Introduction to the Law of Double Taxation Conventions
3. Aufl. 2021
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S. 457. Persons covered
7.1. Full tax liability as a prerequisite for the application of the DTCs
7.1.1. Full tax liability
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Pursuant to treaty provisions patterned after Art. 1 OECD Model, DTCs are applicable to persons who are residents of one or both contracting states. Art. 4 OECD Model serves as a basis for treaty provisions defining the concept of residence. Under these provisions, a resident is “any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof as well as a recognised pension fund of that State. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.” In practice, this wording indicates that full tax liability in one of the two contracting states leads to treaty entitlement.
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Example
A corporation is established in the Netherlands and is subject to full tax liability therein. It derives income almost exclusively from Dutch sources but it also holds an 11% participation in a ...