for transfer pricing purposes. CUP was rejected and it was determined
that profit split was to be used.
GEC Canada Inc v The Queen: This case looked at guarantee fees. Even though there was
implicit support from the parent, it was held that the guarantee could have some value.
Commissioner of Taxation v SNF (Australia) Pty Ltd: A connected party paid less than the
arm’s length price. It was held that the Australian transfer pricing rules could not be
applied. The Court considered that the OECD Guidelines were not relevant.

GlaxoSmithkline Holding (America) Inc (GSK) V Commissioners: There was a disagreement

on whether ownership IP or marketing spend lead to sales in the US. The US held it was
marketing and wanted an additional $8bn in tax. The UK said IP was the key and would
not agree to an adjustment. The case went to MAP but no agreement was reached. GSK
agreed to pay an additional $3bn to the IRS without achieving an adjustment in the UK. As
a result the lack of resolution at MAP resulted in double taxation.
Maruti Suzuki India v ACIT: Maruti paid Suzuki for the use of their brand. The Indian tax
authorities said that Suzuki should pay for the Maruti brand. The case looked at how much
marketing expense a distributor would incur. The bright-line test was used. As a rule, a
distributor wouldn’t spend money that benefited the brand name that they didn’t own.
Veritas Software Corp: The IRS disputed a CCA buy-in payment, arguing the IP had a
‘perpetual’ life which would increase the payment made by the Irish subsidiary to Veritas
in the US. The Courts disagreed and accepted the evidence of Veritas that the buy-in
payment was arm’s length.
Various EU State Aid cases consider transfer pricing issues.

OECD MODEL DTC PROVISIONS RELATING TO TRANSFER PRICING
Article 9(1) allows adjustments to profit where a transaction between associated

enterprises has not taken place at arm’s length.
Article 9(2) provides for corresponding adjustments, however a state only needs to make
such an adjustment if they agree that the adjustment made under Article 9(1) reflects the
arm’s length price.
Articles 11 and 12 contain special relationship provisions which deny reduced WHT if prices
are not arm’s length.
MAP can be used for transfer pricing disputes.
MAP allows APAs to be agreed by tax authorities.
Article 7 deals with PEs. Transfer pricing adjustments may be needed. The authorised
approach is set down in the Report on the Attribution of Profits to PEs (see earlier chapter).

THE OECD TRANSFER PRICING GUIDELINES
The latest edition of the Guidelines was published in 2017.
The main contents are:
– the arm’s length principle (ALP), the methodologies, comparability, administrative

approaches, documentation, intangible property, services, cost contribution
arrangements, and business restructuring.
The key to the ALP is the functional analysis (FA): this looks at the functions performed, the
assets used and the risk assumed by each party to a transaction.
Comparability has 5 elements to it:
– the contractual terms, the FA, characteristics of the property or service, economic
conditions, and the business plan.
Comparability requires that the situations are the same or that the differences do not
materially impact on the ALP.
METHODOLOGIES
There are 5 authorised methodologies:
Comparable Uncontrolled Price (CUP): This needs a high level of product comparability;
internal comparables are normally stronger than external comparables.
Resale Price Method (RPM): This is good for distribution companies. It works backwards
from the resale price, based on gross margins.
Cost Plus (C+): This is used in contract manufacturing and services. Gross margins are used;
it is important to get the right cost base and to find the correct comparables for the ‘plus’.
Transactional Net Margin Method (TNMM): Net margins are used; choosing the correct
profit level indicator is important.
Profit Split: Splits the profits on the basis that they would be split between unconnected
parties. It is used when both parties own intangibles; residual profit split allocates a basic
return then allocates the super profits. This is the only two-sided method.
INTANGIBLES
Intangibles present particular problems for transfer pricing,
The first problem is identifying intangibles, then the owner needs to be established by
looking at who takes the risk in relation to the intangible. DEMPE is used to establish
ownership.
The OECD Guidelines look at sales of Intangibles and the granting of licences. There is a
separate section on hard-to-value intangibles – in limited cases an ex post approach can
be used to determine if the transfer price is arm’s length.

