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Other income in tax treaty practice: the normative profiles used by contracting states
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The aim of this contribution is to identify the normative profiles used by contracting states when designing tax treaty provisions aimed at allocating taxing rights to income not dealt with by any other allocation. With this contribution, the author seeks to allow a better understanding of the current treaty practice in what concerns the such provisions. A normative profile is not more than a model or archetype of a treaty provision designed based on an inductive reasoning (based on treaty observation). Each profile expresses a specific tax policy option, leading to a distinctive tax treatment of the (other) income falling within its scope. A normative profile gathers treaty provisions with different wordings insofar as their underlying policy goal and tax consequences are similar. In fact, treaty practice is rich in deviations that do not represent a different policy option (or interpretative outcome). The identification of all these normative profiles, which is performed for the first time in this contribution (at least in what concerns “other income”), also aims at facilitating future research, providing a comprehensive analytical structure that researchers may namely for further statistical analysis on the occurrence of this provisions in treaty practice. It also facilitates the efforts of designing provisions to be included in bilateral and multilateral instruments. To avoid any research bias, the research was based on primary sources (i.e. income tax treaties). Secondary sources (such as doctrinal texts and case law) were only considered once research on research on primary sources was concluded. As in any study of this nature, methodologic options had to be made. Other income provisions were taken into account when included in treaties that were: i) bilateral; ii) in force on 1 August 2023; iii) in English(covering both the original text and amending protocols); iv) made available by the IBFD’s Tax Research Platform From those treaties, we have considered both: i) clauses labelled “other income”; ii) non-labelled clauses or clauses labelled otherwise that followed a wording similar to that used in the “other income” clauses of the models, and; iii) clauses with a similar function. Insofar as the research is based on IBFD’s Tax Research platform, it has the same limitations as such database. Accordingly: i) it only considers a treaty whenever it was included in such database; ii) when the original treaties are not drafted in English, it relies on IBFD’s non-official English translation; iii) does not consider treaties that are neither available in English nor in languages that the author cannot read; iv) does not consider amendments introduced by Protocols that were not inserted in the main body of the provision The treaty version taken into account was the latest one made available (including amendments). This contribution is focused on the other income normative profiles, leaving aside the interaction between the profiles and other treaty provisions (or, more generally, other provisions including in public international law instruments) or domestic law. Due to the catch-all function of the other income provision, any broadening or narrowing of the scope of other treaty provisions may have an impact in the income that must be considered as other income. However, consideration of such interaction would require a comprehensive analysis of the full in-scope treaties which would not be feasible in the framework of this study. For the same reason, the impact of the commentaries on the interpretation is not taken into account. This contribution does not aim at being a repository or list of all treaties that include a certain normative profile. Accordingly, only a reduced number of wordings and, within each wording, of treaties were selected to illustrate each normative profile. However, in some instances (considering the provision's relevance and its limited use in practice), the author made an exhaustive listing of all treaties employing a specific normative profile or wording. That is the case, for instance, of treaties including a main purpose clause or of treaties granting exclusive taxation rights to the source state. Whenever considered relevant to understand the modus operandi of each normative profile, a brief reference to the rationale or policy aim of the provision is included. However, this article does not aim at discussing the underlying policy goals pursued by the different normative profiles.
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Citation
Nogueira, J. F. P. (2024). Other income in tax treaty practice: the normative profiles used by contracting states. In G. Maisto (Ed.), Revisiting article 21 (other income) of the OECD model (pp. 159-204). (EC and International Tax Law Series). International Bureau of Fiscal Documentation (IBFD).
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International Bureau of Fiscal Documentation (IBFD)
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Without CC licence