Access to Treaty Benefits

S. 1321. Introduction

In 2017, the Commentary on Article 1 of the OECD Model Tax Convention on Income and Capital (OECD MC) was amended to express that “Paragraph 3 confirms the general principle that the convention does not restrict a Contracting State‘s right to tax its own resident except where this is intended (…)”.

This general principle is not something new in treaty practice. It has been argued for a long time that double taxation agreements (DTA) are negotiated to limit or eliminate the taxing right of the source state (mostly of source-based withholding tax) but not to restrict the residence state’s rights any more than necessary. In return, the residence state is required to provide relief from double taxation to its residents by either exempting foreign income or allowing for deductions of foreign taxes. Only a few provisions, especially in the context of the OECD MC, are intended to restrict the taxing rights of the residence state.

Nevertheless, such a principle, while also expressed in the OECD MC Commentaries since 2000 when dealing with a partnership and, since 2003, when dealing with controlled foreign company (CFC) domestic laws, was only explicitly included into the OECD ...