Income Tax Conventions


Canada v. Sommerer, 2012 DTC 5126 [at 7219], 2012 FCA 207

treaty applies to economic double taxation

After finding that s. 75(2) did not apply to attribute to the Canadian-resident taxpayer a taxable capital gain realized by an Austrian private foundation (a resident of Austria), the Court went on to find that, in any event, such application of s. 75(2) would have been precluded by the Canada-Austria Income Tax Convention. The Minister argued that Art. 13(5) of the Austrian treaty (providing that the alienation of property (other than excepted property) by a resident of Austria was taxable only in Austria) did not apply, because s. 75(2) treated the foundation's proceeds of alienation as the taxpayer's proceeds and because the taxpayer, being a Canadian resident, was not within the scope of the Convention for Canadian tax purposes.

The Court rejected this submission. There was at least one article reserving for Canada the right to attribute income earned in Austria (specifically, under the s. 91 foreign accrual property rules). There was no similar reservation in respect of s. 75(2).

Regarding the Minister's argument that Article 13 was only included "for greater certainty," Sharlow J.A. stated:

The OECD model conventions, including the Canada-Austria Income Tax Convention, generally have two purposes – the avoidance of double taxation and the prevention of fiscal evasion. Article XIII (5) of the Canada-Austria Income Tax Convention speaks only to the avoidance of double taxation. "Double taxation" may mean either juridical double taxation (for example, imposing on a person Canadian and foreign tax on the same income) or economic double taxation (for example, imposing Canadian tax on a Canadian taxpayer for the attributed income of a foreign taxpayer, where the economic burden of foreign tax on that income is also borne indirectly by the Canadian taxpayer). By definition, an attribution rule may be expected to result only in economic double taxation.

The Crown's argument requires the interpretation of a specific income tax convention to be approached on the basis of a premise that excludes, from the outset, the notion that the convention is not [sic] intended to avoid economic double taxation. That approach was rejected by Justice Miller, correctly in my view.

Hunter Douglas Ltd. v. The Queen, 79 DTC 5340, [1979] CTC 424 (FCTD)

The court considered an admission of an officer of the Department of National Revenue, who was examined for discovery, that a change in the standard wording of a provision of the treaties negotiated by Canada did not represent a change in policy by the Government of Canada.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 10 151

Vauban Productions v. The Queen, 75 DTC 5371, [1975] CTC 511 (FCTD), aff'd 79 DTC 5186, [1979] CTC 262 (FCA)

Addy, J. indicated that he was "conscious" of the principle that "a liberal interpretation should be given to a tax convention".

Coblentz v. The Queen, 96 DTC 6531, [1996] 3 CTC 295 (FCA.)

The Court found that the U.S. Treasury Department Technical Explanation facilitated its understanding of Article 18 of the Canada-U.S. Convention.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 18 142

Canada (Attorney General) v. Kubicek Estate, 97 DTC 5454 (FCA)

Before going on to refer to a passage contained in the U.S. Treasury Technical Explanation to the Canada-U.S. Income Tax Convention, MacGuigan J.A. stated (at p. 5456) that "from the Canadian viewpoint, it has about the same status as a Revenue Canada interpretation bulletin, of interest to a Court but not necessarily decisive of an issue".

Wolf v. Canada, 2002 DTC 6853, 2002 FCA 96

Before considering the French version of Article XV of the Canada-U.S. Convention in detail, Décary J.A. referred (at p. 6867) to the principle that "where a treaty is executed in two or more languages, those of the respective contracting parties, each text is regarded as an original, and as intended to convey the same meaning as the other."

Pacific Network Services Ltd. v. MNR, 2002 DTC 7585 (FCTD)

"The applicants' assertion that Article 26 of the Canada-France Income Tax Convention should receive a strict and literal interpretation should be rejected. The basis for the principle that bilateral tax convention should be given a liberal interpretation in light of their object and purpose, rather than a more strict and literal interpretation that may be applicable with respect to domestic tax legislation is twofold: first, it recognizes that a tax convention is an international agreement between two states rather than a purely domestic legislation; second, it recognizes that tax conventions are not drafted in the precise and detailed form in which domestic legislation is drafted but in a more general language ..."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.2 - Subsection 231.2(1) 98
Tax Topics - Treaties - Income Tax Conventions - Article 27 implied power to exercise requirements for information 111

R. v. Melford Developments Inc., 82 DTC 6281, [1982] CTC 330, [1982] 2 S.C.R. 504

The meaning that a term used in a Convention had at the time that the Convention was brought into the laws of Canada by statue will not be altered by subsequent amendments to Canadian domestic law unless such statutory amendments evince a clear intention to also amend the Convention as enacted (re Article II(2) of 1956 Canada-Germany convention).

