COMMENTARY ON Article 24

CONCERNING NON-DISCRIMINATION

General remarks1. This Article deals with the elimination of tax discrimination in certain precise circumstances. All tax systems incorporate legitimate distinctions based, for example, on differences in liability to tax or ability to pay. The non-discrimination provisions of the Article seek to balance the need to prevent unjustified discrimination with the need to take account of these legitimate distinctions. For that reason, the Article should not be unduly extended to cover so-called “indirect” discrimination. For example, whilst paragraph 1, which deals with discrimination on the basis of nationality, would prevent a different treatment that is really a disguised form of discrimination based on nationality such as a different treatment of individuals based on whether or not they hold, or are entitled to, a passport issued by the State, it could not be argued that non-residents of a given State include primarily persons who are not nationals of that State to conclude that a different treatment based on residence is indirectly a discrimination based on nationality for purposes of that paragraph.(Replaced on 17 July 2008 see History)

2. Likewise, the provisions of the Article cannot be interpreted as to require most-favoured-nation treatment. Where a State has concluded a bilateral or multilateral agreement which affords tax benefits to nationals or residents of the other Contracting State(s) party to that agreement, nationals or residents of a third State that is not a Contracting State of the treaty may not claim these benefits by reason of a similar non-discrimination provision in the double taxation convention between the third State and the first-mentioned State. As tax conventions are based on the principle of reciprocity, a tax treatment that is granted by one Contracting State under a bilateral or multilateral agreement to a resident or national of another Contracting State party to that agreement by reason of the specific economic relationship between those Contracting States may not be extended to a resident or national of a third State under the non-discrimination provision of the tax convention between the first State and the third State.(Replaced on 17 July 2008 see History)

3. The various provisions of Article 24 prevent differences in tax treatment that are solely based on certain specific grounds (e.g.nationality, in the case of paragraph 1). Thus, for these paragraphs to apply, other relevant aspects must be the same. The various provisions of Article 24 use different wording to achieve that result (e.g.“in the same circumstances” in paragraphs 1 and 2; “carrying on the same activities” in paragraph 3; “similar enterprises” in paragraph 5). Also, whilst the Article seeks to eliminate distinctions that are solely based on certain grounds, it is not intended to provide foreign nationals, non-residents, enterprises of other States or domestic enterprises owned or controlled by non-residents with a tax treatment that is better than that of nationals, residents or domestic enterprises owned or controlled by residents (see, for example, paragraph 34 below).(Replaced on 17 July 2008 see History)

4. Finally, as illustrated by paragraph 79 below, the provisions of the Article must be read in the context of the other Articles of the Convention so that measures that are mandated or expressly authorised by the provisions of these Articles cannot be considered to violate the provisions of the Article even if they only apply, for example, as regards payments to non-residents. Conversely, however, the fact that a particular measure does not constitute a violation of the provisions of the Article does not mean that it is authorised by the Convention since that measure could violate other Articles of the Convention.(Replaced on 17 July 2008 see History)

Paragraph 15. This paragraph establishes the principle that for purposes of taxation discrimination on the grounds of nationality is forbidden, and that, subject to reciprocity, the nationals of a Contracting State may not be less favourably treated in the other Contracting State than nationals of the latter State in the same circumstances.(Renumbered on 17 July 2008 see History)

6. It is noteworthy that the principle of non-discrimination, under various descriptions and with a more or less wide scope, was applied in international fiscal relations well before the appearance, at the end of the 19th Century, of the classic type of double taxation conventions. Thus, in a great many agreements of different kinds (consular or establishment conventions, treaties of friendship or commerce, etc.) concluded by States, especially in the 19th Century, in order to extend and strengthen the diplomatic protection of their nationals wherever resident, there are clauses under which each of the two Contracting States undertakes to accord nationals of the other State equality of treatment with its own nationals. The fact that such clauses subsequently found their way into double taxation conventions has in no way affected their original justification and scope. The text of paragraph 1 provides that the application of this paragraph is not restricted by Article 1 to nationals solely who are residents of a Contracting State, but on the contrary, extends to all nationals of each Contracting State, whether or not they be residents of one of them. In other words, all nationals of a Contracting State are entitled to invoke the benefit of this provision as against the other Contracting State. This holds good, in particular, for nationals of the Contracting States who are not residents of either of them but of a third State.(Renumbered on 17 July 2008 see History)

7. The expression “in the same circumstances” refers to taxpayers (individuals, legal persons, partnerships and associations) placed, from the point of view of the application of the ordinary taxation laws and regulations, in substantially similar circumstances both in law and in fact. The expression “in particular with respect to residence” makes clear that the residence of the taxpayer is one of the factors that are relevant in determining whether taxpayers are placed in similar circumstances. The expression “in the same circumstances” would be sufficient by itself to establish that a taxpayer who is a resident of a Contracting State and one who is not a resident of that State are not in the same circumstances. In fact, whilst the expression “in particular with respect to residence” did not appear in the 1963 Draft Convention or in the 1977 Model Convention, the member countries have consistently held, in applying and interpreting the expression “in the same circumstances”, that the residence of the taxpayer must be taken into account. However, in revising the Model Convention, the Committee on Fiscal Affairs felt that a specific reference to the residence of the taxpayers would be a useful clarification as it would avoid any possible doubt as to the interpretation to be given to the expression “in the same circumstances” in this respect.(Renumbered on 17 July 2008 see History)

8. In applying paragraph 1, therefore, the underlying question is whether two persons who are residents of the same State are being treated differently solely by reason of having a different nationality. Consequently if a Contracting State, in giving relief from taxation on account of family responsibilities, distinguishes between its own nationals according to whether they reside in its territory or not, that State cannot be obliged to give nationals of the other State who do not reside in its territory the same treatment as it gives its resident nationals but it undertakes to extend to them the same treatment as is available to its nationals who reside in the other State. Similarly, paragraph 1 does not apply where a national of a Contracting State (State R) who is also a resident of State R is taxed less favourably in the other Contracting State (State S) than a national of State S residing in a third State (for instance, as a result of the application of provisions aimed at discouraging the use of tax havens) as the two persons are not in the same circumstances with respect to their residence.(Renumbered on 17 July 2008 see History)

9. The expression “in the same circumstances” can in some cases refer to a person’s tax situation. This would be the case, for example, where a country would subject its nationals, or some of them, to a more comprehensive tax liability than non-nationals (this, for example, is a feature of the United States tax system). As long as such treatment is not itself a violation of paragraph 1, it could not be argued that persons who are not nationals of that State are in the same circumstances as its nationals for the purposes of the application of the other provisions of the domestic tax law of that State with respect to which the comprehensive or limited liability to tax of a taxpayer would be relevant (e.g.the granting of personal allowances).(Replaced on 17 July 2008 see History)

10. Likewise, the provisions of paragraph 1 are not to be construed as obliging a State which accords special taxation privileges to its own public bodies or services as such, to extend the same privileges to the public bodies and services of the other State.(Renumbered on 17 July 2008 see History)

11. Neither are they to be construed as obliging a State which accords special taxation privileges to private institutions not for profit whose activities are performed for purposes of public benefit, which are specific to that State, to extend the same privileges to similar institutions whose activities are not for its benefit.(Renumbered on 17 July 2008 see History)

12. To take the first of these two cases, if a State accords immunity from taxation to its own public bodies and services, this is justified because such bodies and services are integral parts of the State and at no time can their circumstances be comparable to those of the public bodies and services of the other State. Nevertheless, this reservation is not intended to apply to State corporations carrying on gainful undertakings. To the extent that these can be regarded as being on the same footing as private business undertakings, the provisions of paragraph 1 will apply to them.(Renumbered on 17 July 2008 see History)

13. As for the second case, if a State accords taxation privileges to certain private institutions not for profit, this is clearly justified by the very nature of these institutions’ activities and by the benefit which that State and its nationals will derive from those activities.(Renumbered on 17 July 2008 see History)

14. Furthermore, paragraph 1 has been deliberately framed in a negative form. By providing that the nationals of a Contracting State may not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of the other Contracting State in the same circumstances are or may be subjected, this paragraph has the same mandatory force as if it enjoined the Contracting States to accord the same treatment to their respective nationals. But since the principal object of this clause is to forbid discrimination in one State against the nationals of the other, there is nothing to prevent the first State from granting to persons of foreign nationality, for special reasons of its own, or in order to comply with a special stipulation in a double taxation convention, such as, notably, the requirement that profits of permanent establishments are to be taxed in accordance with Article 7, certain concessions or facilities which are not available to its own nationals. As it is worded, paragraph 1 would not prohibit this.(Amended on 22 July 2010 see History)

15. Subject to the foregoing observation, the words “... shall not be subjected ... to any taxation or any requirement connected therewith which is other or more burdensome ...” mean that when a tax is imposed on nationals and foreigners in the same circumstances, it must be in the same form as regards both the basis of charge and the method of assessment, its rate must be the same and, finally, the formalities connected with the taxation (returns, payment, prescribed times, etc.) must not be more onerous for foreigners than for nationals.(Renumbered on 17 July 2008 see History)

