COMMENTARY ON Article 3¶
CONCERNING GENERAL DEFINITIONS
1. This Article groups together a number of general provisions required for the interpretation of the terms used in the Convention. The meaning of some important terms, however, is explained elsewhere in the Convention. Thus, the terms “resident” and “permanent establishment” are defined in Articles 4 and 5respectively, while the interpretation of certain terms appearing in the Articles on special categories of income (“income from immovable property”, “dividends”, etc.) is clarified by provisions embodied in those Articles. In addition to the definitions contained in the Article, Contracting States are free to agree bilaterally on definitions of the terms “a Contracting State” and “the other Contracting State”. Furthermore, Contracting States are free to agree bilaterally to include in the possible definitions of “Contracting States” a reference to continental shelves.(Amended on 21 September 1995 see History)
Paragraph 1The term “person”2. The definition of the term “person” given in subparagraph a) is not exhaustive and should be read as indicating that the term “person” is used in a very wide sense (see especially Articles 1and 4). The definition explicitly mentions individuals, companies and other bodies of persons. From the meaning assigned to the term “company” by the definition contained in subparagraph b) it follows that, in addition, the term “person” includes any entity that, although not incorporated, is treated as a body corporate for tax purposes. Thus, e.g. a foundation (fondation,Stiftung) may fall within the meaning of the term “person”. Partnerships will also be considered to be “persons” either because they fall within the definition of “company” or, where this is not the case, because they constitute other bodies of persons.(Amended on 29 April 2000 see History)
The term “company”3. The term “company” means in the first place any body corporate. In addition, the term covers any other taxable unit that is treated as a body corporate for the purposes of the tax law of the Contracting State of which it is a resident. The definition is drafted with special regard to the Article on dividends. The term “company” has a bearing only on that Article, paragraph 7 of Article 5, and Article 16.(Amended on 15 July 2014 see History)
The term “enterprise”4. The question whether an activity is performed within an enterprise or is deemed to constitute in itself an enterprise has always been interpreted according to the provisions of the domestic laws of the Contracting States. No exhaustive definition of the term “enterprise” has therefore been attempted in this Article. However, it is provided that the term “enterprise” applies to the carrying on of any business. Since the term “business” is expressly defined to include the performance of professional services and of other activities of an independent character, this clarifies that the performance of professional services or other activities of an independent character must be considered to constitute an enterprise, regardless of the meaning of that term under domestic law. States which consider that such clarification is unnecessary are free to omit the definition of the term “enterprise” from their bilateral conventions.(Amended on 29 April 2000 see History)
The term “international traffic”5. The definition of the term “international traffic” is based on the principle set forth in paragraph 1 of Article 8 that the right to tax profits from the operation of ships or aircraft in international traffic resides only in the Contracting State in which the place of effective management is situated in view of the special nature of the international traffic business. However, as stated in the Commentary on paragraph 1 of Article 8, the Contracting States are free on a bilateral basis to insert in subparagraph e) a reference to residence, in order to be consistent with the general pattern of the other Articles. In such a case, the words “an enterprise that has its place of effective management in a Contracting State” should be replaced, by “an enterprise of a Contracting State” or “a resident of a Contracting State”.(Amended on 21 September 1995 see History)
6. The definition of the term “international traffic” is broader than is normally understood. The broader definition is intended to preserve for the State of the place of effective management the right to tax purely domestic traffic as well as international traffic between third States, and to allow the other Contracting State to tax traffic solely within its borders. This intention may be clarified by the following illustration. Suppose an enterprise of a Contracting State or an enterprise that has its place of effective management in a Contracting State, through an agent in the other Contracting State, sells tickets for a passage that is confined wholly within the first-mentioned State or alternatively, within a third State. The Article does not permit the other State to tax the profits of either voyage. The other State is allowed to tax such an enterprise of the first-mentioned State only where the operations are confined solely to places in that other State.(Amended on 21 September 1995 see History)
