'Liable to Tax' and Company Residence under Tax Treaties

Abstract

This paper considers the application to companies of the “liable to tax” residence test in the first sentence of article 4(1) of the OECD Model along with its elaboration in the second sentence with a focus on the policy and history of the test to see what assistance they provide for modern day interpretation.

Accordingly the first section asks what is the purpose of the company residence test in tax treaties (as opposed to the residence test generally) which requires a broad but brief overview of the operation of the company tax and how companies are dealt with in treaties. The second – and main – section then turns to history to see to what extent policy may have been a guide in the development of the company residence test in treaties and what those who developed the test may have intended by the liable to tax test in relation to companies. The third section uses such guidance as may be obtained from the policy and history to analyse some current company residence issues. The fourth section provides some necessarily tentative conclusions.

Keywords: Business income, Corporate taxation, Double taxation, History, International taxation, League of Nations, OECD, Permanent establishment, Residence, Transfer pricing, Tax treaties, Treaty shopping

JEL Classification: K10, K30, K33, K34