Tax Treaty Case Law around the Globe 2013

1. S. 119 Introduction

Bilateral tax treaties specify how taxing rights over items of income should be divided between the two countries. For the purpose of such allocation, income is generally divided into income from immovable property, business profits, shipping and air transport, dividends, interest, royalties, capital gains, income from employment, directors’ fees, artistes and sportsmen, pensions, government service, income of students and a residuary head, other income. In actual practice it is not always possible to classify income in neat compartments. That is the reason why the residual head other income was incorporated in the OECD Model Convention and if any income has not been “dealt with” elsewhere, it will fall under other income and will be taxed in accordance with the allocation rules of the treaty.

The term “effectively connected” is found in Article 7 relating to business income and also in Articles 10, 11, 12 and 22. The general rule is that if income is effectively connected with a permanent establishment, then even if the income concerned is not business income, it will be treated as business income. This term is however not of easy comprehension, particularly in the...