6.1 A ship or aircraft is operated solely between places in the other Contracting State in relation to a particular voyage if the place of departure and the place of arrival of the ship or aircraft are both in that other Contracting State. However, the definition applies where the journey of a ship or aircraft between places in the other Contracting State forms part of a longer voyage of that ship or aircraft involving a place of departure or a place of arrival which is outside that other Contracting State. For example, where, as part of the same voyage, an aircraft first flies between a place in one Contracting State to a place in the other Contracting State and then continues to another destination also located in that other Contracting State, the first and second legs of that trip will both be part of a voyage regarded as falling within the definition of “international traffic”.(Added on 29 April 2000 see History)
6.2 Some States take the view that the definition of “international traffic” should rather refer to a transport as being the journey of a passenger or cargo so that any voyage of a passenger or cargo solely between two places in the same Contracting State should not be considered as covered by the definition even if that voyage is made on a ship or plane that is used for a voyage in international traffic. Contracting States having that view may agree bilaterally to delete the reference to “the ship or aircraft” in the exception included in the definition, so as to use the following definition:the term “international traffic” means any transport by a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State, except when such transport is solely between places in the other Contracting State;
(Added on 29 April 2000 see History)
6.3 The definition of “international traffic” does not apply to a transport by an enterprise which has its place of effective management in one Contracting State when the ship or aircraft is operated between two places in the other State, even if part of the transport takes place outside that State. Thus, for example, a cruise beginning and ending in that other State without a stop in a foreign port does not constitute a transport of passengers in international traffic. Contracting States wishing to expressly clarify that point in their conventions may agree bilaterally to amend the definition accordingly.(Amended on 15 July 2005 see History)
The term “competent authority”7. The definition of the term “competent authority” recognises that in some OECD member countries the execution of double taxation conventions does not exclusively fall within the competence of the highest tax authorities; some matters are reserved or may be delegated to other authorities. The present definition enables each Contracting State to designate one or more authorities as being competent.(Amended on 21 September 1995 see History)
The term “national”8. The definition of the term “national” merely stipulates that, in relation to a Contracting State, the term applies to any individual possessing the nationality or citizenship of that Contracting State. Whilst the concept of nationality covers citizenship, the latter term was also included in 2002 because it is more frequently used in some States. It was not judged necessary to include in the text of the Convention any more precise definition of the terms nationality and citizenship, nor did it seem indispensable to make any special comment on the meaning and application of these words. Obviously, in determining what is meant by “national” in the case of an individual, reference must be made to the sense in which the term is usually employed and each State’s particular rules on the acquisition or loss of nationality or citizenship.(Amended on 28 January 2003 see History)
9. Subparagraph g) is more specific as to legal persons, partnerships and associations. By declaring that any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State is considered to be a national, the provision disposes of a difficulty that often arises. In defining the nationality of companies, certain States have regard less to the law that governs the company than to the origin of the capital with which the company was formed or the nationality of the individuals or legal persons controlling it.(Replaced on 23 July 1992 see History)
10. Moreover, in view of the legal relationship created between a company and the State under whose law it is organised, which from certain points of view is closely akin to the relationship of nationality in the case of individuals, it seems justifiable not to deal with legal persons, partnerships and associations in a special provision, but to assimilate them with individuals under the term “national”.(Replaced on 23 July 1992 see History)
10.1 The separate mention of partnerships in subparagraph g) is not inconsistent with the status of a partnership as a person under subparagraph a). Under the domestic laws of some countries, it is possible for an entity to be a “person” but not a “legal person” for tax purposes. The explicit statement is necessary to avoid confusion.(Added on 29 April 2000 see History)
The term “business”10.2 The Convention does not contain an exhaustive definition of the term “business”, which, under paragraph 2, should generally have the meaning which it has under the domestic law of the State that applies the Convention. Subparagraph h), however, provides expressly that the term includes the performance of professional services and of other activities of an independent character. This provision was added in 2000 at the same time as Article 14, which dealt with Independent Personal Services, was deleted from the Convention. This addition, which ensures that the term “business” includes the performance of the activities which were previously covered by Article 14, was intended to prevent that the term “business” be interpreted in a restricted way so as to exclude the performance of professional services, or other activities of an independent character, in States where the domestic law does not consider that the performance of such services or activities can constitute a business. Contracting States for which this is not the case are free to agree bilaterally to omit the definition.(Added on 29 April 2000 see History)
