Tax Treaty Case Law around the Globe 2013
1. Aufl. 2013
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1. S. 189 Introduction
On August 20, 2012, a federal court in Mexico decided a case on the application of Article 12 of the Mexico Canada Double Tax Convention (DTC) in relation to income derived by the lease of Industrial, Commercial and Scientific Equipment (ICSE): The main issue in the case was whether payments made to a Canadian taxpayer for the lease of helicopters qualified as royalties under that DTC.
The topic is interesting because Mexico made a reservation to the modifications to Article 12 of the Model Tax Convention on Income and on Capital (OECD Model Convention) of 1992, prepared by the Organization for Economic Co-operation and Development (OECD). According to this reservation, Mexico retained the right to tax income derived from the lease of ICSE as royalties; a position also held by the United Nations (UN) Model Convention.
2. Facts of the case
The taxpayer (a Mexican provider of air transportation of passengers and goods), signed a leasing contract with a Canadian corporation, which leased its helicopters. The taxpayer made the corresponding payments.
The taxpayer considered that the payments made to the Canadian company qualified as business profits under Article 7 of th...