Gladden Estate v. The Queen, 85 DTC 5188, [1985] 1 CTC 163 (FCTD)

"Contrary to an ordinary taxing statute a tax treaty or convention must be given a liberal interpretation with a view to implementing the true intentions of the parties". The phrase "sale or exchange" was given a liberal construction so as to include a deemed disposition.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 13 deemed disposition 65

Thiel v. Federal Commissioner of Taxation, 90 A.TC 4717 (HC of A.)

McHugh J. stated (p. 4727):

"Because the interpretation provisions of the Vienna Convention reflect the customary rules for the interpretation of treaties, it is proper to have regard to the terms of the Convention in interpreting the Agreement [between Switzerland and Australia], even though Switzerland is not a party to that Convention"

and went on to make reference to the 1977 OECD Model Convention for the Avoidance of Double Taxation in interpreting a provision of the Agreement.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 3 "enterprise" includes an isolated adventure 124

Crown Forest Industries Ltd. v. Canada, 95 DTC 5389, [1995] 2 S.C.R. 802, [1995] 2 CTC 64

Before referring to various extrinsic materials, Iacobucci J. stated (at p. 5396) that "reviewing the intentions of the drafters of a taxation convention is a very important element in delineating the scope of the application of that treaty" and "that, in ascertaining these goals and intentions, a court may refer to extrinsic materials which form part of the legal context (these include accepted model conventions and official commentaries thereon) without the need first to find an ambiguity before turning to such materials.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 4 198

Edwards v. Canada, 2003 DTC 5667, 2003 FCA 378

exchange of notes

In finding that the Canada-China Convention did not apply to the Hong Kong Special Administrative Region of the People's Republic of China in light inter alia of an exchange of notes between the Canadian and Chinese governments confirming this understanding, Noël J.A. stated (at p. 5670) that:

"The commonly expressed intention of the parties is entitled to great weight and should not be ignored unless a contrary intent can be shown in either the words of the Treaty or in some other expression by the parties."

Allchin v. Canada, 2004 DTC 6468, 2004 FCA 206

technical explanations

Malone J.A. stated (at p. 6470) that "while technical explanations attached to treaties are not binding on the Court, they may be accepted as valid guidance".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 180 - Subsection 180(3) correctness standard for isolated legal error 62
Tax Topics - Treaties - Income Tax Conventions - Article 4 101

Canada v. Alta Energy Luxembourg S.A.R.L., 2021 SCC 49

subsequent OECD Treaty commentary not followed

In considering whether there had been a treaty-shopping abuse of the Canada-Luxembourg Treaty (concluded in 1999), and before declining to follow the 2003 OECD Commentaries, in which “treaty shopping is characterized as an abuse of the concept of residence, whereas previous Commentaries published at the time the Treaty was signed were silent on this question” (para. 39), Côté J stated (at paras. 43-44):

[T]he 2003 Commentaries do not elicit, but rather contradict, the views previously expressed. When Canada and Luxembourg signed the Treaty in 1999, the applicable Commentaries indicated that anti-abuse measures, to be effective, had to be included in a treaty … . Further, they referred to the principle of pacta sunt servanda, which supports the position that where nothing in a treaty speaks directly to fiscal avoidance, there is a strong argument that the treaty partners negotiated the treaty not intending such rules to apply … .

Moreover, interpreting art. 1 of the Treaty with reference to the 2003 Commentaries would overlook Luxembourg’s registered observation on the “Commentary on Article 1” of the 2003 OECD Model Treaty.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) Treaty shopping to avoid capital gains tax on Canadian resource assets was contemplated, and not a Treaty abuse 660
Tax Topics - Treaties - Income Tax Conventions - Article 13 utilization of the business property exemption by a Luxembourg conduit accorded with the bargain negotiated by Canada, which was to encourage investment by such investors 605
Tax Topics - Treaties - Income Tax Conventions - Article 4 a company resident under Luxembourg domestic law (its legal seat was there) and that was “liable to be liable to tax,” was resident there for Treaty purposes even though a conduit 366
Tax Topics - Statutory Interpretation - Treaties additional consideration in Treaty context of giving effect to the contractual bargain 237