16. 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 paragraph 1. This result is achieved through the definition of the term “national” in subparagraph g) of paragraph 1 of Article 3.(Renumbered and amended on 17 July 2008 see History)

17. By virtue of that definition, in the case of a legal person such as a company, “national of a Contracting State” means a legal person “deriving its status as such from the laws in force in that Contracting State”. A company will usually derive its status as such from the laws in force in the State in which it has been incorporated or registered. Under the domestic law of many countries, however, incorporation or registration constitutes the criterion, or one of the criteria, to determine the residence of companies for the purposes of Article 4. Since paragraph 1 of Article 24 prevents different treatment based on nationality but only with respect to persons or entities “in the same circumstances, in particular with respect to residence”, it is therefore important to distinguish, for purposes of that paragraph, a different treatment that is solely based on nationality from a different treatment that relates to other circumstances and, in particular, residence. As explained in paragraphs 7 and 8 above, paragraph 1 only prohibits discrimination based on a different nationality and requires that all other relevant factors, including the residence of the entity, be the same. The different treatment of residents and non-residents is a crucial feature of domestic tax systems and of tax treaties; when Article 24 is read in the context of the other Articles of the Convention, most of which provide for a different treatment of residents and non-residents, it is clear that two companies that are not residents of the same State for purposes of the Convention (under the rules of Article 4) are usually not in the same circumstances for purposes of paragraph 1.(Replaced on 17 July 2008 see History)

18. Whilst residents and non-residents are usually not in the same circumstances for the purposes of paragraph 1, it is clear, however, that this is not the case where residence has no relevance whatsoever with respect to the different treatment under consideration.(Replaced on 17 July 2008 see History)

19. The following examples illustrate these principles.(Replaced on 17 July 2008 see History)

20. Example 1: Under the domestic income tax law of State A, companies incorporated in that State or having their place of effective management in that State are residents thereof. The State A - State B tax convention is identical to this Model Tax Convention. The domestic tax law of State A provides that dividends paid to a company incorporated in that country by another company incorporated in that country are exempt from tax. Since a company incorporated in State B that would have its place of effective management in State A would be a resident of State A for purposes of the State A - State B Convention, the fact that dividends paid to such a company by a company incorporated in State A would not be eligible for this exemption, even though the recipient company is in the same circumstances as a company incorporated in State A with respect to its residence, would constitute a breach of paragraph 1 absent other relevant different circumstances.(Replaced on 17 July 2008 see History)

21. Example 2: Under the domestic income tax law of State A, companies incorporated in that State are residents thereof and companies incorporated abroad are non-residents. The State A - State B tax convention is identical to this Model Tax Convention except that paragraph 3 of Article 4 provides that if a legal person is a resident of both States under paragraph 1 of that Article, that legal person shall be deemed to be a resident of the State in which it has been incorporated. The domestic tax law of State A provides that dividends paid to a company incorporated in that country by another company incorporated in that country are exempt from tax. Paragraph 1 does not extend that treatment to dividends paid to a company incorporated in State B. Even if a company incorporated in State A and a company incorporated in State B that receive such dividends are treated differently, these companies are not in the same circumstances with regards to their residence and residence is a relevant factor in this case (as can be concluded, for example, from paragraph 5 of Article 10, which would prevent the subsequent taxation of dividends paid by a non-resident company but not those paid by a resident company).(Replaced on 17 July 2008 see History)

22. Example 3: Under the domestic income tax law of State A, companies that are incorporated in that State are residents thereof. Under the domestic tax law of State B, companies that have their place of effective management in that State are residents thereof. The State A - State B tax convention is identical to this Model Tax Convention. The domestic tax law of State A provides that a non-resident company that is a resident of a State with which State A does not have a tax treaty that allows for the exchange of tax information is subject to an annual tax equal to 3 per cent of the value of its immovable property instead of a tax on the net income derived from that property. A company incorporated in State B but which is a resident of a State with which State A does not have a tax treaty that allows for the exchange of tax information cannot claim that paragraph 1 prevents the application of the 3 per cent tax levied by State A because it is treated differently from a company incorporated in State A. In that case, such a company would not be in the same circumstances, with respect to its residence, as a company incorporated in State A and the residence of the company would be relevant (e.g.for purposes of accessing the information necessary to verify the net income from immovable property derived by a non-resident taxpayer).(Replaced on 17 July 2008 see History)

23. Example 4: Under the domestic income tax law of State A, companies incorporated in that State are residents of State A and companies incorporated abroad are non-residents. The State A - State B tax convention is identical to this Model Tax Convention except that paragraph 3 of Article 4 provides that if a legal person is a resident of both States under paragraph 1 of that Article, that legal person shall be deemed to be a resident of the State in which it has been incorporated. Under State A’s payroll tax law, all companies that employ resident employees are subject to a payroll tax that does not make any distinction based on the residence of the employer but that provides that only companies incorporated in State A shall benefit from a lower rate of payroll tax. In that case, the fact that a company incorporated in State B will not have the same residence as a company incorporated in State A for the purposes of the A-B convention has no relevance at all with respect to the different tax treatment under the payroll tax and that different treatment would therefore be in violation of paragraph 1 absent other relevant different circumstances.(Replaced on 17 July 2008 see History)

24. Example 5: Under the domestic income tax law of State A, companies incorporated in that State or which have their place of effective management in that State are residents of the State and companies that do not meet one of these two conditions are non-residents. Under the domestic income tax law of State B, companies incorporated in that State are residents of that State. The State A - State B tax convention is identical to this Model Tax Convention except that paragraph 3 of Article 4 provides that if a legal person is a resident of both States under paragraph 1 of that Article, that legal person shall be deemed to be a resident only of the State in which it has been incorporated. The domestic tax law of State A further provides that companies that have been incorporated and that have their place of effective management in that State are entitled to consolidate their income for tax purposes if they are part of a group of companies that have common shareholders. Company X, which was incorporated in State B, belongs to the same group as two companies incorporated in State A and all these companies are effectively managed in State A. Since it was not incorporated in State A, company X is not allowed to consolidate its income with that of the two other companies.(Replaced on 17 July 2008 see History)

25. In that case, even if company X is a resident of State A under the domestic law of that State, it is not a resident of State A for purposes of the Convention by virtue of paragraph 3 of Article 4. It will therefore not be in the same circumstances as the other companies of the group as regards residence and paragraph 1 will not allow it to obtain the benefits of consolidation even if the different treatment results from the fact that company X has not been incorporated in State A. The residence of company X is clearly relevant with respect to the benefits of consolidation since certain provisions of the Convention, such as Articles 7 and 10, would prevent State A from taxing certain types of income derived by company X.(Replaced on 17 July 2008 see History)

Paragraph 226. On 28 September 1954, a number of States concluded in New York a Convention relating to the status of stateless persons, under Article 29 of which stateless persons must be accorded national treatment. The signatories of the Convention include several OECD member countries.(Renumbered on 17 July 2008 see History)

27. It should, however, be recognised that the provisions of paragraph 2 will, in a bilateral convention, enable national treatment to be extended to stateless persons who, because they are in one of the situations enumerated in paragraph 2 of Article 1 of the above-mentioned Convention of 28 September 1954, are not covered by that Convention. This is mainly the case, on the one hand, of persons receiving at the time of signature of that Convention, protection or assistance from organs or agencies of the United Nations other than the United Nations High Commissioner for Refugees, and, on the other hand, of persons who are residents of a country and who there enjoy and are subject to the rights and obligations attaching to the possession of that country’s nationality.(Renumbered on 17 July 2008 see History)

28. The purpose of paragraph 2 is to limit the scope of the clause concerning equality of treatment with nationals of a Contracting State solely to stateless persons who are residents of that or of the other Contracting State.(Renumbered on 17 July 2008 see History)

29. By thus excluding stateless persons who are residents of neither Contracting State, such a clause prevents their being privileged in one State as compared with nationals of the other State.(Renumbered on 17 July 2008 see History)

30. However, if States were to consider it desirable in their bilateral relations to extend the application of paragraph 2 to all stateless persons, whether residents of a Contracting State or not, so that in all cases they enjoy the most favourable treatment accorded to nationals of the State concerned, in order to do this they would need only to adopt the following text which contains no condition as to residence in a Contracting State:Notwithstanding the provisions of Article 1, stateless persons shall not be subjected in a Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that State in the same circumstances, in particular with respect to residence, are or may be subjected.

(Renumbered on 17 July 2008 see History)

31. Some States may consider that the provisions of paragraph 2 are too liberal insofar as they entitle stateless persons who are residents of one State to claim equality of treatment not only in the other State but also in their State of residence and thus benefit in particular in the latter from the provisions of double taxation conventions concluded by it with third States. States wishing to avoid this latter consequence are free to modify paragraph 2 as follows:Stateless persons who are residents of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.