Paragraph 211. This paragraph provides a general rule of interpretation for terms used in the Convention but not defined therein. However, the question arises which legislation must be referred to in order to determine the meaning of terms not defined in the Convention, the choice being between the legislation in force when the Convention was signed or that in force when the Convention is being applied,i.e.when the tax is imposed. The Committee on Fiscal Affairs concluded that the latter interpretation should prevail, and in 1995 amended the Model to make this point explicitly.(Amended on 21 September 1995 see History)
12. However, paragraph 2 specifies that this applies only if the context does not require an alternative interpretation. The context is determined in particular by the intention of the Contracting States when signing the Convention as well as the meaning given to the term in question in the legislation of the other Contracting State (an implicit reference to the principle of reciprocity on which the Convention is based). The wording of the Article therefore allows the competent authorities some leeway.(Added on 23 July 1992 see History)
13. Consequently, the wording of paragraph 2 provides a satisfactory balance between, on the one hand, the need to ensure the permanency of commitments entered into by States when signing a convention (since a State should not be allowed to make a convention partially inoperative by amending afterwards in its domestic law the scope of terms not defined in the Convention) and, on the other hand, the need to be able to apply the Convention in a convenient and practical way over time (the need to refer to outdated concepts should be avoided).(Added on 23 July 1992 see History)
13.1 Paragraph 2 was amended in 1995 to conform its text more closely to the general and consistent understanding of member states. For purposes of paragraph 2, the meaning of any term not defined in the Convention may be ascertained by reference to the meaning it has for the purpose of any relevant provision of the domestic law of a Contracting State, whether or not a tax law. However, where a term is defined differently for the purposes of different laws of a Contracting State, the meaning given to that term for purposes of the laws imposing the taxes to which the Convention applies shall prevail over all others, including those given for the purposes of other tax laws. States that are able to enter into mutual agreements (under the provisions of Article 25 and, in particular, paragraph 3 thereof) that establish the meanings of terms not defined in the Convention should take those agreements into account in interpreting those terms.(Added on 21 September 1995 see History)
Reservations on the Article14. ItalyandPortugalreserve the right not to include the definitions in subparagraphs 1 c) and h) (“enterprise” and “business”) because they reserve the right to include an article concerning the taxation of independent personal services.(Replaced on 29 April 2000 see History)
15. Chile,Mexicoand theUnited Statesreserve the right to omit the phrase “operated by an enterprise that has its place of effective management in a Contracting State” from the definition of “international traffic” in subparagraph e) of paragraph 1.(Amended on 22 July 2010 see History)
16. Israelreserves the right to include a trust within the definition of a “person”.(Added on 15 July 2014 see History)
Paragraph 1Amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 1 read as follows:“1. This Article groups together a number of general provisions required for the interpretation of the terms used in the Convention. It should be observed, however, that the meaning of some important terms, however, is explained elsewhere in the Convention. Thus, the terms “resident” and “permanent establishment” are defined in Articles 4 and 5 respectively, while the interpretation of certain terms appearing in the Articles on special categories of income (“immovable property”, “dividends”, etc.) is clarified by provisions embodied in those Articles. In addition to the definitions contained in the Article, Contracting States are free to agree bilaterally on definitions of the terms “a Contracting State” and “the other Contracting State”. Furthermore, Contracting States are free to agree bilaterally to include in the possible definitions of “Contracting States” a reference to continental shelves.”
Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:“1. This Article groups together a number of general provisions required for the interpretation of the terms used in the Convention. It should be observed, however, that the meaning of some important terms is explained elsewhere in the Convention. Thus, the terms “resident” and “permanent establishment” are defined in Articles 4 and 5 respectively, while the interpretation of certain terms appearing in the Articles on special categories of income (“immovable property”, “dividends”, etc.) is clarified by provisions embodied in those Articles.”
