Tax Treaty Case Law around the Globe 2022

30.1. Introduction

This case concerns the interesting question whether a foreign tax is creditable in the residence state in the case the taxpayer can choose between different ways of taxation in the source state. According to articles 23A(2) and 23B(1) of the OECD Model (2017), a foreign tax is only creditable if it is levied in accordance with the treaty, if it has already be paid and if the taxpayer is not entitled to a refund of the tax paid. If the taxpayer voluntarily overpays foreign taxes, the amount overpaid is generally not creditable. The taxpayer is expected to use all legal possibilities to reduce the charge in the source state. Occasionally the taxpayer is offered the possibility to choose between different options. For instance, article 12B(3) of the UN Model (2021) and article 6(5) of the US Model (2016) grant the taxpayer the option to be taxed at a net basis. EU Member States offer non-residents the choice to be taxed similar to residents if they earn all of almost all of their income in the non-residence state. Depending on the particular circumstances choosing one option over another can lead to a lower tax liability in the source state. The German court had to...