Tax Treaty Interpretation: The Meaning and Application of Article 3(2)
Published & Printed by: tredition GmbH, Halenreie 40–44, 22359 Hamburg, Germany, ISBN: 978-3-347-05882-8 (Paperback), ISBN: 978-3-347-05883-5 (Hardcover). Reading Sample, Chapters 1-3.
64 Pages Posted: 11 Jun 2020
Date Written: May 4, 2020
This study takes a fresh, thorough look at the interpretation and application of Article 3(2) and submits a new approach that transcends the current controversies and gridlock between the German and English positions into a holistic synthesis that is firmly based on the public international law principles of treaty interpretation enshrined in the Vienna Convention on the Law of Treaties.
Article 3(2) is a rule of interpretation contained in all important model conventions and most effective tax treaties. Despite its importance, the OECD Commentary on it comprises only five paragraphs that do not explain in detail how the provision is to be interpreted and applied. In consequence, the international debate has been intense and led to an update of the Commentary on Article 23 concerning how to treat qualification conflicts. Unfortunately, this has not put the controversies to rest, some of which are not resolved to this day, with plenty of adverse consequences in practice.
It is no exaggeration to say that the ongoing confusion and discord about the interpretation and application of Article 3(2) is one of the central issues plaguing the international tax system, because it is one of the main reasons why unintended double taxation and double non-taxation has persisted over the decades. The international debate continues to be divided into diametrically opposed positions, and the approach implemented by the OECD Commentary is outright rejected even by the courts of some OECD countries. Particularly the views of academics and courts in German-speaking countries (and to some extent in countries with related languages such as Swedish and Dutch) are different from those of the English-speaking world, with neither side accepting any merit in the other side's view.
Hence, the purpose of this study is to clarify the meaning and application of Article 3(2). It maps the entire historical debate on the provision, illuminates flawed assumptions and misunderstandings that have happened in its course, and outlines how these continue to fuel the current controversies. In addition, it provides a comprehensive analysis of German case law concerning the interpretation of tax treaties and examines the extent to which it has been influenced by erroneous views developed in doctrine. Finally, it clarifies the relationship between the article and the Vienna Convention rules on treaty interpretation, the meaning of 'context', and how the condition 'unless the context otherwise requires' is to be applied.
The latter is where the front line currently runs between the German and English views. In my opinion, this is the wrong battle and merely a result of the historical development of the debate, which has progressed without having succeeded in putting the ultimate issue at its core to rest. The result of this is an international barrage of conflicting arguments from all sides without common starting and vanishing point -- a maelstrom of complex controversies in which the unsuspecting novice must drown. This book is meant for all who find themselves at a loss in the midst of the ongoing debates and, worse, take either side without thorough contemplation.
Keywords: tax treaties, interpretation, international tax law, tax law, taxation, double tax conventions
JEL Classification: K33, K34
Suggested Citation: Suggested Citation