Paragraph 2Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000 on the basis of Annex I of another report entitled “The Application of the OECD Model Tax Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999). After 21 September 1995 and until 29 April 2000, paragraph 2 read as follows:“2. The definition of the term “person” given in subparagraph a) is not exhaustive and should be read as indicating that the term “person” is used in a very wide sense (see especially Articles 1 and 4). The definition explicitly mentions individuals, companies and other bodies of persons. From the meaning assigned to the term “company” by the definition contained in subparagraph b) it follows that, in addition, the term “person” includes any entity that, although not incorporated, is treated as a body corporate for tax purposes. Thus, e.g.a foundation (fondation,Stiftung) may fall within the meaning of the term “person”. Special considerations for the application of the Convention to partnerships are found in paragraphs 2 to 6 of the Commentary on Article 1.”
Paragraph 2 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 2 read as follows:“2. The definition of the term “person” given in subparagraph a) is not exhaustive and should be read as indicating that the term “person” is used in a very wide sense (see especially Articles 1 and 4). The definition explicitly mentions individuals, companies and other bodies of persons. From the meaning assigned to the term “company” by the definition contained in subparagraph b) it follows that, in addition, the term “person” includes any entity which, although itself not a body of persons, is treated as a body corporate for tax purposes. Thus, e.g. a foundation (“fondation”, “Stiftung”) may fall within the meaning of the term “person”. Special considerations for the application of the Convention to partnerships are found in paragraphs 2 to 6 of the Commentary on Article 1.”
Paragraph 2 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:“2. The definition of the term “person” given in subparagraph (b) is in substance similar to the one commonly included in current double taxation Conventions. The provision is not worded as an exhaustive definition and should be read as indicating that the term person is used in a very wide sense (see especially Articles 1 and 4). The definition explicitly mentions individuals, companies and other bodies of persons. From the meaning assigned to the term “company” by the definition contained in sub-paragraph (c) it follows that, in addition, the term “person” comprises any entity which, although itself not a body of persons, is treated as a body corporate for purposes of tax. Thus, e.g. a foundation (“fondation”, “Stiftung”) may fall within the meaning of the term person.”
Paragraph 3Amended on 15 July 2014 by the Report entitled “The 2014 Update to the Model Tax Convention”, adopted by the Council of the OECD on 15 July 2014. After 21 September 1995 and until 15 July 2014, paragraph 3 read as follows:“3. The term “company” means in the first place any body corporate. In addition, the term covers any other taxable unit that is treated as a body corporate according to the tax laws of the Contracting State in which it is organised. The definition is drafted with special regard to the Article on dividends. The term “company” has a bearing only on that Article, paragraph 7 of Article 5, and Article 16.”
Paragraph 3 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 3 read as follows:“3. The term “company” means in the first place any body corporate. In addition, the term covers any other taxable unit that is treated as a body corporate according to the tax laws of the Contracting State in which it is organised. The definition is drafted with special regard to the Article on dividends. It should be noted that the term “company” has a bearing only on that Article, paragraph 7 of Article 5, and Article 16.”
Paragraph 3 of the 1977 Model Convention corresponded to paragraph 4 of the 1963 Draft Convention. Paragraph 3 of the 1963 Draft Convention was deleted, paragraph 4 of the 1963 Draft Convention was amended and renumbered as paragraph 3 and the heading preceding paragraph 4 was moved with it when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:“4. The term “company” includes in the first place all corporate bodies. In addition, the term covers other taxable units which are treated as corporate bodies according to the tax laws of the Contracting State in which they are organised. The definition is drafted with special regard to the Article on dividends. It should be noted that the term company has a bearing only on that Article and Article 16 on taxation of directors’ fees and paragraph 6 of Article 5 on permanent establishment.”
Paragraph 3 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until it was deleted when the 1977 Model Convention was adopted, read as follows:“3. If differences exist between two Contracting States in the taxation of profits of partnerships or like taxable units, the tax treatment of the partnership or like taxable units on the one hand and of the resident or non-resident partners on the other hand, could give rise to double taxation or non-taxation. In this case special appropriate provisions should be agreed upon by the Contracting States concerned and adopted in their bilateral relations.”
Paragraph 4Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000 on the basis of the Annex of another report entitled “Issues Related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). After 21 September 1995 and until 29 April 2000, paragraph 4 read as follows:“4. The question whether an activity is performed within an enterprise or is deemed to constitute in itself an enterprise has always been interpreted according to the provisions of the domestic laws of the Contracting States. No definition of the term “enterprise” has therefore been attempted in this Article.”