(Amended on 15 July 2014 see History)

32. Finally, it should be understood that the definition of the term “stateless person” to be used for the purposes of such a clause can only be that laid down in paragraph 1 of Article 1 of the Convention of 28 September 1954, which defines a stateless person as “a person who is not considered as a national by any State under the operation of its law”.(Renumbered on 17 July 2008 see History)

Paragraph 333. Strictly speaking, the type of discrimination which this paragraph is designed to end is discrimination based not on nationality but on the actual situs of an enterprise. It therefore affects without distinction, and irrespective of their nationality, all residents of a Contracting State who have a permanent establishment in the other Contracting State.(Renumbered on 17 July 2008 see History)

34. It appears necessary first to make it clear that the wording of the first sentence of paragraph 3 must be interpreted in the sense that it does not constitute discrimination to tax non-resident persons differently, for practical reasons, from resident persons, as long as this does not result in more burdensome taxation for the former than for the latter. In the negative form in which the provision concerned has been framed, it is the result alone which counts, it being permissible to adapt the mode of taxation to the particular circumstances in which the taxation is levied. For example, paragraph 3 does not prevent the application of specific mechanisms that apply only for the purposes of determining the profits that are attributable to a permanent establishment. The paragraph must be read in the context of the Convention and, in particular, of paragraph 2 of Article 7 which provides that the profits attributable to the permanent establishment are those that a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions would have been expected to make. Clearly, rules or administrative practices that seek to determine the profits that are attributable to a permanent establishment on the basis required by paragraph 2 of Article 7 cannot be considered to violate paragraph 3, which is based on the same principle since it requires that the taxation on the permanent establishment be not less favourable than that levied on a domestic enterprise carrying on similar activities.(Amended on 22 July 2010 see History)

35. By the terms of the first sentence of paragraph 3, the taxation of a permanent establishment shall not be less favourably levied in the State concerned than the taxation levied on enterprises of that State carrying on the same activities. The purpose of this provision is to end all discrimination in the treatment of permanent establishments as compared with resident enterprises belonging to the same sector of activities, as regards taxes based on business activities, and especially taxes on business profits.(Renumbered on 17 July 2008 see History)

36. However, the second sentence of paragraph 3 specifies the conditions under which the principle of equal treatment set forth in the first sentence should be applied to individuals who are residents of a Contracting State and have a permanent establishment in the other State. It is designed mainly to ensure that such persons do not obtain greater advantages than residents, through entitlement to personal allowances and reliefs for family responsibilities, both in the State of which they are residents, by the application of its domestic laws, and in the other State by virtue of the principle of equal treatment. Consequently, it leaves it open to the State in which the permanent establishment is situated whether or not to give personal allowances and reliefs to the persons concerned in the proportion which the amount of the permanent establishment’s profits bears to the world income taxable in the other State.(Renumbered on 17 July 2008 see History)

37. It is also clear that, for purposes of paragraph 3, the tax treatment in one Contracting State of the permanent establishment of an enterprise of the other Contracting State should be compared to that of an enterprise of the first-mentioned State that has a legal structure that is similar to that of the enterprise to which the permanent establishment belongs. Thus, for example, paragraph 3 does not require a State to apply to the profits of the permanent establishment of an enterprise carried on by a non-resident individual the same rate of tax as is applicable to an enterprise of that State that is carried on by a resident company.(Replaced on 17 July 2008 see History)

38. Similarly, regulated and unregulated activities would generally not constitute the “same activities” for the purposes of paragraph 3. Thus, for instance, paragraph 3 would not require that the taxation on a permanent establishment whose activities include the borrowing and lending of money but which is not registered as a bank be not less favourably levied than that of domestic banks since the permanent establishment does not carry on the same activities. Another example would be that of activities carried on by a State or its public bodies, which, since they are controlled by the State, could not be considered, for the purposes of paragraph 3, to be similar to activities that an enterprise of the other State performs through a permanent establishment.(Replaced on 17 July 2008 see History)

39. As regards the first sentence, experience has shown that it was difficult to define clearly and completely the substance of the principle of equal treatment and this has led to wide differences of opinion with regard to the many implications of this principle. The main reason for difficulty seems to reside in the actual nature of the permanent establishment, which is not a separate legal entity but only a part of an enterprise that has its head office in another State. The situation of the permanent establishment is different from that of a domestic enterprise, which constitutes a single entity all of whose activities, with their fiscal implications, can be fully brought within the purview of the State where it has its head office. The implications of the equal treatment clause will be examined below under several aspects of the levying of tax.(Renumbered on 17 July 2008 see History)

Assessment of tax40. With regard to the basis of assessment of tax, the principle of equal treatment normally has the following implications:Permanent establishments must be accorded the same right as resident enterprises to deduct the trading expenses that are, in general, authorised by the taxation law to be deducted from taxable profits. Such deductions should be allowed without any restrictions other than those also imposed on resident enterprises (see also paragraphs 33 and 34 of the Commentary on Article 7).

Permanent establishments must be accorded the same facilities with regard to depreciation and reserves. They should be entitled to avail themselves without restriction not only of the depreciation facilities which are customarily available to enterprises (straight line depreciation, declining balance depreciation), but also of the special systems that exist in a number of countries (“wholesale” writing down, accelerated depreciation, etc.). As regards reserves, it should be noted that these are sometimes authorised for purposes other than the offsetting — in accordance with commercial accounting principles — of depreciation on assets, expenses or losses which have not yet occurred but which circumstances make likely to occur in the near future. Thus, in certain countries, enterprises are entitled to set aside, out of taxable profit, provisions or “reserves” for investment. When such a right is enjoyed by all enterprises, or by all enterprises in a given sector of activity, it should normally also be enjoyed, under the same conditions, by non-resident enterprises with respect to their permanent establishments situated in the State concerned, insofar, that is, as the activities to which such provisions or reserves would pertain are taxable in that State.

Permanent establishments should also have the option that is available in most countries to resident enterprises of carrying forward or backward a loss brought out at the close of an accounting period within a certain period of time (e.g.5 years). It is hardly necessary to specify that in the case of permanent establishments it is the loss on their own business activities which will qualify for such carry-forward.

Permanent establishments should further have the same rules applied to resident enterprises, with regard to the taxation of capital gains realised on the alienation of assets, whether during or on the cessation of business.

(Amended on 22 July 2010 see History)

41. As clearly stated in XREFSTYLE=Subparac above, the equal treatment principle of paragraph 3only applies to the taxation of the permanent establishment’s own activities. That principle, therefore, is restricted to a comparison between the rules governing the taxation of the permanent establishment’s own activities and those applicable to similar business activities carried on by an independent resident enterprise. It does not extend to rules that take account of the relationship between an enterprise and other enterprises (e.g.rules that allow consolidation, transfer of losses or tax-free transfers of property between companies under common ownership) since the latter rules do not focus on the taxation of an enterprise’s own business activities similar to those of the permanent establishment but, instead, on the taxation of a resident enterprise as part of a group of associated enterprises. Such rules will often operate to ensure or facilitate tax compliance and administration within a domestic group. It therefore follows that the equal treatment principle has no application. For the same reasons, rules related to the distribution of the profits of a resident enterprise cannot be extended to a permanent establishment under paragraph 3 as they do not relate to the business activities of the permanent establishment (see paragraph 59below).(Replaced on 17 July 2008 see History)

42. Also, it is clear that the application of transfer pricing rules based on the arm’s length standard in the case of transfers from a permanent establishment to its head office (or vice versa) cannot be considered to be a violation of paragraph 3 even if such rules do not apply to transfers within an enterprise of the Contracting State where the permanent establishment is located. Indeed, the application of the arm’s length standard to the determination of the profits attributable to a permanent establishment is mandated by paragraph 2 of Article 7 and that paragraph forms part of the context in which paragraph 3 of Article 24 must be read; also, since Article 9 would authorise the application of the arm’s length standard to a transfer between a domestic enterprise and a foreign related enterprise, one cannot consider that its application in the case of a permanent establishment results in less favourable taxation than that levied on an enterprise of the Contracting State where the permanent establishment is located.(Replaced on 17 July 2008 see History)

43. Although the general rules mentioned above rarely give rise to any difficulties with regard to the principle of non-discrimination, they do not constitute an exhaustive list of the possible consequences of that principle with respect to the determination of the tax base. The application of that principle may be less clear in the case of tax incentive measures which most countries, faced with such problems as decentralisation of industry, development of economically backward regions, or the promotion of new activities necessary for the expansion of the economy, have introduced in order to facilitate the solution of these problems by means of tax exemptions, reductions or other tax advantages given to enterprises for investment which is in line with official objectives.(Renumbered and amended on 17 July 2008 see History)

44. As such measures are in furtherance of objectives directly related to the economic activity proper of the State concerned, it is right that the benefit of them should be extended to permanent establishments of enterprises of another State which has a double taxation convention with the first embodying the provisions of Article 24, once they have been accorded the right to engage in business activity in that State, either under its legislation or under an international agreement (treaties of commerce, establishment conventions, etc.) concluded between the two States.(Renumbered on 17 July 2008 see History)