See Also

Société générale valeurs mobilières inc. v. The Queen, 2016 TCC 131, aff'd 2017 FCA 3

OECD commentaries applied to Brazil (not an OECD member)

At issue in a motion brought under Rule 58(1) was whether Art. XXII(2) of the Canada-Brazil Treaty contemplated that a Canadian foreign tax credit should be allowed only on the basis of the Canadian taxes otherwise applicable to the Brazilian source income in question as reduced by applicable Canadian expenses. Art. XXII(2) provided:

The deduction shall not, however, exceed that part of the income tax as computed before the deduction is given, which is appropriate to the income which may be taxed in Brazil.

After noting (at para. 65) that “Crown Forest found that accepted model conventions and official commentaries thereon may be referred to without the need to find an ambiguity in the text of the tax treaty” and (at para. 67) that “although Brazil is not an OECD member, the similarities between the language used in Article XXII(2) of the Treaty and that found in paragraph 23B of the 1977 OECD Model is evidence that the 1977 OECD Model was considered in drafting the Treaty,” Paris J stated (at para. 72):

At paragraph 63 of the Commentaries [on the 1977 OECD Model], the limitation on the deduction [in Art. 23B] is stated to be “normally computed as the tax on net income, i.e. on the income from [the State of source] less allowable deductions.”

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 24 Brazilian tax sparing provision did not permit the taxpayer to shelter Canadian-source income 594
Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) - Paragraph 4(1)(a) foreign source interest reduced by related expenses 412

MIL (Investments) S A v. The Queen, 2006 DTC 3307, 2006 TCC 460, aff'd 2007 FCA 236

In March 1993 an individual ("Boulle") transferred his shares of a Canadian public junior exploration company ("DFR") to the taxpayer, which was a newly-incorporated Cayman Islands company wholly owned by him. By June 1995 the DFR shares had substantially appreciated in value, at which time the taxpayer exchanged, on a rollover basis pursuant to s. 85.1, a portion of its DFR shares for common shares of a large Canadian public company ("Inco"), with the result that the taxpayer's shareholding in DFR was reduced below 10%.

Bell J. found that in light of OECD commentary (not including OECD commentary that was made subsequent to the negotiation of the Treaty) and "the decision by Canada and Luxembourg not to include an explicit reference to anti-avoidance rules in their carefully negotiated Treaty", that there was no ambiguity in the Treaty permitting it to be construed as containing an inherent anti-abuse rule.

Edwards v. The Queen, 2002 DTC 185 (TCC), aff'd supra 2003 DTC 5667, 2003 FCA 378

In the course of considering whether the China-Canada Income Tax Convention applied to Hong Kong income taxes after Hong Kong became part of the People's Republic of China, Rip T.C.J. referred with approval (at p. 1872) to the view of a commentator that:

"If the tax system remains substantially in place with regard to the successor states, it seems reasonable that the treaty should continue to be applied. If however, the state succession is followed by a major change of substance in the tax systems then it seems reasonable that the Treaty does not continue."

Canada v. Prévost Car Inc., 2009 DTC 5721, 2009 FCA 57

Décary, J.A. stated (at para. 11) that it was appropriate to refer to OECD commentaries issued subsequent to the date of a Treaty (at para. 11):

"When they represent a fair interpretation of the words of the Model Convention and do not conflict with Commentaries in existence at the time a specific treaty was entered and when, of course, neither treaty partner has registered an objection to the new Commentaries."

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 10 200

RMM Canadian Enterprises Inc. v. The Queen, 97 DTC 302, [1998] 1 C.T.C. 2300 (TCC)

In finding that a deemed dividend arising under s. 84 did not result from an "alienation" for purposes of Article XIII of the Canada-U.S. Income Tax Convention, Bowman TCJ. stated that he could "see no reason why a treaty provision should not be subject to the same principles of interpretation as domestic statutes insofar as they require that the provisions be construed in accordance with the object and spirit and the telos at which they are aimed and not in a manner that permits the perpetration of an abuse of the treaty".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 159 - Subsection 159(3) 167
Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) 188
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) 235
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) purchaser of cash-rich company without any signifcant separate role did not deal at arm's length 177
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) application of s. 84(2) to sale of cash-rich company to accommodation party who quickly paid cash proceeds therefor 222
Tax Topics - Treaties - Income Tax Conventions - Article 10 116

Cheek v. The Queen (2002), docket 1999-1113-IT-G (TCC)

Mogan T.C.J. stated that:

"When there is any inconsistency between the provisions of the [Canada-U.S.] Convention and the provisions of the Income Tax Act, the provisions of the Convention prevail to the extent of the inconsistency."