Paragraph 4 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 4 read as follows:“4. The question whether an activity is performed within the framework of an enterprise or is deemed to constitute in itself an enterprise has always been interpreted according to the provisions of the domestic laws of the Contracting States. No definition, properly speaking, of the term “enterprise” has therefore been attempted in this Article.”
Paragraph 4 of the 1977 Model Convention corresponded to paragraph 5 of the 1963 Draft Convention. Paragraph 4 of the 1963 Draft Convention was amended and renumbered as paragraph 3 (see history of paragraph 3), paragraph 5 of the 1963 Draft Convention was amended and renumbered as paragraph 4 of the 1977 Model Convention and the heading preceding paragraph 5 was moved with it when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 5 read as follows:“5. The question whether an activity is performed within the framework of an enterprise or is deemed to constitute in itself an enterprise has hitherto always been interpreted according to the provisions of the national law of the Contracting States. No definition, properly speaking, of the term “enterprise” has been attempted in this Article; also no such definition can be found in the double taxation Conventions in force.”
Paragraph 5Amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 5 read as follows:“5. The definition of the term “international traffic” is based on the principle as set forth in paragraph 1 of Article 8 that the right to tax profits from the operation of ships or aircraft in international traffic resides only in the Contracting State in which the place of effective management is situated in view of the special nature of the international traffic business. However, as stated in the Commentary on paragraph 1 of Article 8, the Contracting States are free on a bilateral basis to insert in subparagraph d) the reference to residence, in order to be consistent with the general pattern of the other Articles. In such a case, the words “an enterprise which has its place of effective management in a Contracting State” should be replaced, by “an enterprise of a Contracting State” or “a resident of a Contracting State.””
Paragraph 5 of the 1977 Model Convention replaced paragraph 5 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 5 of the 1963 Draft Convention was amended and renumbered as paragraph 4 (see history of paragraph 4) and a new paragraph 5 and the heading preceding it were added.
Paragraph 6Amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 6 read as follows:“6. It is to be noted that the definition of the term “international traffic” is broader than the term normally signifies. However, this has been deliberate in order to preserve for the State of the place of effective management the right to tax purely domestic traffic as well as international traffic between third States, and to allow the other Contracting State to tax traffic solely within its borders. This intention may be clarified by the following illustration. Suppose an enterprise of a Contracting State or an enterprise which has its place of effective management in a Contracting State, through an agent in the other Contracting State, sells tickets for a passage which is confined wholly within the first-mentioned State or, alternatively, within a third State. The Article does not permit the other State to tax the profits of either voyage. The other State is allowed to tax such an enterprise of the first-mentioned State only where the operations are confined solely to places in that other State.”
Paragraph 6 of the 1977 Model Convention replaced paragraph 6 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 6 of the 1963 Draft Convention was deleted and a new paragraph 6 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the 1977 Model Convention was adopted, paragraph 6 read as follows:“6. The laws of some Member States do not treat a partnership as a taxable unit and, consequently, a partnership as such cannot be regarded as “a resident of a Contracting State” under Article 4 on fiscal domicile; where such a Member State is concerned, it could be maintained that an enterprise carried on by a partnership is not strictly “an enterprise carried on by a resident of a Contracting State”. In such a case, it may assist towards a clarification of the meaning of the term “an enterprise of a Contracting State” if each participation in a partnership is looked upon as a separate enterprise, the test being whether the partner holding the participation is a resident of the one or the other Contracting State or of a third State. The Member States concerned may consider adopting this line of interpretation in bilateral relations.”
Paragraph 6.1Added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.
Paragraph 6.2Added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.
Paragraph 6.3Amended on 15 July 2005 by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005. After 29 April 2000 and until 15 July 2005, paragraph 6.3 read as follows:“6.3 The definition of “international traffic” does not apply to any transport when the ship is operated between two places in the same Contracting State, even if part of the transport takes place outside that State. Thus, for example, a cruise beginning and ending in the same Contracting State without a stop in a foreign port does not constitute a transport of passengers in international traffic. Contracting States wishing to expressly clarify that point in their conventions may agree bilaterally to amend the definition accordingly”
Paragraph 6.3 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.
