1 Introduction

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1.1 The problem of double taxation

Elimination of double taxation

Double taxation conventions (DTCs)

Tie-breaker-rule Tax allocation rules

dividend hybrid entity transaction between associated corporations
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1.1 The problem of double taxation

Juridical Double Taxation

Case 1: A person resident and domiciled in the UK and subject to full tax liability therein holds shares in a Swiss corporation. The person receives dividends from the Swiss shares. These dividends are taxed in the UK since the person is subject to tax therein on his worldwide income. In Switzerland, limited tax liability exists. Consequently, the dividends are also taxed in Switzerland. (p24)
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1.2 State practice in the conclusion of DTCs
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1.2 State practice in the conclusion of DTCs

Conventions in international law

Contracting States accept an international law obligation The convention is subject to the rules of public international law

Connection between the taxpayer and the state
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1.1 The problem of double taxation

Connection between the taxpayer and the state

Personal connection
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1.1 The problem of double taxation

Economic Double Taxation

Case 3: The parent company of an unlimited company incorporated in the UK was a US corporation. the income of the UK unlimited company was taxable in the UK in the hands of the UK unlimited company itself. For US federal income tax purposes, the UK unlimited company was classified as a disregarded entity because it had a single shareholder, unlimited liability and had not made a “check-the-box” election. The income earned by the UK unlimited company was therefore considered to belong to the US parent corporation even if this income had not been distributed by the UK unlimited company. thus the income of the UK unlimited company was taxable in the UK and in the US in the hands of the US parent corporation. (p25)
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1.1 The problem of double taxation
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1.1 The problem of double taxation

Basics of international law

The principle of sovereignty The legal justification for the right to tax

Objective connection

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1.1 The problem of double taxation

Circumstances giving rise to double taxation

Full tax liability in two states

e.g. An individual who lives in Spain and whose centre of economic interests is in France. e.g. A person resident and domiciled in the UK and holds shares in a Swiss corporation. e.g. A person lives in Italy and receives income from shares of a corporation that has its legal seat in Germany and its place of effective management in Belgium.

Juridical double taxation

Taxation of the same person with respect to the same income in two or more states

Economic double taxation

Taxation of the same income in the hands of different persons in two or more states
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1.1 The problem of double taxation

Economic Double Taxation

Case 2: P is a partnership established in State P. A and B are P's partners who reside in State R. P owns shares in X, a company that is a resident of State S. X pays a dividend to P. State P and State S treat P as a taxable entity while State R treats it as fiscally transparent.
It has had considerable influence in international tax law. It is used as a basis for tax treaty negotiations 1963 – fist Model 1977 – practical experience with negotiations 1992 – loose-leaf version Amendments followed in 1994, 1995, 1997, 2000, 2002, 2005, 2008, 2010, 2014 The Commentary was considerably amended and expanded.

OECD Model Convention



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1.2 State practice in the conclusion of DTCs

Bilateral peculiarities
Βιβλιοθήκη Baidu
Deviate from the Model (OECD, UN)

Economic interest Peculiarities of the law and social systems The US Model The Belgian Model ……

OECD Model UN Model

The major difference with OECD Model
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1.2 State practice in the conclusion of DTCs

The importance of the OECD Model


Individuals: domicile, residence, citizenship Legal entities: place of incorporation, place of effective management Transaction or business activity involving Property situated in

Full tax liability vs. Limited tax liability


Limited tax liability in two states

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1.1 The problem of double taxation

Types of double taxation
Method article (exemption or credit)
Exemption of foreign-source income

Unilateral measures

Credit for foreign taxes paid on foreign-source income
Deduction from the taxable base of foreign taxes paid on foreign-source income Vary from country to country
Law of Double Taxation Conventions
中央财经大学 税务学院
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Chap.1 Introduction to Double Taxation Conventions


1.1 1.2 1.3 1.4 1.5
The problem of double taxation State practice in the conclusion of DTCs The effects of DTCs The interpretation of DTCs The structures and systems of DTCs

Deviating Model Tax Convention

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1.3 The effects of DTCs
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1.3 The effects of DTCs
Double tax conventions rules might override domestic tax rules
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1.2 State practice in the conclusion of DTCs

The importance of model conventions