45. It should, however, be noted that although non-resident enterprises are entitled to claim these tax advantages in the State concerned, they must fulfil the same conditions and requirements as resident enterprises. They may, therefore, be denied such advantages if their permanent establishments are unable or refuse to fulfil the special conditions and requirements attached to the granting of them.(Renumbered on 17 July 2008 see History)

46. Also, it goes without saying that non-resident enterprises are not entitled to tax advantages attaching to activities the exercise of which is strictly reserved, on grounds of national interest, defence, protection of the national economy, etc., to domestic enterprises, since non-resident enterprises are not allowed to engage in such activities.(Renumbered and amended on 17 July 2008 see History)

47. Finally, the provisions of paragraph 3 should not be construed as obliging a State which accords special taxation privileges to non-profit institutions whose activities are performed for purposes of public benefit that are specific to that State, to extend the same privileges to permanent establishments of similar institutions of the other State whose activities are not exclusively for the first-mentioned State’s public benefit.(Replaced on 17 July 2008 see History)

Special treatment of dividends received in respect of holdings owned by permanent establishments48. In many countries special rules exist for the taxation of dividends distributed between companies (parent company-subsidiary treatment, theSchachtelprivileg, the rule non bis in idem). The question arises whether such treatment should, by effect of the provisions of paragraph 3, also be enjoyed by permanent establishments in respect of dividends on holdings forming part of their assets.(Renumbered on 17 July 2008 see History)

49. On this point opinions differ. Some States consider that such special treatment should be accorded to permanent establishments. They take the view that such treatment was enacted in order to avoid double taxation on profits made by a subsidiary and distributed to a parent company. In principle, profits tax should be levied once, in the hands of the subsidiary performing the profit-generating activities. The parent company should be exempted from tax on such profits when received from the subsidiary or should, under the indirect credit method, be given relief for the taxation borne by the subsidiary. In cases where shares are held as direct investment by a permanent establishment the same principle implies that such a permanent establishment receiving dividends from the subsidiary should likewise be granted the special treatment in view of the fact that a profits tax has already been levied in the hands of the subsidiary. On the other hand, it is hardly conceivable on this line of thought to leave it to the State where the head office of the parent company is situated to give relief from double taxation brought about by a second levying of tax in the State of the permanent establishment. The State of the parent company, in which no activities giving rise to the doubly taxed profits have taken place, will normally exempt the profits in question or will levy a profits tax which is not sufficient to bear a double credit (i.e.for the profits tax on the subsidiary as well as for such tax on the permanent establishment). All this assumes that the shares held by the permanent establishment are effectively connected with its activity. Furthermore, an obvious additional condition is that the profits out of which the dividends are distributed should have borne a profits tax.(Renumbered on 17 July 2008 see History)

50. Other States, on the contrary, consider that assimilating permanent establishments to their own enterprises does not entail any obligation to accord such special treatment to the former. They justify their position on various grounds. The purpose of such special treatment is to avoid economic double taxation of dividends and it should be for the recipient company’s State of residence and not the permanent establishment’s State to bear its cost, because it is more interested in the aim in view. Another reason put forward relates to the sharing of tax revenue between States. The loss of tax revenue incurred by a State in applying such special treatment is partly offset by the taxation of the dividends when they are redistributed by the parent company which has enjoyed such treatment (withholding tax on dividends, shareholder’s tax). A State which accorded such treatment to permanent establishments would not have the benefit of such a compensation. Another argument made is that when such treatment is made conditional upon redistribution of the dividends, its extension to permanent establishments would not be justified, for in such a case the permanent establishment, which is only a part of a company of another State and does not distribute dividends, would be more favourably treated than a resident company. Finally, the States which feel that paragraph 3 does not entail any obligation to extend such treatment to permanent establishments argue that there is a risk that companies of one State might transfer their holdings in companies of another State to their permanent establishments in that other State for the sole purpose of availing themselves of such treatment.(Renumbered on 23 July 1992 see History)

51. The fact remains that there can be very valid reasons for a holding being owned and managed by a permanent establishment rather than by the head office of the enterprise, viz.,

• reasons of necessity arising principally from a legal or regulatory obligation on banks and financial institutions and insurance companies to keep deposited in countries where they operate a certain amount of assets, particularly shares, as security for the performance of their obligations;

• or reasons of expediency, where the holdings are in companies which have business relations with the permanent establishment or whose head offices are situated in the same country as the permanent establishment;

• or simple reasons of practical convenience, in line with the present tendency towards decentralisation of management functions in large enterprises.

(Renumbered on 17 July 2008 see History)

52. In view of these divergent attitudes, as well as of the existence of the situations just described, it would be advisable for States, when concluding bilateral conventions, to make clear the interpretation they give to the first sentence of paragraph 3. They can, if they so desire, explain their position, or change it as compared with their previous practice, in a protocol or any other document annexed to the convention.(Renumbered on 17 July 2008 see History)

53. A solution could also be provided in such a document to meet the objection mentioned above that the extension of the treatment of holdings in a State (A) to permanent establishments of companies which are residents of another State (B) results in such companies unduly enjoying privileged treatment as compared with other companies which are residents of the same State and whose head offices own holdings in the capital of companies which are residents of State A, in that whereas the dividends on their holdings can be repatriated by the former companies without bearing withholding tax, such tax is levied on dividends distributed to the latter companies at the rate of 5 or 15 per cent as the case may be. Tax neutrality and the equality of tax burdens as between permanent establishments and subsidiary companies, as advocated by the States concerned, could be ensured by adapting, in the bilateral convention between States A and B, the provisions of paragraphs 2 and 4 of Article 10, so as to enable withholding tax to be levied in State A on dividends paid by companies which are residents of that State to permanent establishments of companies which are residents of State B in the same way as if they are received directlyi.e.by the head offices of the latter companies, viz., at the rate of:

• 5 per cent in the case of a holding of at least 25 per cent;

• 15 per cent in all other cases.

(Renumbered on 17 July 2008 see History)

54. Should it not be possible, because of the absence of appropriate provisions in the domestic laws of the State concerned, to levy a withholding tax there on dividends paid to permanent establishments, the treatment of inter-company dividends could be extended to permanent establishments, as long as its application is limited in such manner that the tax levied by the State of source of the dividends is the same whether the dividends are received by a permanent establishment of a company which is a resident of the other State or are received directly by such a company.(Renumbered on 17 July 2008 see History)

Structure and rate of tax55. In countries where enterprises, mainly companies, are charged a tax on their profits which is specific to them, the provisions of paragraph 3 raise, with regard to the rate applicable in the case of permanent establishments, some specific issues related to the fact that the permanent establishment is only a part of a legal entity which is not under the jurisdiction of the State where the permanent establishment is situated.(Renumbered and amended on 17 July 2008 see History)

56. When the taxation of profits made by companies which are residents of a given State is calculated according to a progressive scale of rates, such a scale should, in principle, be applied to permanent establishments situated in that State. If in applying the progressive scale, the permanent establishment’s State takes into account the profits of the whole company to which such a permanent establishment belongs, such a rule would not appear to conflict with the equal treatment rule, since resident companies are in fact treated in the same way (see paragraphs 55, 56 and 79 of the Commentary on Articles 23 A and 23 B). States that tax their own companies in this way could therefore define in their bilateral conventions the treatment applicable to permanent establishments.(Renumbered on 17 July 2008 see History)

57. When a system of taxation based on a progressive scale of rates includes a rule that a minimum rate is applicable to permanent establishments, it cannot be claimeda priorithat such a rule is incompatible with the equal treatment principle. The profits of the whole enterprise to which the permanent establishment belongs should be taken into account in determining the rate applicable according to the progressive scale. The provisions of the first sentence of paragraph 3 are not observed only if the minimum rate is higher.(Renumbered on 17 July 2008 see History)

58. However, even if the profits of the whole enterprise to which the permanent establishment belongs are taken into account when applying either a progressive scale of rates or a minimum rate, this should not conflict with the principle of the separate and independent enterprise, according to which the profits of the permanent establishment must be determined under paragraph 2 of Article 7. The minimum amount of the tax levied in the State where the permanent establishment is situated is, therefore, the amount which would be due if it were a separate and independent enterprise, without reference to the profits of the whole enterprise to which it belongs. The State where the permanent establishment is situated is, therefore, justified in applying the progressive scale applicable to resident enterprises solely to the profits of the permanent establishment, leaving aside the profits of the whole enterprise when the latter are less than those of the permanent establishment. This State may likewise tax the profits of the permanent establishment at a minimum rate, provided that the same rate applies also to resident enterprises, even if taking into account the profits of the whole enterprise to which it belongs would result in a lower amount of tax, or no tax at all.(Amended on 22 July 2010 see History)