Paragraph 7Amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 7 read as follows:“7. The definition of the term “competent authority” has regard to the fact that in some OECD member countries the execution of double taxation conventions does not exclusively fall within the competence of the highest tax authorities but that some matters are reserved or may be delegated to other authorities. The present definition enables each Contracting State to nominate one or more authorities as being competent.”
Paragraph 7 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 7 read as follows:“7. The definition of the term “competent authorities” has regard to the fact that in some O.E.C.D. Member countries the execution of double taxation Conventions does not exclusively fall within the competence of the highest fiscal authorities, but that some matters are reserved or may be delegated to other authorities. The present definition enables each Contracting State to nominate one or more authorities as being competent.”
Paragraph 8Amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention” adopted by the OECD Council on 28 January 2003. After 23 July 1992 and until 28 January 2003, paragraph 8 read as follows:“8. The definition of the term “national” merely stipulates that the term applies to any individual possessing the nationality of a Contracting State. It was not judged necessary to include in the text of the Convention any more precise definition of nationality, nor did it seem indispensable to make any special comment on the meaning and application of the word. Obviously, in determining what is meant by “the nationals of a Contracting State” in relation to individuals, reference must be made to the sense in which the term is usually employed and each State’s particular rules on the acquisition or loss of nationality.”
Paragraph 8, as it read after 23 July 1992, corresponded to paragraph 11 of the Commentary on Article 24 of the 1977 Model Convention. On 23 July 1992 paragraph 8 was amended and renumbered paragraph 11 (see history of paragraph 11) and the heading preceding paragraph 8 was moved with it by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, paragraph 11 of the Commentary on Article 24 was amended and renumbered as paragraph 8 of the Commentary on Article 3 and the heading preceding paragraph 8 (The term “national”), was added.
The renumbering and amendment of paragraph 11 of the Commentary on Article 24 on 23 July 1992 was a consequence of the redesignation of paragraph 2 of Article 24 as subparagraph 1 f) of Article 3 (see history of subparagraph 1 f)of Article 3 of the Model Convention). In the 1977 Model Convention and until 23 July 1992, paragraph 11 of the Commentary on Article 24 and the heading preceding it read as follows:“Paragraph 211. Paragraph 2 merely stipulates that the term “nationals” applies to all individuals possessing the nationality of a Contracting State. It has not been judged necessary here to introduce into the text of the Article any considerations on the signification of the concept of nationality, any more than it seemed indispensable to make any special comment here on the meaning and application of the word. Obviously, in determining in relation to individuals, what is meant by “the nationals of a Contracting State”, reference must be made to the sense in which the term is usually employed and each State’s particular rules on the acquisition or loss of nationality.”
Paragraph 11 of the Commentary on Article 24 of the 1977 Model Convention corresponded to paragraph 10 of the Commentary on Article 24 of the 1963 Draft Convention. Paragraph 11 of the 1963 Draft Convention was amended and renumbered as paragraph 12 (see history of paragraph 9 of the Commentary on Article 24) and paragraph 10 of the 1963 Draft Convention was amended and renumbered as paragraph 11 of the 1977 Model Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 10 read as follows:“10. The purpose of paragraph 2 is more to specify the content of the expression “nationals” used in paragraph 1 than to define it. It merely stipulates in a customary formula that this expression applies to all individuals possessing the nationality of one of the Contracting States. It has not been judged necessary here to introduce into the text of the Article any considerations on the signification of the concept of nationality, any more than it seemed indispensable to make any special comment here on the meaning and application of the word. Obviously, in determining, in relation to individuals, what is meant by “the nationals of a Contracting State”, reference must be made to the sense in which the term is usually employed and each State’s particular rules on the acquisition or loss of nationality.”