COST CONTRIBUTION ARRANGEMENTS (CCA)
CCA can be used to develop intangibles. Participators must expect to benefit from the
intangible and must make contributions to cost based on their expected benefits. The rule
cover buy-ins, buy-outs and true-ups.
INTRA-GROUP SERVICES
It must be shown firstly that a service has been provided and secondly that the receiver
has received a benefit that a third party would pay for or be prepared to undertake the
work themselves.
Shareholder services cannot be charged for however stewardship functions can be.
Pricing can be direct or indirect.
Direct is the preferred approach and can be used when the beneficiary of the service
can be identified.
Indirect is used when there are many beneficiaries; allocations will be made based on
relevant allocation keys such as head count for HR services.
A mark-up is not always required for services; C+ is often used but the most appropriate
method should be used.
For low value-adding services an election can be made to use a standard mark up of 5%.
The mark-up is applied to a cost pool and allocation keys are used. There are also
simplified documentation requirements.
BUSINESS RESTRUCTURING
This chapter looks at centralisation of intangibles, the rationalisation of business operations

and the incidence of intangibles and risk.
It has two main parts – part 1 looks at the transaction; part 2 looks at the ongoing transfer
pricing implications after the transaction. The Guidelines apply to a business restructure in
the same way as they do to any intra-group transaction.
DOCUMENTATION
There is a three-tier approach to documentation: the master file, the local file and country-
by-country reporting (CbC).
Many countries are adopting this approach. The OECD has produced a legislative
template. CbC reporting applies to MNEs with annual consolidated turnover above 750m
euros.
The master file has five categories:
Organisational chart, intangibles, business description, inter-company financial activities,

and financial position including allocation of tax.

The local file contains income and tax details information on local economic activity, for
example tangible assets, number of employees etc. Information on the controlled (transfer
pricing) transactions the entity is involved in is also required.
The data points for CbC reporting that are required for each country are: revenues (from
both related and unrelated party transactions), profit before income tax, income tax paid
(cash basis), current year income tax accrual, stated capital, accumulated earnings,
number of employees, tangible assets (excluding cash and equivalents).
EU CODE OF CONDUCT ON TRANSFER PRICING DOCUMENTATION
This pre-dates the OECD three-tier approach.
There is a master file (a set of documentation containing standardised information

relevant for all EU group members) and a country specific file.
The country specific file has detailed information on the transactions undertaken including
comparability analysis that was undertaken.

THIN CAPITALISATION
Thin capitalisation is part of transfer pricing.
It looks at levels of debt compared to levels of equity.
Large amounts of debt to equity indicate that a company is thinly capitalised.
The test can be applied to the balance sheet and/or to interest cover in the profit and loss
account.
Legislation can deny relief for non-arm’s length interest; it can also deny relief for the entire
loan if the loan would not have been made by a third party.
The OECD Model Treaty supports legislation on thin capitalisation via Articles 9, 10 and 11.
Many countries such as Germany, the UK, the US, and Australia have domestic law on thin
capitalisation.
Some countries provide “safe harbours” eg German rules do not apply to interest below 3
million euros per annum.
There is no specific guidance in the OECD Guidelines.
BEPS Action Point 4 recommended domestic legislation restricting interest deductions by

using a fixed ratio rule of 10% to 30% of EBITDA. The same approach is put forward in the EU
Anti-Tax Avoidance Directive. Such a rule is applied by Germany, the UK and the US,
amongst others.

TAXATION AND INTERNATIONAL HUMAN RIGHTS
Governments need to raise taxes to provide services. Fundamentally taxes are levied on
the income and possessions of people.
People need their income and possessions to live.
Countries should ensure that the need to levy and collect taxes does not impinge on
human rights.
Many states around the world have domestic legislation to protect human rights.
There are several international agreements to protect human rights.
The International Covenant on Civil and Political Rights includes rules on equality and non
discrimination which will be relevant for taxation.
The European Convention on Human Rights (“ECHR”) has been in operation since the
1950’s. All members of the EU sign it. The EU will accede to the ECHR.
The four provisions most relevant for tax are:
– Article 6 – the right to a fair trial;
– Article 8 – respect for private and home life;
– Article 14 – prohibition of discrimination (although an action claiming discrimination

must also specify the other right infringed, such as the right to enjoyment of property);
and
– Article 1 of the First Protocol – right to enjoyment of property.
It has been said that tax abuses have considerable negative impacts on the enjoyment of
human rights.
A state encouraging tax abuse could be guilty of breaching its international duties on
human rights (the Human Rights Institute of the International Bar Association).

MONEY-LAUNDERING LEGISLATION AND TAX EVASION
Money laundering is the process by which the proceeds of crime (dirty money) are made
to appear legitimate (clean).
The process is often described as comprising three stages:
– placement of dirty money into the legitimate economy;
– layering several transactions so as to confuse and complicate the trail; and
– integrating the once dirty money into the legitimate economy.
Many countries have anti-money laundering legislation. The EU has several Directives on it.
The rules require professional advisors and in some cases any person to report knowledge
and/or proof of a crime to a central authority. The question of legal privilege for lawyers is a
difficult one – it will not always apply.
Evasion of tax is a crime that needs to be reported under these rules.
Exchange of information and administrative cooperation mentioned in earlier chapters will

help to prevent tax evasion; further work is also needed.
Latest amendments to the 4th EU directive (AMLD V) include:
– full public access to beneficial ownership registers for businesses, restricted access for
trust ownership;
– the direct interconnection of these registers to facilitate cooperation between

Member States; and
– extending the scope to include due diligence information from tax advisers, letting
agents, auction houses and virtual currency service providers.
The "Platform for Collaboration on Tax" initiative aims to help developing nations improve
their tax system and tax administrations, which would have an impact on money
laundering activities.

