The History of Royalties in Tax Treaties 1921-61: Why?

Abstract

This paper consider the history of the tax treaty rule on royalties up to the emergence of the modern form, the borders of the provision and the fundamental question of why we have it (viewed from an historical perspective). In the modern context of the OECD Model with zero taxation at source on royalties, the why is indeed a mystery. The work of the royalties article as it has been drafted at various times is already effectively covered by the modern forms of the business profits, capital gains and other income articles so why not abolish it like the OECD recently did for the article on independent personal services. For many such a suggestion may seem shocking – after all the royalties article is often viewed as critical in modern policy and political debates on source taxation and the fair sharing of revenues among countries, especially for smaller and developing countries. A review of the history of the royalties article suggests, perhaps surprisingly, that its development was as much concerned with technical and structural tax treaty issues as with the broader issues.

Keywords: Double Taxation, History, International Taxation, League of Nations, OECD, Royalties, Tax Treaties

JEL Classification: K10, K30, K33, K34