59. Since a permanent establishment, by its very nature, does not distribute dividends, the tax treatment of distributions made by the enterprise to which the permanent establishment belongs is therefore outside the scope of paragraph 3. Paragraph 3 is restricted to the taxation of the profits from the activities of the permanent establishment itself and does not extend to the taxation of the enterprise as a whole. This is confirmed by the second sentence of the paragraph, which confirms that tax aspects related to the taxpayer that owns the permanent establishment, such as personal allowances and deductions, are outside the scope of the paragraph. Thus, issues related to various systems for the integration of the corporate and shareholder’s taxes (e.g.advance corporate tax,précompte mobilier, computation of franked income and related dividend tax credits) are outside the scope of the paragraph.(Replaced on 17 July 2008 see History)

60. In some States, the profits of a permanent establishment of an enterprise of another Contracting State are taxed at a higher rate than the profits of enterprises of that State. This additional tax, sometimes referred to as a “branch tax”, may be explained by the fact that if a subsidiary of the foreign enterprise earned the same profits as the permanent establishment and subsequently distributed these profits as a dividend, an additional tax would be levied on these dividends in accordance with paragraph 2 of Article 10. Where such tax is simply expressed as an additional tax payable on the profits of the permanent establishment, it must be considered as a tax levied on the profits of the activities of the permanent establishment itself and not as a tax on the enterprise in its capacity as owner of the permanent establishment. Such a tax would therefore be contrary to paragraph 3.(Replaced on 17 July 2008 see History)

61. That situation must, however, be distinguished from that of a tax that would be imposed on amounts deducted, for instance as interest, in computing the profits of a permanent establishment (e.g.“branch level interest tax”); in that case, the tax would not be levied on the permanent establishment itself but, rather, on the enterprise to which the interest is considered to be paid and would therefore be outside the scope of paragraph 3(depending on the circumstances, however, other provisions, such as those of Articles 7 and 11, may be relevant in determining whether such a tax is allowed by the Convention; see the last sentence of paragraph 4).(Replaced on 17 July 2008 see History)

Withholding tax on dividends, interest and royalties received by a permanent establishment62. When permanent establishments receive dividends, interest, or royalties such income, by virtue of paragraph 4 of Articles 10 and 11 and paragraph 3 of Article 12, respectively, comes under the provisions of Article 7 and consequently — subject to the observations made in paragraph 53 above as regards dividends received on holdings of permanent establishment — falls to be included in the taxable profits of such permanent establishments (see paragraph 74 of the Commentary on Article 7).(Amended on 22 July 2010 see History)

63. According to the respective Commentaries on the above-mentioned provisions of Articles 10, 11 and 12 (see respectively paragraphs 31, 24 and 20), these provisions dispense the State of source of the dividends, interest or royalties received by the permanent establishment from applying any limitation provided for in those Articles, which means — and this is the generally accepted interpretation — that they leave completely unaffected the right of the State of source, where the permanent establishment is situated, to apply its withholding tax at the full rate.(Renumbered on 17 July 2008 see History)

64. While this approach does not create any problems with regard to the provisions of paragraph 3 of Article 24 in the case of countries where a withholding tax is levied on all such income, whether the latter be paid to residents (permanent establishments, like resident enterprises, being allowed to set such withholding tax off against the tax on profits due by virtue of Article 7) or to non residents (subject to the limitations provided for inArticles 10, 11 and 12), the position is different when withholding tax is applied exclusively to income paid to non-residents.(Renumbered on 17 July 2008 see History)

65. In this latter case, in fact, it seems difficult to reconcile the levy of withholding tax with the principle set out in paragraph 3that for the purpose of taxing the income which is derived from their activity, or which is normally connected with it — as is recognised to be the case with dividends, interest and royalties referred to in paragraph 4 of Articles 10 and 11 and in paragraph 3 of Article 12 — permanent establishments must be treated as resident enterprises and hence in respect of such income be subjected to tax on profits solely.(Renumbered on 17 July 2008 see History)

66. In any case, it is for Contracting States which have this difficulty to settle it in bilateral negotiations in the light of their peculiar circumstances.(Renumbered on 17 July 2008 see History)

Credit for foreign tax67. In a related context, when foreign income is included in the profits attributable to a permanent establishment, it is right by virtue of the same principle to grant to the permanent establishment credit for foreign tax borne by such income when such credit is granted to resident enterprises under domestic laws.(Renumbered and amended on 17 July 2008 see History)

68. If in a Contracting State (A) in which is situated a permanent establishment of an enterprise of the other Contracting State (B), credit for tax levied in a third State (C) can be allowed only by virtue of a convention, then the more general question arises as to the extension to permanent establishments of the benefit of credit provisions included in tax conventions concluded with third States. Whilst the permanent establishment is not itself a person and is therefore not entitled to the benefits of these tax conventions, this issue is relevant to the taxation on the permanent establishment. This question is examined below in the particular case of dividends and interest.(Renumbered and amended on 17 July 2008 see History)

Extension to permanent establishments of the benefit of the credit provisions of double taxation conventions concluded with third States69. When the permanent establishment in a Contracting State of a resident enterprise of another Contracting State receives dividends or interest from a third State, then the question arises as to whether and to what extent the Contracting State in which the permanent establishment is situated should credit the tax that cannot be recovered from the third State.(Renumbered and amended on 17 July 2008 see History)

70. There is agreement that double taxation arises in these situations and that some method of relief should be found. The majority of member countries are able to grant credit in these cases on the basis of their domestic law or under paragraph 3. States that cannot give credit in such a way or that wish to clarify the situation may wish to supplement the provision in their convention with the Contracting State in which the enterprise is resident by wording that allows the State in which the permanent establishment is situated to credit the tax liability in the State in which the income originates to an amount that does not exceed the amount that resident enterprises in the Contracting State in which the permanent establishment is situated can claim on the basis of the Contracting State’s convention with the third State. If the tax that cannot be recovered under the convention between the third State and the State of residence of the enterprise which has a permanent establishment in the other Contracting State is lower than that under the convention between the third State and the Contracting State in which the permanent establishment is situated, then only the lower tax collected in the third State shall be credited. This result would be achieved by adding the following words after the first sentence of paragraph 3:When a permanent establishment in a Contracting State of an enterprise of the other Contracting State receives dividends or interest from a third State and the holding or debt-claim in respect of which the dividends or interest are paid is effectively connected with that permanent establishment, the first-mentioned State shall grant a tax credit in respect of the tax paid in the third State on the dividends or interest, as the case may be, by applying the rate of tax provided in the convention with respect to taxes on income and capital between the State of which the enterprise is a resident and the third State. However, the amount of the credit shall not exceed the amount that an enterprise that is a resident of the first-mentioned State can claim under that State’s convention on income and capital with the third State.

If the convention also provides for other categories of income that may be taxed in the State in which they arise and for which credit should be given (e.g.royalties, in some conventions), the above provision should be amended to also cover these.(Renumbered and amended on 17 July 2008 see History)

71. Where a permanent establishment situated in a Contracting State of an enterprise resident of another Contracting State (the State of residence) receives dividends, interest or royalties from a third State (the State of source) and, according to the procedure agreed to between the State of residence and the State of source, a certificate of domicile is requested by the State of source for the application of the withholding tax at the rate provided for in the convention between the State of source and the State of residence, this certificate must be issued by the latter State. While this procedure may be useful where the State of residence employs the credit method, it seems to serve no purposes where that State uses the exemption method as the income from the third State is not liable to tax in the State of residence of the enterprise. On the other hand, the State in which the permanent establishment is located could benefit from being involved in the certification procedure as this procedure would provide useful information for audit purposes. Another question that arises with triangular cases is that of abuses. If the Contracting State of which the enterprise is a resident exempts from tax the profits of the permanent establishment located in the other Contracting State, there is a danger that the enterprise will transfer assets such as shares, bonds or patents to permanent establishments in States that offer very favourable tax treatment, and in certain circumstances the resulting income may not be taxed in any of the three States. To prevent such practices, which may be regarded as abusive, a provision can be included in the convention between the State of which the enterprise is a resident and the third State (the State of source) stating that an enterprise can claim the benefits of the convention only if the income obtained by the permanent establishment situated in the other State is taxed normally in the State of the permanent establishment.(Renumbered on 17 July 2008 see History)

72. In addition to the typical triangular case considered here, other triangular cases arise, particularly that in which the State of the enterprise is also the State from which the income attributed to the permanent establishment in the other State originates (see also paragraph 5 of the Commentary on Article 21). States can settle these matters in bilateral negotiations.(Amended on 15 July 2014 see History)

Paragraph 473. This paragraph is designed to end a particular form of discrimination resulting from the fact that in certain countries the deduction of interest, royalties and other disbursements allowed without restriction when the recipient is resident, is restricted or even prohibited when he is a non-resident. The same situation may also be found in the sphere of capital taxation, as regards debts contracted to a non-resident. It is however open to Contracting States to modify this provision in bilateral conventions to avoid its use for tax avoidance purposes.(Renumbered on 17 July 2008 see History)