INDIRECT TAXES AND INTERNATIONAL TAXATION
Indirect taxes include Sales Tax, Value Added Tax (VAT) and similar taxes.
Under GATT cross border the destination principle applies eg Customs Duty is applied on
imports. This is in contrast with the origin principle which taxes exports and not imports.
A coordinated system is needed to encourage trade. It is also needed to combat fraud.
The EU is a customs union. Customs duties are only charged at the point of entry of goods
to the EU.
Under VAT rules the supply of services to the EU can lead to the need to register and
administration can be onerous. The one-stop-shop approach tackles this.
Non-EU countries have similar rules eg Australia (GST).
GENERAL AGREEMENT ON TRADE AND TARIFFS (GATT)
This began in 1944 and aims to encourage trade.
There is a “reciprocal mutual advantage” principle, ie the “general most-favoured nation

treatment” whereby no country is forced to make unilateral concessions in relation to
tariffs.
There must be non discrimination and “dumping” of products is generally accepted, unless
it causes “material injury” to domestic industry in which case anti-dumping duties may be
imposed.
There is a broad prohibition on the use of quantitative restrictions. Import quotas can be
used in a balance of payments crisis. Countries are mandated not to use subsidies for
primary products and to subsidise to the least degree possible other products.
The DOHA round on GATT sought to help developing nations by agreements to abolish
hard import quotas on agricultural products.
GENERAL AGREEMENT ON TRADE AND SERVICES (GATS)
There are 3 principle features:
– most favoured nation treatment;
– market access; and
– non-discrimination in regulatory standards.
The sectors covered include telecommunications, financial services, air and maritime
transport, and construction.

EU SERVICES DIRECTIVE
The main aims are to:
– create a single point of contact for companies that operate within a group of
companies, so that one location is responsible for regulatory administration;
– eliminate regulations that discriminate against residence or nationality;
– afford greater co-operation between regulatory authorities in different states;
– enable a service provider to only be subject to the scrutiny of its home authority and
generally apply the country of origin principle to regulation; and
– employ a so called “horizontal” approach to freeing up the market.
WORLD TRADE ORGANISATION (WTO)
The WTO has introduced a dispute resolution mechanism.
It establishes time procedures for resolving disputes. Countries can file “violation”
complaints, and countries can file “non-violation” complaints, complaining that another
country has acted to nullify or impair a concession.
A panel makes recommendations and leaves the parties to come to a resolution.
Normally an offending country will either bring its laws into conformity with GATT rules (eg
by lowering a tariff) or retain the existing policy and offer instead something in
compensation in relation to other goods.
Subsidies can bring the non-discrimination article of a DTT into play (OECD Model Treaty
Article 24).
There may be a conflict with GATT – the WTO can help with the dispute.

CROSS-BORDER MERGERS: SOME OF THE ISSUES AND SOLUTIONS
Mergers are reorganisations.
Domestic law will decide whether tax will be levied.
The EU Mergers Directive aims to allow assets to be moved cross border in a reorganisation
without an immediate tax charge, but it does give countries some leeway.
In some countries, eg the UK, company law does not permit a merger (as such).
Within the EU some Member State’s domestic laws may be in breach of the fundamental
freedoms but this would need litigation to prove.
Similar arguments might be made under a tax treaty non-discrimination article.

ESTATE AND GIFT TAXATION AND INTERNATIONAL ISSUES
Double taxation (DT) may arise as a result of residence taxation and source or situs
taxation.
Some states will tax the donor of a gift others the recipient – this can also lead to DT.
Inheritance and gift tax treaties seek to deal with DT, however there are not many in
existence.
The OECD Model DTC on Estates and Inheritances determines that immoveable property or
property associated with a PE may be taxed in the source state as well as the state of
domicile.
DTR is available for the source state tax by means of exemption or credit.
In the case of other property, the state of domicile only has the right to tax.
There is an article that addresses how to allocate debts which normally reduce the value
of an asset for inheritance or gift tax purposes.
The definition of domicile contains a treaty tie-breaker clause, similar to that under the
Model Income Tax Treaty, in cases of dual domicile.
It also recognises that companies and other legal persons may be the subject of gift and
inheritance taxes.
The EU recognises that differences in domestic legislation can lead to DT – it suggests

greater use of bilateral treaties and greater flexibility in domestic legislation to deal with
DTR.
There is an EU regulation on succession rules.
A recent consultation has suggested a rule of one succession, one tax.