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 16 60

Merrins v. The Queen, 2002 DTC 1848 (TCC)

In finding that the taxpayer (who was a resident of Ireland in receipt of both Canadian old age security payments and also pension income that would be exempt under the Canada-Ireland Treaty in the absence of the making of an election under s. 217) was not entitled to receive both the credit under s. 217(6) in respect of the pension income and also to treat the pension income by virtue of the Treaty as being exempt from Canadian income tax, Ripp T.C.J. applied (at p. 1854) the principle that:

"Taxpayers should not be allowed to take inconsistent positions with respect to the application of tax treaties and domestic tax laws in order to duplicate a benefit."

Ben Nevis (Holdings) Ltd. v. Revenue and Customs Commissioners, [2013] BTC 485, [2013] EWCA Civ 578

Vienna convention approach applies to non-signatories

Before rejecting the taxpayer's submission that Article 25A of the Convention between South Africa and the U.K., which if it permitted the South African Revenue Service to collect tax debts arising prior to the coming into force of the Convention through the respondent (HMRC) of South African taxes, would thereby entail retrospective application of the Convention, Lloyd Jones LJ referred to Article 28 of the Vienna Convention ("Unless a different intention appears...the [treaty's]provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry-into-force of the treaty..."), and stated (at para. 43):

Although the Vienna Convention is not in force between the United Kingdom and South Africa, the basic rule on non-retroactivity reflected in Article 28 may be taken to be declaratory of existing rules of customary international law binding on all States (Ambatielos case (Preliminary Objections) ICJ Rep. (1952) 40; Sinclair, The Vienna Convention on the Law of Treaties, 2nd Ed. (1984) p. 85). However, the principle of non-retroactivity is not a peremptory norm of international law and, as Article 28 makes clear, it is open to the parties to agree to the contrary.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Retroactivity/Retrospectivity creation of new collection right did not entail retrospectivity 182
Tax Topics - Statutory Interpretation - Revenue Rule 124
Tax Topics - Treaties - Income Tax Conventions - Article 26A new tax collection Article applied to old tax debts 228

Sommerer v. The Queen, 2011 DTC 1162 [at 845], 2011 TCC 212, aff'd 2012 FCA 207

The Canadian-resident taxpayer transferred shares to an Austrian private foundation, which held the shares under an arrangement which was found by C. Miller J to be a trust. At issue was whether s. 75(2) attributed the private foundation's taxable capital gain from its subsequent disposition of the shares to the taxpayer. The Minister argued that Art. 13(5) of the Austrian treaty (providing that the alienation of property (other than excepted property) by a resident of Austria was taxable only in Austria) did not apply, because s. 75(2) treated the foundation's proceeds of alienation as the taxpayer's proceeds.

Miller J., having already found on other grounds that s. 75(2) did not apply, rejected the Minister's argument. Article 13(5) was unambiguous in shielding the taxpayer from Canadian tax liability from the alienation of the shares. S. 75(2) did not deem the taxpayer rather than the foundation to be the alienator. Moreover, other articles in the Canada-Austria Convention and in other tax treaties contained specific exceptions where domestic tax laws would prevail over treaty provisions, and no such provision applied here.

Irish Bank Resolution Corporation Ltd v Revenue and Customs, [2020] EWCA Civ 1128

subsequently-added material in OECD Commentaries could be reviewed if they were not inconsistent with contemporaneous commentaries

HMRC increased the UK branch profits of the Irish taxpayers’ branch banking, or home mortgages, businesses by attributing to their UK permanent establishments notional additional free capital on the basis that if they had operated as distinct and separate enterprises, they would have had a higher amount of free capital and therefore a correspondingly lower amount of borrowed capital – with the result that HMRC disallowed interest which was actually paid to third parties. Patten LJ was fortified in his conclusion that these adjustments accorded with the “comparator provisions” of the permanent establishment Article in the UK-Ireland Treaty (Art. 8(2), which was similar to Art. 7(2) of the OECD Model) by passages in the 2008 OECD Commentaries, notwithstanding that he was dealing with a 1976 Treaty. He stated (at para. 31):

