Tax Treaty Case Law around the Globe 2015

S. 183Australia: Royalties – Task Technology and Seven Network Cases

Richard Vann

I. S. 184Introduction

These cases raise basic issues about the status in Australia of the OECD Commentary on royalties, which is ever expanding in bulk but ever narrowing in coverage. They also concern additional treaty language not found in the OECD Model and what effect that language has on the meaning of Article 12 of the OECD Model. Despite the fact that the highest Australian court held more than 20 years ago that the OECD Commentaries should be used in the interpretation of tax treaties, there has been an ongoing debate on the issue in the Federal Court of Australia, sometimes explicit and sometimes implicit, with the trend in the royalties area, to judge by these cases, apparently away from reliance on the Commentary.

More generally the cases demonstrate how the well-advised taxpayer can avoid characterization of payments as royalties, consistently with the narrowing of the interpretation of the definition of royalties by the OECD. Oddly this narrowing has been achieved by taking a substance over form approach. That result no doubt appeals to countries which prefer no taxation on royalties at source, but is li...