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CHAPTER 1 INTRODUCTION TO INTERNATIONAL TAXATION

CHAPTER 2 TAX AND TAX SYSTEMS

CHAPTER 3 CONNECTING FACTORS

CHAPTER 4 CAUSES OF INTERNATIONAL DOUBLE TAXATION

CHAPTER 5 METHODS OF RELIEF FROM INTERNATIONAL DOUBLE TAXATION

CHAPTER 6 TYPES AND NEGOTIATION OF TREATIES

CHAPTER 7 THE FORMAT AND STRUCTURE OF A TAX TREATY

CHAPTER 8 OECD MODEL DTC PROVISIONS RELATING TO THE SCOPE OF A TREATY

CHAPTER 9 OECD MODEL DTC PROVISIONS RELATING TO RESIDENCE

CHAPTER 10 OECD MODEL DTC PROVISIONS RELATING TO PES

CHAPTER 11 OECD MODEL DTC PROVISIONS RELATING TO BUSINESS

CHAPTER 12 OECD MODEL DTC PROVISIONS RELATING TO INVESTMENT INCOME AND

CHAPTER 13 OECD MODEL DTC PROVISIONS RELATING TO INDIVIDUALS

CHAPTER 14 OECD MODEL DTC PROVISIONS RELATING TO OTHER INCOME

CHAPTER 15 OECD MODEL DTC PROVISIONS RELATING TO ELIMINATION OF DOUBLE

CHAPTER 16 OECD MODEL DTC PROVISIONS RELATING TO NON-DISCRIMINATION

CHAPTER 17 MODEL DTC PROVISIONS RELATING TO DISPUTE RESOLUTION

CHAPTER 18 OECD MODEL DTC PROVISIONS RELATING TO CO-OPERATION

CHAPTER 19 OECD MODEL DTC PROVISIONS RELATING TO LIMITATIONS ON BENEFITS

CHAPTER 20 THE APPLICATION OF TAX TREATIES TO e-COMMERCE

CHAPTER 21 DOUBLE TAX TREATIES AND DOMESTIC LAW

CHAPTER 22 APPROACHES TO APPLYING A TAX TREATY

CHAPTER 23 INTERPRETATION OF TAX TREATIES

© RELX (UK) Limited 2019 I FA 2019

CHAPTER 24 CONVENTIONS FOR ADMINISTRATIVE ASSISTANCE IN TAX ADMINISTRATION

PART III HARMFUL TAX RULES AND INTERNATIONAL TAX AVOIDANCE

CHAPTER 25 ENTITY CLASSIFICATION

CHAPTER 26 TAX HAVENS AND HARMFUL TAX PRACTICES

CHAPTER 27 CFC RULES AND SOME OTHER ANTI-AVOIDANCE APPROACHES

PART IV TRANSFER PRICING AND THIN CAPITALISATION

CHAPTER 28 INTRODUCTION TO TRANSFER PRICING

CHAPTER 29 OECD MODEL DTC PROVISIONS RELATING TO TRANSFER PRICING

CHAPTER 30 THE OECD TRANSFER PRICING GUIDELINES

CHAPTER 31 THIN CAPITALISATION

PART V MISCELLANEOUS TOPICS

CHAPTER 32 TAXATION AND INTERNATIONAL HUMAN RIGHTS

CHAPTER 33 MONEY-LAUNDERING LEGISLATION AND TAX EVASION

CHAPTER 34 INDIRECT TAXES AND INTERNATIONAL TAXATION

CHAPTER 35 CROSS-BORDER MERGERS: SOME OF THE ISSUES AND SOLUTIONS

CHAPTER 36 ESTATE AND GIFT TAXATION AND INTERNATIONAL ISSUES

© RELX (UK) Limited 2019 II FA 2019

INTRODUCTION TO INTERNATIONAL TAXATION

“Public international law” covers laws or understandings or generally accepted legal

TAXATION AND INTERNATIONAL LAW CONCEPTS

Double Tax Conventions (DTC) allocate taxing rights.

Changes to DTCs and International agreements relating to exchange of information can

© RELX (UK) Limited 2019 2020 Sittings

TAX AND TAX SYSTEMS

Tax systems often have comment elements which include:

• direct and indirect taxes

• source and residence concepts

• special rules for groups of companies

• double tax relief and

© RELX (UK) Limited 2019 2020 Sittings

Source and Residence are connecting factors for taxation.

“Situs” is a part of the source concept and specifically relates to location.

All countries use source taxation.

“Residence” has different meanings in different countries.