Tax Treaty Case Law around the Globe 2014

S. 135Chapter 14 Germany: US S Corporation and Income Allocation under Germany-United States Tax Treaty

Alexander Rust

14.1. Introduction

In 2006, the United States inserted a new paragraph 6 into article 1 of its Model Convention. This provision is identical to the old article 4(1)(d) of the US Model (1996) and moves this provision now to article 1. The provision intends to solve qualification conflicts.

Article 1(6) of the US Model has been implemented in many tax treaties concluded by the United States. The new proposal for article 1(2) of the OECD Model in the Public Discussion Draft of 19 March 2014 on BEPS Action 2 is also based on article 1(6) of the US Model. However, the exact meaning of this provision remains unclear. It is disputed whether this provision requires the source state to follow the income attribution decision by the residence state. In addition, the provision does not clearly state which person shall be deemed to be a resident taxpayer. Another question is how this provision interacts with distributive rules that require the taxpayer to be a beneficial owner.

S. 136The Bundesfinanzhof (Federal Tax Court) has now interpreted the comparable provision of article 1(7) of the Germ...