Although [43]-[47] of the 2008 Commentary are new, it is clear from [7] of the Commentary that they were considered appropriate for inclusion by the OECD because they were not in conflict with earlier versions of the Commentary. … On that basis, the 2008 Commentary, although new, would be admissible as an aid to the construction of Article 8(2) of the 1976 Convention which, as I have explained, adopted the wording of Article 7(2). It would only be inadmissible if the new material made substantive changes which are inconsistent with the commentaries in existence at the time of the 1976 Convention.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 7 interest expenses of PE could be reduced if it had insufficient free capital compared to the arm’s length standard 534

Satyam Computer Services Limited v Commissioner of Taxation, [2018] FCAFC 172

wording of Treaty sourcing rule had the effect of expanding scope of domestic provision

The Indian taxpayer (Satyam) argued unsuccessfully before the Full Federal Court of Australia “that tax treaties are, and can only be, exclusively relieving: that is, they are only ever ‘shields not swords’ and not the grant of a standalone taxing power and independent imposition of taxation.”

Art. 23(1) of the Australia-India Treaty provided:

Income, profits or gains derived by a resident of one of the Contracting States which, under any one or more of Articles 6 to 8, Articles 10 to 20 and Article 22 may be taxed in the other Contracting State, shall for the purposes of the law of that other State relating to its tax be deemed to be income from sources in that other State.

The bolded language had the effect of indicating that a technical-services royalty, which Australia was permitted to tax under the Australian royalties article of the Treaty, was deemed to arise in Australia not only for the purposes of the Article of the Treaty dealing with the elimination of double taxation, but also for the purposes of the Australian domestic taxation provisions. Consequently, technical services fees (which were deemed royalties) earned by Satyam, which in the absence of the Treaty would have been considered to not arise in Australia so that they would not have been subject to Australian income tax under the approximate Australian equivalent of ITA s. 115, were now deemed for the purposes of that provision to arise in Australia and to therefore be subject to Australian income tax.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 24 a sourcing rule in the Australia-India Treaty imposed tax on a deemed royalty received by an Indian company 391

Administrative Policy

24 March 2016 Internal T.I. 2016-0634191I7 - Income from a U.S. trust

all U.S. Treasury Technical Explanations accepted

Canada has stated that the [U.S. Treasury] Technical Explanations accurately reflect understandings reached in the course of negotiations with respect to the interpretation and application of the various provisions in the Protocols [footnote: See Department of Finance news releases: 84-128, 95-048, 97-122 and 2008-052.]

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(5) - Paragraph 108(5)(a) income distributions from non-resident trust were property income 123

28 May 2015 IFA Roundtable Q. 12, 2015-0581521C6 - IFA 2015 Q.12: Canada-Switzerland Treaty

resolution of conflicting French and English Treaty versions of Swiss Treaty in taxpayer's favour

A corporation resident in Switzerland ("Swissco") wholly-owns "Holdco," which wholly-owns "Canco"). S. 214(3)(a) deems Canco to pay a dividend to Swissco. The rate of withholding tax would be 15% under the English version of the Swiss Treaty but 5% under the French version. How would Art. 10(2)(a) of the Swiss Treaty apply? CRA responded:

[T]axpayers should, in these circumstances, apply the version of the Swiss Treaty that gives them the most favourable result. We would normally expect that this would be the French version… .

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 10 resolution of conflicting French and English Treaty versions of Swiss Treaty in taxpayer's favour 89


Stéphane Austry, John Avery Jones, Philip Baker, Peter Blessing, Robert Danon, Shefali Goradia, Koichi Inoue, Jürgen Lüdicke, Guglielmo Maisto, Toshio Miyatake, Angelo Nikolakakis, Kees van Raad, Richard Vann, Bertil Wiman, "The Proposed OECD Multilateral Instrument Amending Tax Treaties", Bulletin for International Taxation, December 2016, p. 683

Two alternatives for operation of MLI (p. 683)

[W]e do not know whether [the MLI] will operate by either:

(1) modifying existing bilateral tax treaties by inserting the substantive provisions that have been developed during the OECD/G20 BEPS process. Having inserted those provisions, the MLI would, in a sense, then fall away, and attention in practice would focus exclusively on the existing bilateral tax treaties, now modified in their wording by the MLI; or

(2) modifying all bilateral tax treaties to which the parties to the MLI are parties (perhaps with a power to have exceptions) without specifying them individually or stating which articles of a particular tax treaty are modified. It would be necessary to turn to the MLI for the wording of the modifying provision and to read the bilateral convention along with, and as modified by, the MLI. Thus, rather than seeking to delete and replace wording in existing bilateral conventions, within the scope of matters covered by the MLI, one would turn from the bilateral convention to the MLI for the relevant wording. This approach would probably require provisions for the interaction of the MLI with particular tax treaties, such as that one could terminate a bilateral tax treaty without the consent of all the parties to the MLI.