74. Paragraph 4 does not prohibit the country of the borrower from applying its domestic rules on thin capitalisation insofar as these are compatible with paragraph 1 of Article 9 or paragraph 6 of Article 11. However, if such treatment results from rules which are not compatible with the said Articles and which only apply to non-resident creditors (to the exclusion of resident creditors), then such treatment is prohibited by paragraph 4.(Renumbered and amended on 17 July 2008 see History)

75. Also, paragraph 4 does not prohibit additional information requirements with respect to payments made to non-residents since these requirements are intended to ensure similar levels of compliance and verification in the case of payments to residents and non-residents.(Added on 17 July 2008 see History)

Paragraph 576. This paragraph forbids a Contracting State to give less favourable treatment to an enterprise, the capital of which is owned or controlled, wholly or partly, directly or indirectly, by one or more residents of the other Contracting State. This provision, and the discrimination which it puts an end to, relates to the taxation only of enterprises and not of the persons owning or controlling their capital. Its object therefore is to ensure equal treatment for taxpayers residing in the same State, and not to subject foreign capital, in the hands of the partners or shareholders, to identical treatment to that applied to domestic capital.(Renumbered on 17 July 2008 see History)

77. Since the paragraph relates only to the taxation of resident enterprises and not to that of the persons owning or controlling their capital, it follows that it cannot be interpreted to extend the benefits of rules that take account of the relationship between a resident enterprise and other resident enterprises (e.g.rules that allow consolidation, transfer of losses or tax-free transfer of property between companies under common ownership). For example, if the domestic tax law of one State allows a resident company to consolidate its income with that of a resident parent company, paragraph 5cannot have the effect to force the State to allow such consolidation between a resident company and a non-resident parent company. This would require comparing the combined treatment of a resident enterprise and the non-resident that owns its capital with that of a resident enterprise of the same State and the resident that owns its capital, something that clearly goes beyond the taxation of the resident enterprise alone.(Added on 17 July 2008 see History)

78. Also, because paragraph 5 is aimed at ensuring that all resident companies are treated equally regardless of who owns or controls their capital and does not seek to ensure that distributions to residents and non-residents are treated in the same way (see paragraph 76 above), it follows that withholding tax obligations that are imposed on a resident company with respect to dividends paid to non-resident shareholders but not with respect to dividends paid to resident shareholders cannot be considered to violate paragraph 5. In that case, the different treatment is not dependent on the fact that the capital of the company is owned or controlled by non-residents but, rather, on the fact that dividends paid to non-residents are taxed differently. A similar example would be that of a State that levies a tax on resident companies that make distributions to their shareholders regardless of whether or not they are residents or non-residents, but which, in order to avoid a multiple application of that tax, would not apply it to distributions made to related resident companies that are themselves subject to the tax upon their own distributions. The fact that the latter exemption would not apply to distributions to non-resident companies should not be considered to violate paragraph 5. In that case, it is not because the capital of the resident company is owned or controlled by non-residents that it is treated differently; it is because it makes distributions to companies that, under the provisions of the treaty, cannot be subjected to the same tax when they re-distribute the dividends received from that resident company. In this example, all resident companies are treated the same way regardless of who owns or controls their capital and the different treatment is restricted to cases where distributions are made in circumstances where the distribution tax could be avoided.(Added on 17 July 2008 see History)

79. Since the paragraph prevents the discrimination of a resident enterprise that is solely based on who owns or controls the capital of that enterprise, it would notprima faciebe relevant with respect to rules that provide for a different treatment of an enterprise based on whether it pays interest to resident or non-resident creditors. The paragraph is not concerned with rules based on a debtor-creditor relationship as long as the different treatment resulting from the rules is not based on whether or not non-residents own or control, wholly or partly, directly or indirectly, the capital of the enterprise. For example, if under a State’s domestic thin capitalisation rules, a resident enterprise is not allowed to deduct interest paid to a non-resident associated enterprise, that rule would not be in violation of paragraph 5 even where it would be applied to payments of interest made to a creditor that would own or control the capital of the enterprise, provided that the treatment would be the same if the interest had been paid to a non-resident associated enterprise that did not itself own or control any of the capital of the payer. Clearly, however, such a domestic law rule could be in violation of paragraph 4 to the extent that different conditions would apply for the deduction of interest paid to residents and non-residents and it will therefore be important to determine, for purposes of that paragraph, whether the application of the rule is compatible with the provisions of paragraph 1 of Article 9 or paragraph 6 of Article 11 (see paragraph 74 above). This would also be important for purposes of paragraph 5 in the case of thin capitalisation rules that would apply only to enterprises of a Contracting State the capital of which is wholly or partly owned or controlled, directly or indirectly, by non-residents. Indeed, since the provisions of paragraph 1 of Article 9 or paragraph 6 of Article 11 form part of the context in which paragraph 5must be read (as required by Article 31 of the Vienna Convention on the Law of Treaties), adjustments which are compatible with these provisions could not be considered to violate the provisions of paragraph 5.(Added on 17 July 2008 see History)

80. In the case of transfer pricing enquiries, almost all member countries consider that additional information requirements which would be more stringent than the normal requirements, or even a reversal of the burden of proof, would not constitute discrimination within the meaning of the Article.(Renumbered on 17 July 2008 see History)

Paragraph 681. This paragraph states that the scope of the Article is not restricted by the provisions of Article 2. The Article therefore applies to taxes of every kind and description levied by, or on behalf of, the State, its political subdivisions or local authorities.(Renumbered on 17 July 2008 see History)

Observations on the Commentary82. (Deleted on 15 July 2014 see History)

83. TheUnited Statesobserves that its non-resident citizens are not in the same circumstances as other non-residents, since the United States taxes its non-resident citizens on their worldwide income.(Renumbered on 17 July 2008 see History)

84. With respect to paragraph 71, theNetherlandsacknowledges that States may wish to include in their bilateral conventions a provision to assure that the benefits of the Convention are denied in “triangular cases” which may be regarded as abusive. In drafting provisions like this, however, the starting point should always be that the benefits of the Convention can be claimed unless the situation is regarded to be abusive. Further the Netherlands would like to express the opinion that the notion “normally taxed” is too ambiguous to serve as a decisive landmark in determining whether a situation is abusive or not.(Renumbered and amended on 17 July 2008 see History)

Reservations on the Article85. CanadaandNew Zealandreserve their positions on this Article.(Renumbered and amended on 17 July 2008 see History)

86. Australiareserves the right to propose amendments to ensure that Australia can continue to apply certain provisions of its domestic law relating to deductions for R&D and withholding tax collection.(Added on 17 July 2008 see History)

87. TheUnited Statesreserves its right to apply its branch tax.(Renumbered on 17 July 2008 see History)

Paragraph 188. Francewishes to reserve the possibility of applying the provisions of paragraph 1 only to individuals, in view of the French case law and of the fact that paragraphs 3, 4 and 5 already provide companies with wide protection against discrimination.(Renumbered on 17 July 2008 see History)

89. Chileand theUnited Kingdomreserve their position on the second sentence of paragraph 1.(Amended on 22 July 2010 see History)

Paragraph 290. Chile,EstoniaandSwitzerlandreserve the right not to insert paragraph 2 in their conventions.(Amended on 15 July 2014 see History)

Paragraph 390.1 In view of its particular taxation system,Chileretains its freedom of action with regard to the provisions in the Convention relating to the rate and form of distribution of profits by permanent establishments.(Added on 22 July 2010 see History)

Paragraph 491. Franceaccepts the provisions of paragraph 4 but wishes to reserve the possibility of applying the provisions in its domestic laws relative to the limitation to the deduction of interest paid by a French company to an associated or related company.(Renumbered and amended on 17 July 2008 see History)

Paragraph 692. Chile,Greeceand theUnited Kingdomreserve the right to restrict the application of the Article to the taxes covered by the Convention.(Amended on 15 July 2014 see History)

Title: 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, the title read as follows:1 “COMMENTARY ON ARTICLE 24 CONCERNING TAX DISCRIMINATION ON GROUNDS OF NATIONALITY OR OTHER SIMILAR GROUNDS”

Paragraph 1Replaced on 17 July 2008 when paragraph 1 was renumbered as paragraph 5 (see history of paragraph 5) and the preceding heading was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). At the same time, a new paragraph 1 was added together with the heading preceding it.

Paragraph 2Replaced on 17 July 2008 when paragraph 2 was renumbered as paragraph 6 (see history of paragraph 6) and a new paragraph 2 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 3Replaced on 17 July 2008 when paragraph 3 was renumbered as paragraph 7 (see history of paragraph 7) and a new paragraph 3 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 4Replaced on 17 July 2008 when paragraph 4 was renumbered as paragraph 8 (see history of paragraph 8) and a new paragraph 4 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 5Corresponds to paragraph 1 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) as it read before 17 July 2008. On that date paragraph 5 was renumbered as paragraph 10 (see history of paragraph 10), paragraph 1 was renumbered as paragraph 5 and the heading preceding paragraph 1 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 6Corresponds to paragraph 2 of the 1977 Model Convention as it read before 17 July 2008. On that date paragraph 6 was renumbered as paragraph 11 (see history of paragraph 11) and paragraph 2 was renumbered as paragraph 6 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 2 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 2 of the 1963 Draft Convention was amended and renumbered as paragraph 3 (see history of paragraph 7) and a new paragraph 2 was added.

