Tax Treaty Case Law around the Globe 2025

1. Introduction

The changes in the OECD Model Tax Treaty and its commentaries can cause confusion when identifying the relevant version and the consequences of those modifications. One of these issues concerns the change of royalty taxation included in the 1992 OECD Model Tax Treaty excluding the payments for using “industrial, commercial or scientific equipment” from the royalties’ definition.

Such concerns arose in the case of Czech Airlines (České aerolinie a.s.) that leased unmanned aircraft from Korean Air Lines Co., Ltd. (Korean Air Lines). The central issue revolves around the correct interpretation and application of the tax treaty ratified in 1995. Specifically, the question was whether the income derived from leasing an aircraft (and subsequently an engine) by Korean Air Lines to Czech Airlines should be taxable solely in Korea or also in Czechia where the income source was located.

The relevant tax treaty between Czechoslovakia and Korea was signed in 1992 (hereinafter “1995 DTT”). Czechoslovakia split into Czechia and Slovakia in 1993, however, the treaty became part of the Czech legal order as it was approved by its predecessors within the territory of today’s Czechia or ...