Advantages of 2nd approach (pp. 683-684)

We favour approach (2) for the following reasons:

First, because approach (1) misses an opportunity to move towards common, internationally agreed wording on provisions relating to double taxation.

Second, approach (1) may create inherent practical difficulties. Realistically, it requires consolidated versions of all existing bilateral tax treaties as modified by the MLI. To achieve these consolidated versions, it will be necessary to identify precisely the wording that is modified by the provisions in the MLI. That task is relatively easy where the bilateral convention is based upon the OECD Model or UN Model, but as far harder task where the wording departs from either of those Models. In practice, pairs of states may wish to agree in advance which provisions of their tax treaty are modified by the MLI (possibly by an exchange of notes to that effect), which loses some of the advantage of having multilateral approach to this issue. We can see that there is a practical attraction in having consolidated versions of bilateral treaties, as amended by the MLI, rather than having to read each bilateral treaty side-by-side with the MLI.

Third, as explained in section 3, approach (1) also raises a particular issue over the Commentaries or Explanatory Statements to the wording contained in the provisions inserted by the MLI.

Fourth, approach (2) makes it easier to have different language priorities from the treaty being amended.

Elevating the Explanatory Statements to context (p. 685)

In international law, commentaries – or Explanatory Statements as it would be better to call them to avoid any confusion with the existing Commentaries – included with the MLI are "context" within the scope of article 31(2) of the Vienna Convention (1969)….

In order for Explanatory Statements to achieve the status of context, it is essential that they are adopted by the parties at the time of the conclusion of the MLI. Since "conclusion" is an expression of unclear meaning, in order to be safe, this means that states need to adopt the Explanatory Statements at the time of signing. While there is a possibility of a subsequent agreement having similar effect, [F.N. … under article 31(3)(a) of the Vienna Convention (1969).] this would be much less satisfactory as agreement would in practice be harder to reach if there was no deadline….

[W]e think it is particularly important that an Explanatory Statement on the proposed principal purpose test (PPT) is adopted and maintained by as wide a group of countries as possible

Potential for MLI to be only in English and French (p. 686)

First, all tax treaties were unilingual, initially in Latin (at least in Europe), and then in French….

[T]ax treaties have entered a third phase, which is reverting to the first phase but with English substituted for French as the (if we may be pardoned for saying so) lingua franca of tax treaties. It has been estimated that in total over 80% of tax treaties have a version in English, whether the sole language version, one of the equally authentic versions or the prevailing version. The corresponding total for French is less than 10%. Less than 10% of tax treaties use neither French nor English. The preparation of additional language versions of the MLI may not, therefore, be as significant an issue as the OECD makes it out to be.

Given this starting point, the OECD, who work in English and French, are well placed to propose an MLI in those languages only. But while tax treaties that do not use those languages may account for less than 10% of all tax treaties, they cannot be ignored, and the issue is what should be done for those treaties in relation to the MLI. There are two polar approaches: either to stick to the existing pattern of continuing with the original treaty languages for modifications made by the MLI, which fits better with approach (1), or for the OECD to give a nudge in the direction of either English or French only, which fits better with approach (2).

Position of the 10% who do not use English or French (pp. 686-7)

[Re] countries who have concluded tax treaties in neither English nor French…[t]here are some pointers to the likely result being that they would want to reversion to the unilingual (but now with a choice of English or French) first phase of treaties to reflect the reality of the present situation. For example, about 25 of the approximately 100 Dutch tax treaties are in English only, as are a substantial number of Swedish tax treaties. …

Japan, which suffers the disadvantage that none of the world’s major, non-tax treaties is in Japanese and is therefore well used to the problem of treaties not being in Japanese, has concluded 23 tax treaties with non-native English-speaking countries in English only, with a further two with a prevailing English version, 20 treaties where English is one of the treaty languages, and one where French was one of the treaty languages. So it seems clear how Japan would vote.

Justice Marshall Rothstein, "An Overview of the Supreme Court of Canada", Bulletin for International Taxation (IBFD), January/February 2016, p. 20.