Paragraph 9Paragraph 9 as it read after 23 July 1992, corresponded to paragraph 12 of the Commentary on Article 24 of the 1977 Model Convention. Paragraph 9 was amended and renumbered as paragraph 14 (see history of paragraph 14) and paragraph 12 of the Commentary on Article 24 was amended and renumbered as paragraph 9 of the Commentary on Article 3 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. The renumbering and amendment of paragraph 12 of the Commentary on Article 24 on 23 July 1992 was a consequence of the redesignation of paragraph 2 of Article 24 as subparagraph 1f) of Article 3 (see history of subparagraph 1 f) of Article 3 of the Model Convention). In the 1977 Model Convention and until 23 July 1992, paragraph 12 of the Commentary on Article 24 read as follows:“12. But paragraph 2 is more specific as to legal persons, partnerships and associations. By declaring that all legal persons, partnerships and associations deriving their status as such from the laws in force in a Contracting State are considered to be nationals for the purposes of paragraph 1, the provision disposes of a difficulty which often arises in determining the nationality of companies. In defining the nationality of companies, certain States have regard less to the law which governs the company than to the origin of the capital with which the company was formed or the nationality of the individuals or legal persons controlling it.”
Paragraph 12 of the 1977 Model Convention corresponded to paragraph 11 of the 1963 Draft Convention. Paragraph 12 of the 1963 Draft Convention was amended and renumbered as paragraph 13 of the Commentary on Article 24 (see history of paragraph 13 of the Commentary on Article 24) and paragraph 11 of the 1963 Draft Convention was amended and renumbered as paragraph 12 of the 1977 Model Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 11 read as follows:“11. But paragraph 2 is more specific as to legal persons, partnerships and associations. By declaring that all legal persons, partnerships and associations deriving their status as such from the law in force in a Contracting State are considered to be nationals for the purposes of paragraph 1 of the Article, the provision disposes of a difficulty which often arises in determining the nationality of companies. In defining the nationality of companies, certain States have regard less to the law which governs the company than to the origin of the capital with which the company was formed or the nationality of the individuals or legal persons controlling it. No ambiguity need be apprehended therefore.”
Paragraph 10Corresponds to paragraph 13 of the Commentary on Article 24 of the 1977 Model Convention. On that date paragraph 10 of the 1977 Model Convention was deleted and paragraph 13 of the Commentary on Article 24 was amended and renumbered as paragraph 10 of the Commentary on Article 3 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. The renumbering and amendment of paragraph 13 of the Commentary on Article 24 on 23 July 1992 was a consequence of the redesignation of paragraph 2 of Article 24 as subparagraph 1 f) of Article 3 (see history of subparagraph 1 f) of Article 3 of the Model Convention). In the 1977 Model Convention and until 23 July 1992, paragraph 13 of the Commentary on Article 24 read as follows:“13. Moreover, in view of the legal relationship created between the company and the State under whose law it is constituted, which from certain points of view is closely akin to the relationship of nationality in the case of individuals, it seems justifiable not to deal with legal persons, partnerships and associations in a special provision, but to assimilate them with individuals under the term “nationals”.”
Paragraph 13 of the Commentary on Article 24 of the 1977 Model Convention corresponded to paragraph 12 of the Commentary on Article 24 of the 1963 Draft Convention. Paragraph 12 was amended and renumbered as paragraph 13 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 12 of the Commentary on Article 24 read as follows:“12. Moreover, in view of the legal relationship created between the company and the State under whose law it is constituted, which from certain points of view is closely akin to the relationship of nationality in the case on individuals, it seems justifiable not to deal with legal persons, partnerships and associations in a special provision, but to bring them under the same term with individuals.”
Paragraph 10 of the 1977 Model Convention was deleted on 23 July 1992 and the heading preceding paragraph 10 was moved immediately before paragraph 15 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 10 read as follows:“10. Belgiumreserves the right to vary, in its conventions, subparagraph b) of paragraph 1 of Article 3, and paragraph 1 of Article 4, so as to make it clear that partnerships constituted under Belgian law must be treated as residents of Belgium, in view of the twofold fact that they are legal persons and that their world income is in all cases subject to tax in Belgium.”
Paragraph 10 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.
Paragraph 10.1Added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000 on the basis of Annex I of another report entitled “The Application of the OECD Model Tax Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).
Paragraph 10.2Added on 29 April 2000 with the heading preceding it by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000 on the basis of the Annex of another report entitled “Issues Related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000).
