Council of Europe and British Institute of International and Comparative Law, Treaty Making—Expression Of Consent By States To Be Bound By A Treaty (Kluwer Law International, 2001).
Art. VI(cl.2) of the US Constitution provides that, “This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding.” The US is not a signatory to the VCLT.
Sec. 7852(d)(1) of the IRC provides that, “In general for purposes of determining the relationship between a provision of a treaty and any law of the United States affecting revenue, neither the treaty nor the law shall have preferential status by reason of its being a treaty or law.”
Sec. 897 of the IRC makes gains realized from the sale of stock in a US corporation a significant portion of the assets of which consists of US real estate taxable.
See Gustafson et al at pp. 65-66.
Art. 98(2) of the Japanese Constitution provides that, “The treaties concluded by Japan and established laws of nations shall be faithfully observed.” Art. 55 of the French Constitution states more clearly that treaties prevail over domestic laws.
Art. BB3(2) of New Zealand Income Tax Act.
For example, Art. 1(2) of the 2003 Japan-US tax treaty provides that, “The provisions of this Convention should not be construed to restrict in any manner any exclusion, exemption, deduction, credit, or other allowance now or hereafter accorded: (a) by the laws of a Contracting State in the determination of the tax imposed by that Contracting State; or (b) by any other bilateral agreement between the Contracting States or any multilateral agreement to which the Contracting States are parties.”
Some tax treaties explicitly state this principle for clarification. For example, Art. 1(2)(a) of the 2003 Japan-US tax treaty provides that, “Except to the extent provided in paragraph 5, this Convention shall not affect the taxation by a Contracting State of its residents (as determined under Article 4) and, in the case of the United States, its citizens.”
Para. 1(1) and Art. 10(5) of the OECD MTC.
Para. 23 of the Commentary on Art. 1 of the OECD MTC. A few members put observations on this understanding.
In Austria, Belgium and Germany, tax treaties are incorporated into domestic laws by a formal or procedural executive or legislative act. In Australia, Canada, Denmark, Israel, New Zealand, Norway, Sweden and the United Kingdom, a treaty does not have effect as domestic law of its own force so that treaties are incorporated into domestic law by special enactment. See Thuronyi at pp. 112-113, and also Treaty Making—Expression Of Consent By States To Be Bound By A Treaty at pp. 90-93.
The US Treasury Department released Technical Explanation on each tax treaty. The Technical Explanation provides useful guidance on how to interpret and apply a tax treaty using a lot of examples, though a taxpayer can challenge interpretation shown in Technical Explanation at courts.
Under the QI agreement, QIs accept enhanced responsibilities for providing assurance that customers are in fact eligible for tax treaty benefits and exemptions such as obtaining acceptable account-opening documentation. In case the non-US financial institutions do not enter a QI agreement with the IRS, the institution should provided required tax certifications on a case-by-case basis.
The limitation of benefits provision in tax treaties which the US concluded since 1981 typically provides that certain tax treaty benefits such as reduced withholding rates will not apply to a corporation established in a treaty partner country if more than a specified percent of its stock is held by residents of countries other the US and its treaty partner country. An example is shown in paragraph 20 of the Commentary on Art. 1 of the OECD MTC.
The OECD report, “The Application of the OECD Model Tax Convention to Partnerships” (1999) and Commentary on Art. 1 of the OECD MTC explain the issue in details.
See Gustafson et al at p. 234
In this case, the partners should be entitled to tax treaty benefits with respect to their share of the income of the partnership. Para. 5 of the Commentary on Art. 1 of the OECD MTC.
While the partnership may claim the benefit of the treaty between state A and the source country, the partner who is resident of state B may claim the benefits of the treaty between state B and the source country to the extent that the partnership’s income is allocated to him/her. Para. 6.5 of the commentary on Art. 1 of the OECD MTC. Art. 4(6) of the 2003 Japan-US tax treaty.
The US provides detailed guidance on how to apply tax treaty benefits to a hybrid entity in Sec. 894 of the IRC and related Treasury regulations.
Para. 11 of the Commentary on Art. 26 of the OECD MTC.
Information gathering measures mean laws and administrative or judicial measures. Para. 19.7 of the Commentary on Art. 26 of the OECD MTC.
Para. 5 of the Commentary on Art. 26 of the OECD MTC. Art. 1 of the OECD Model Agreement on Exchange of Information on Tax Matters (OECD Model Agreement) provides that the competent authorities shall provide information that is foreseeably relevant to prosecution of tax matters.
Art. 26(5) of the OECD MTC and Art. 5(4) of the OECD Model Agreement. These paragraphs also provide that tax authorities should not decline to provide information held by nominees, agents, fiduciaries and ownership information.
Art. 27 of the OECD MTC provides for comprehensive collection assistance. An example of a more limited type of collection assistance is in para. 2 of the Commentary on Art. 27 of the OECD MTC.
Art. 27(3) of the OECD MTC.
Art. 25(2) of the OECD MTC.
The duration for competent authorities to reach an agreement may differ by a case and by a country. However, Art. 25(5) of the OECD MTC, which allows a taxpayer to submit a case to arbitration if the competent authorities are unable to reach an agreement within two years from the presentation of the case to the competent authority, would be indicative.
There are different modes of tax treaty shopping as explained in para. 9 of the Commentary on Art. 1 of the OECD MTC.
Para. 9.3 of the Commentary on Art. 1 of the OECD MTC.
Para. 7-26 of the Commentary on Art. 1 of the OECD MTC.
Para. 9.2 of the Commentary on Art. 1 of the OECD MTC.
Art. 42(3) of the Special Taxation Measures Law.
Art. 17(2) of the OECD MTC is one of the examples.