International rules of interpretation (pp. 24-25)

[W]hen interpreting treaties, Canadian courts generally use international rules of interpretation instead of domestic rules. The Supreme Court of Canada has endorsed the principles of treaty interpretation enunciated in sections 31-33 of the Vienna Convention on the Law of Treaties.[F.n. 70: (VCLT). See Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982 at paras. 51-52; see also Crown Forest Industries Ltd. v Canada ...] These rules require that a court first look at the ordinary meaning of the terms of the treaty in their context (which includes the preamble, annexes, related agreements and instruments, subsequent practices and relevant rules of international law) and in light of the treaty's object and purpose. If the meaning of a treaty term is ambiguous, courts may restore to the treaty's preparatory works (also called the travaux preparatoires) and the circumstances surrounding the conclusion of the treaty. [F.n. 72: VCLT, supra n. 70, sec 32. See also van Ert, [Using International Law in Canadian Courts, 2d ed (Irwin Law 2008)] p. 274.]

In interpreting treaties to which Canada is a party, the Supreme Court of Canada and Canadian courts are not averse to seeking guidance from the decisions of foreign courts. An openness to considering foreign judgments is beneficial for a number of reasons: a well-reasoned foreign decision that has considered similar issues may provide analytical guidance. We may also look to the effects of a particular rule in action in considering the merit of arguments about likely consequences. It also leads to greater harmonization of law in terms of interpretation and implementation of treaties. [F.n.73: See generally van pp. 280-284]

Richard G. Tremblay, Peter MacDonald, "General-Anti-Avoidance Rule and Treaty Shopping: Why Courts Should Not Be Asked to Do the Job of Legislators", International Tax, Vol. XII, No. 2, 2004, p. 844.

Michael Lang, "Income Allocation Issues Under Tax Treaties", Tax Notes International, April 21, 2014, p. 285.

No implications of specific safe harbours (p. 287)

Therefore, a special provision is no indication that something else applies outside its explicitly defined scope of application. Such a deviation from the OECD model can often be better understood against the background of the negotiations, during which doubts arose about the application of a provision to a specific situation that the negotiators had in mind. The negotiators would then want to eliminate these doubts. Therefore, such provisions often serve to solve a specific issue. This does not provide any clue about what applies when the regulation did not seem questionable during the negotiations or did not come under consideration….

Relevance of subsequent OECD Commentary (p. 289)

The differentiated reasoning adopted by the court, however, is not very conclusive: "A later OECD Commentary should only be of assistance if not in conflict with the Commentary in existence at the time of the Convention." [fn 15: Tax Court of Canada, May 13, 2011, 2007-2583 (IT)G, Her Majesty the Queen v. Peter Sommerer, 2011 TCC 212.p.47.] If the later version of the OECD commentary generally does not constitute a relevant interpretation material, it also cannot be relevant whether the later version is in conflict with the earlier version….

One cannot deny the allure of conciliatory solutions, but it is of little help in this particular case. The mere mention of the word "clarification" calls for skepticism….

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 13 506

Klaus Vogel, "The Influence of the OECD Commentaries on Treaty Interpretation", Bulletin for International Fiscal Documentation, Vol. 54, No. 12, 2000, p.612.

D. Sandler, J. Li, "The Relationship between Domestic Anti-Avoidance Legislation and Tax Treaties", 1997 Canadian Tax Journal, Vol. 45, No. 5, p. 891.

David A. Ward, "Conflicting (Domestic and Treaty) Interpretational Approaches in the Two Countries: A Canadian Perspective", Cross-Border Taxation Issues and Development 1996, International Fiscal Association, p. 531.

Déry, David A. Ward, "Interpretation of Double Taxation Conventions", Cahiers de droit Fiscal International, Volume LXXVIIIa, p. 259.

Michael N. Kandev, Brandon Wiener, "Some Thoughts on the Use of Later OECD Commentaries after Prévost Car", Tax Notes International, 25 May 2009, p. 667

Baxter, Double Taxation Agreements and International Tax Law, Sweet Maxwell (London, 1991).

James S. Hausman, "Interpreting Tax Treaties - A Canadian Perspective", Bulletin for International Fiscal Documentation, Vol. 55, No. 3, March 2001, p. 93.

David A. Ward, "Principles to be Applied in Interpreting Tax Treaties", 1977 Canadian Tax Journal, p. 263.

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