Paragraph 11Amended on 21 September 1995, by adding at the end of the paragraph the words “, and in 1995 amended the Model to make this point explicitly”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. After 23 July 1992 and until 21 September 1995, paragraph 11 read as follows:“11. This paragraph provides a general rule of interpretation for terms used in the Convention but not defined therein. However, the question arises which legislation must be referred to in order to determine the meaning of terms not defined in the Convention, the choice being between the legislation in force when the Convention was signed or that in force when the Convention is being applied,i.e.when the tax is imposed. The Committee on Fiscal Affairs concluded that the latter interpretation should prevail.”
Paragraph 11 as it read after 23 July 1992 corresponded to paragraph 8 of the 1977 Model Convention. Paragraph 8 of the 1977 Model Convention was amended and renumbered as paragraph 11 and the heading preceding paragraph 8 was moved with it by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 8 read as follows:“8. This paragraph provides a general rule of interpretation in respect of terms used in the Convention but not defined therein.”
Paragraph 8 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 8 of the 1963 Draft Convention was deleted and a new paragraph 8 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 8 read as follows:“8. The rule of interpretation laid down in paragraph 2 corresponds to similar provisions normally appearing in double taxation Conventions. The rule of interpretation in paragraph 2 of Article 6 on the taxation of income from immovable property, which has to be regarded as “lex specialis” is in no way affected by the present general rule of interpretation.”
Paragraph 12Added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.
Paragraph 13Added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.
Paragraph 13.1Added on 21 September 1995 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.
Paragraph 14Replaced paragraph 14 on 29 April 2000 when paragraph 14 and the heading preceding it were deleted by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. At the same time, a new paragraph 14 was added and the heading preceding paragraph 15 was moved immediately before paragraph 14. After 23 July 1992 and until 29 April 2000, paragraph 14 and the heading preceding it read as follows:“Observation on the Commentary14. For the purposes of Articles 10, 11 and 12,New Zealandwould wish to treat dividends, interest and royalties in respect of which a trustee is subject to tax in the State of which he is a resident as being beneficially owned by that trustee.”
Paragraph 14 as it read after 23 July 1992 corresponded to paragraph 9 of the 1977 Model Convention, which was renumbered as paragraph 14 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.
Paragraph 9 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.
Paragraph 15Amended on 22 July 2010, by adding Chile to the list of countries making the reservation, by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 15 July 2005 and until 22 July 2010, paragraph 15 read as follows:“15. Mexicoand theUnited Statesreserve the right to omit the phrase “operated by an enterprise that has its place of effective management in a Contracting State” from the definition of “international traffic” in subparagraph e)of paragraph 1.”
Paragraph 15 was previously amended on 15 July 2005 by adding Mexico as a country making the reservation, by the report entitled the 2005 Update to the Model Tax Convention, adopted by the OECD Council on 15 July 2005. After 29 April 2000 and until 15 July 2005, paragraph 15 read as follows:“15. TheUnited Statesreserves the right to omit the phrase “operated by an enterprise that has its place of effective management in a Contracting State” from the definition of “international traffic” in subparagraph e) of paragraph 1.”
Paragraph 15 was added on 29 April 2000 and the heading preceding paragraph 15 was moved immediately before paragraph 14 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.
Paragraph 15 as it read before 21 September 1995 was deleted by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. After 23 July 1992 and until 21 September 1995, paragraph 15 read as follows:“15. Francereserves the right to specify in paragraph 2 that for the purposes of the Convention, the meaning that a term or expression has under taxation law will prevail over any other meanings that the term or the expression may have under other branches of the law.”
Paragraph 15 was added on 23 July 1992 and the heading preceding paragraph 10 of the 1977 Model Convention was moved immediately before paragraph 15 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.
Paragraph 16Added on 15 July 2014 by the Report entitled “The 2014 Update to the Model Tax Convention”, adopted by the Council of the OECD on 15 July 2014.
Paragraph 16 as it read before 28 January 2003 was deleted by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 21 September 1995 and until 28 January 2003, paragraph 16 read as follows:“16. Irelandreserves the right to omit the final phrase of paragraph 2, which gives tax law precedence over other laws.”
Paragraph 16 was added on 21 September 1995 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.