Paragraph 7Corresponds to paragraph 3 as it read before 17 July 2008. On that date paragraph 7 was renumbered as paragraph 12 (see history of paragraph 12) and paragraph 3 was renumbered as paragraph 7 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 7 was amended on 23 July 1992 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 3 read as follows:“3. The expression “in the same circumstances” refers to taxpayers (individuals, legal persons, partnerships and associations) placed, from the point of view of the application of the ordinary taxation laws and regulations, in substantially similar circumstances both in law and in fact.”

Paragraph 3 of the 1977 Model Convention corresponded to paragraph 2 of the 1963 Draft Convention. Paragraph 3 of the 1963 Draft Convention was amended and renumbered as paragraph 4 of the 1977 Model Convention (see history of paragraph 8) and paragraph 2 of the 1963 Draft Convention was amended and renumbered as paragraph 3 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 2 read as follows:“2. The expression “in the same circumstances” which appears in the text refers to taxpayers (individuals, legal persons, partnerships and associations) placed, from the point of view of the application of the ordinary taxation law and regulations, in substantially similar circumstances both in law and in fact.”

Paragraph 8Corresponds to paragraph 4 as it read before 17 July 2008. On that date paragraph 8 was renumbered as paragraph 13 (see history of paragraph 13) and paragraph 4 was renumbered as paragraph 8 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 4 was amended on 31 March 1994 by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. In the 1977 Model Convention and until 31 March 1994, paragraph 4 read as follows:“4. Consequently if a Contracting State, in giving relief from taxation on account of family responsibilities, distinguishes between its own nationals according to whether they reside in its territory or not, that State cannot be obliged to give nationals of the other State who do not reside in its territory the same treatment as it gives its resident nationals but it undertakes to extend to them the same treatment as is available to its non-resident nationals.”

Paragraph 4 of the 1977 Model Convention corresponded to paragraph 3 of the 1963 Draft Convention. Paragraph 4 of the 1963 Draft Convention was renumbered as paragraph 5 (see history of paragraph 10) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 3 of the 1963 Draft Convention was amended and renumbered as paragraph 4 of the 1977 Model Convention. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:“3. Consequently if one of the Contracting States, in giving relief from taxation on account of family responsibilities, distinguishes between its own nationals according to whether they reside in its territory or not, that State cannot be obliged to give nationals of the other State who do not reside in its territory the same treatment as it gives its resident nationals but it undertakes to extend to them the same treatment as is available to its non-resident nationals.”

Paragraph 9Replaced on 17 July 2008 when paragraph 9 was renumbered as paragraph 14 (see history of paragraph 14) and a new paragraph 9 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 10Corresponds to paragraph 5 of the 1977 Model Convention as it read before 17 July 2008. On that date paragraph 10 was renumbered as paragraph 15 (see history of paragraph 15) and paragraph 5 was renumbered as paragraph 10 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 5 of the 1977 Model Convention corresponded to paragraph 4 of the 1963 Draft Convention. Paragraph 5 of the 1963 Draft Convention was renumbered as paragraph 6 (see history of paragraph 11) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 4 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) was renumbered as paragraph 5 of the 1977 Model Convention.

Paragraph 11Corresponds to paragraph 6 of the 1977 Model Convention as it read before 17 July 2008. On that date paragraph 11 was amended and renumbered as paragraph 16 (see history of paragraph 16) and paragraph 6 was renumbered as paragraph 11 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 6 of the 1977 Model Convention corresponded to paragraph 5 of the 1963 Draft Convention. Paragraph 6 of the 1963 Draft Convention , was amended and renumbered as paragraph 7 (see history of paragraph 12) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 5 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) was renumbered as paragraph 6 of the 1977 Model Convention.

Paragraph 12Corresponds to paragraph 7 as it read before 17 July 2008. On that date paragraph 12 was renumbered as paragraph 26 (see history of paragraph 26), the heading preceding paragraph 12 was moved with it and paragraph 7 was renumbered as paragraph 12 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 7 was amended on 29 April 2000, by replacing the words “industrial and commercial” with “business”, 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). In the 1977 Model Convention and until 29 April 2000, paragraph 7 read as follows:“7. To take the first of these two cases, if a State accords immunity from taxation to its own public bodies and services, this is justified because such bodies and services are integral parts of the State and at no time can their circumstances be comparable to those of the public bodies and services of the other State. Nevertheless, this reservation is not intended to apply to State corporations carrying on gainful undertakings. To the extent that these can be regarded as being on the same footing as private industrial and commercial undertakings, the provisions of paragraph 1 will apply to them.”

Paragraph 7 of the 1977 Model Convention corresponded to paragraph 6 of the 1963 Draft Convention. Paragraph 7 of the 1963 Draft Convention was renumbered as paragraph 8 (see history of paragraph 13) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 6 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963), was renumbered as paragraph 7 of the 1977 Model Convention.

Paragraph 13Corresponds to paragraph 8 of the 1977 Model Convention as it read before 17 July 2008. On that date paragraph 13 was renumbered as paragraph 27 (see history of paragraph 27) and paragraph 8 was renumbered as paragraph 13 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 8 of the 1977 Model Convention corresponded to paragraph 7 of the 1963 Draft Convention. Paragraph 8 of the 1963 Draft Convention was amended and renumbered as paragraph 9 (see history of paragraph 14) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 7 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963), was renumbered as paragraph 8 of the 1977 Model Convention.

Paragraph 14Amended on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 17 July 2008, and until 22 July 2010, paragraph 14 read as follows:“14. Furthermore, paragraph 1 has been deliberately framed in a negative form. By providing that the nationals of a Contracting State may not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of the other Contracting State in the same circumstances are or may be subjected, this paragraph has the same mandatory force as if it enjoined the Contracting States to accord the same treatment to their respective nationals. But since the principal object of this clause is to forbid discrimination in one State against the nationals of the other, there is nothing to prevent the first State from granting to persons of foreign nationality, for special reasons of its own, or in order to comply with a special stipulation in a double taxation convention, such as, notably, the requirement that profits of permanent establishments are to be taxed on the basis of separate accounts, certain concessions or facilities which are not available to its own nationals. As it is worded, paragraph 1 would not prohibit this”

Paragraph 14 as it read after 17 July 2008 corresponded to paragraph 9 of the 1977 Model Convention. On 17 July 2008 paragraph 14 was renumbered as paragraph 28 (see history of paragraph 28) and paragraph 9 was renumbered as paragraph 14 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 9 of the 1977 Model Convention corresponded to paragraph 8 of the 1963 Draft Convention. Paragraph 9 of the 1963 Draft Convention was amended and renumbered as paragraph 10 (see history of paragraph 15) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 8 of the 1963 Draft Convention was amended and renumbered as paragraph 9 of the 1977 Model Convention. 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. Furthermore, paragraph 1 of the Article has been deliberately framed in a negative form. By providing that the nationals of one Contracting State may not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of the other Contracting State in the same circumstances are or may be subjected, this paragraph probably has the same mandatory force as if it enjoined the Contracting States to accord the same treatment to their respective nationals. But since the principal object of this clause is to forbid discrimination in one State against the nationals of the other, there is nothing to prevent the first State from granting, for special reasons of its own, certain concessions or facilities to foreigners which are not available to its own nationals. As it is worded, paragraph 1 of the Article would not prohibit this should the case ever arise.”

Paragraph 15Corresponds to paragraph 10 of the 1977 Model Convention as it read before 17 July 2008. On that date paragraph 15 was renumbered as paragraph 29 (see history of paragraph 29) and paragraph 10 was renumbered as paragraph 15 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 10 of the 1977 Model Convention corresponded to paragraph 9 of the 1963 Draft Convention. Paragraph 10 of the 1963 Draft Convention was amended and renumbered as paragraph 11 (see history of paragraph 8 of the Commentary on Article 3) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 9 of the 1963 Draft Convention was amended and renumbered as paragraph 10 of the 1977 Model Convention. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 9 read as follows:“9. Subject to the foregoing observations, the words “...shall not be subjected... to any taxation or any requirement connected therewith which is other or more burdensome...” mean that when a tax is imposed on nationals and foreigners in the same circumstances, it must be in the same form for both, its basis of charge and method of assessment must be the same, its rate must be the same, and, finally, the formalities connected with the taxation (returns, payment, prescribed times, etc.) must not be more onerous for foreigners than for nationals.”

Paragraph 16Corresponds to paragraph 11 as it read before 17 July 2008. On that date paragraph 16 was renumbered as paragraph 30 (see history of paragraph 30) and paragraph 11 was renumbered as paragraph 16 and amended, by replacing the cross-reference to subparagraphf) with a cross-reference to subparagraph g), by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 11 read as follows:“11. 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 paragraph 1. This result is achieved through the definition of the term “national” in subparagraph f)of paragraph 1 of Article 3.”

Paragraph 11 as it read after 23 July 1992 corresponded to paragraph 13 of the 1977 Model Convention. On 23 July 1992 paragraph 11 of the 1977 Model Convention was amended and renumbered as paragraph 8 of the Commentary on Article 3 (see history of paragraph 8 of the Commentary on Article 3), the heading preceding paragraph 11 was deleted and paragraph 13 was amended and renumbered as paragraph 11 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, the heading preceding paragraph 11 read as follows:“Paragraph 2”

In the 1977 Model Convention and until 23 July 1992, paragraph 13 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 1977 Model Convention corresponded to paragraph 12 of the 1963 Draft Convention. Paragraph 13 of the 1963 Draft Convention was amended and renumbered as paragraph 14 (see history of paragraph 26) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 12 of the 1963 Draft Convention was amended and renumbered as paragraph 13 of the 1977 Model Convention. 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 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 17Replaced on 17 July 2008 when paragraph 17 was renumbered as paragraph 31 (see history of paragraph 31) and a new paragraph 17 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 18Replaced on 17 July 2008 when paragraph 18 was renumbered as paragraph 32 (see history of paragraph 32) and a new paragraph 18 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 19Replaced on 17 July 2008 when paragraph 19 was renumbered as paragraph 33 (see history of paragraph 33), the heading preceding paragraph 19 was moved with it and a new paragraph 19 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 20Replaced on 17 July 2008 when paragraph 20 was renumbered as paragraph 34 (see history of paragraph 34) and a new paragraph 20 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 21Replaced on 17 July 2008 when paragraph 21 was renumbered as paragraph 35 (see history of paragraph 35) and a new paragraph 21 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 22Replaced on 17 July 2008 when paragraph 22 was renumbered as paragraph 36 (see history of paragraph 36) and a new paragraph 22 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 23Replaced on 17 July 2008 when paragraph 23 was renumbered as paragraph 39 (see history of paragraph 39) and a new paragraph 23 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 24Replaced on 17 July 2008 when paragraph 24 was renumbered as paragraph 40 (see history of paragraph 40), the heading preceding paragraph 24 was moved with it and a new paragraph 24 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 25Replaced on 17 July 2008 when paragraph 25 was amended and renumbered as paragraph 43 (see history of paragraph 43) and a new paragraph 25 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 26Corresponds to paragraph 12 as it read before 17 July 2008. On that date paragraph 26 was renumbered as paragraph 44 (see history of paragraph 44), paragraph 12 was renumbered as paragraph 26 and the heading preceding paragraph 12 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 12, as it read after 23 July 1992, corresponded to paragraph 14 of the 1977 Model Convention. On 23 July 1992 paragraph 12 of the 1977 Model Convention was amended and renumbered as paragraph 9 of the Commentary on Article 3 (see history of paragraph 9 of the Commentary on Article 3) and paragraph 14 was renumbered as paragraph 12 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, the heading preceding paragraph 14 was moved with it and amended by replacing “Paragraph 3” with “Paragraph 2”. In the 1977 Model Convention and until 23 July 1992, the heading preceding paragraph 14 read as follows:“Paragraph 3”

Paragraph 14 of the 1977 Model Convention corresponded to paragraph 13 of the 1963 Draft Convention. Paragraph 14 of the 1963 Draft Convention was amended and renumbered as paragraph 21 (see history of paragraph 33) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 13 of the 1963 Draft Convention was amended and renumbered as paragraph 14 of the 1977 Model Convention and the preceding heading was moved with it. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 13 read as follows:“13. On 28th September, 1954, a number of States concluded a Convention relating to the status of stateless persons, under Article 29 of which stateless persons must be accorded national treatment. The signatories of the Convention include several O.E.C.D. Member countries. Such a provision, however, is mainly suitable for insertion in a multilateral Convention.”

Paragraph 27Corresponds to paragraph 13 as it read before 17 July 2008. On that date paragraph 27 was renumbered as paragraph 45 (see history of paragraph 45) and paragraph 13 was renumbered as paragraph 27 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 13 as it read after 23 July 1992 corresponded to paragraph 15 of the 1977 Model Convention. On 23 July 1992 paragraph 13 of the 1977 Model Convention was amended and renumbered as paragraph 11 (see history of paragraph 16) and paragraph 15 was renumbered as paragraph 13 and amended, by replacing the reference therein to paragraph 3 with a reference to paragraph 2, 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 15 read as follows:“15. It should, however, be recognised that the provisions of paragraph 3 will, in a bilateral convention, enable national treatment to be extended to stateless persons who, because they are in one of the situations enumerated in paragraph 2 of Article 1 of the above-mentioned Convention of 28 September 1954, are not covered by that Convention. This is mainly the case, on the one hand, of persons receiving at the time of signature of that Convention, protection or assistance from organs or agencies of the United Nations other than the United Nations High Commissioner for Refugees, and, on the other hand, of persons who are residents of a country and who there enjoy and are subject to the rights and obligations attaching to the possession of that country’s nationality.”

Paragraph 15 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 15 of the 1963 Draft Convention was deleted and a new paragraph 15 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 15 read as follows:“15. This provision does not mean, however, that a Contracting State must give an individual residing in the other Contracting State, in connection with the taxation for which he is liable in the first Contracting State in respect of a permanent establishment owned by him therein, any personal allowances, reliefs and reductions on account of civil status or family responsibilities which it gives to its own residents. This reservation, moreover, is expressly contained in the text of the Article.”

Paragraph 28Corresponds to paragraph 14 as it read before 17 July 2008. On that date paragraph 28 was amended and renumbered as paragraph 46 (see history of paragraph 46) and paragraph 14 was renumbered as paragraph 28 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 14 as it read after 23 July 1992 corresponded to paragraph 16 of the 1977 Model Convention. On 23 July 1992 paragraph 14 of the 1977 Model Convention was renumbered as paragraph 12 (see history of paragraph 26) and the heading preceding paragraph 14 was amended and moved with it (see history of paragraph 26) by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, paragraph 16 was amended, by replacing the reference therein to paragraph 3 by a reference to paragraph 2, and renumbered as paragraph 14. In the 1977 Model Convention and until 23 July 1992, paragraph 16 read as follows:“16. The purpose of paragraph 3 is to limit the scope of the clause concerning equality of treatment with nationals of a Contracting State solely to stateless persons who are residents of that or of the other Contracting State.”

Paragraph 16 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 16 of the 1963 Draft Convention was amended and renumbered as paragraph 22 (see history of paragraph 34) and a new paragraph 16 was added.

Paragraph 29Corresponds to paragraph 15 as it read before 17 July 2008. On that date paragraph 29 was renumbered as paragraph 48 (see history of paragraph 48), the heading preceding paragraph 29 was moved with it and paragraph15 was renumbered as paragraph 29 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 15 as it read after 23 July 1992 corresponded to paragraph 17 of the 1977 Model Convention. On 23 July 1992 paragraph 15 of the 1977 Model Convention was amended and renumbered as paragraph 13 (see history of paragraph 27) and paragraph 17 was renumbered as paragraph 15 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 17 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 17 of the 1963 Draft Convention was deleted and a new paragraph 17 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 17 read as follows:“17. Finally, with regard to the use of the word “enterprise” in the first sub-paragraph of paragraph 4, the question was raised whether it would not be better to use the word “entrepreneur” instead which had the merit of designating both individuals and legal persons and of thus being applicable where it is not the enterprise itself that is taxed but the individual carrying on the enterprise. The word “enterprise” was finally selected.”

Paragraph 30Corresponds to paragraph 16 as it read before 17 July 2008. On that date paragraph 30 was renumbered as paragraph 49 (see history of paragraph 49) and paragraph 16 was renumbered as paragraph 30 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 16 as it read after 23 July 1992 corresponded to paragraph 18 of the 1977 Model Convention. On 23 July 1992 paragraph 16 of the 1977 Model Convention was amended and renumbered as paragraph 14 (see history of paragraph 28) and paragraph 18 was renumbered as paragraph 16 and amended, by replacing the reference therein to paragraph 3 by a reference to paragraph 2 and by adding the words “in particular with respect to residence” at the end of the suggested provision included therein, 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 18 read as follows:“18. However, if States were to consider it desirable in their bilateral relations to extend the application of paragraph 3 to all stateless persons, whether residents of a Contracting State or not, so that in all cases they enjoy the most favourable treatment accorded to nationals of the State concerned, in order to do this they would need only to adopt the following text which contains no condition as to residence in a Contracting State:“Notwithstanding the provisions of Article 1, stateless persons shall not be subjected in a Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that State in the same circumstances are or may be subjected.””

Paragraph 18 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 18 of the 1963 Draft Convention was amended and renumbered as paragraph 57 (see history of paragraph 76), the preceding heading was moved immediately before paragraph 56 and a new paragraph 18 was added.

Paragraph 31Amended 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 17 July 2008 and until 15 July 2014, paragraph 31 read as follows:“31. It is possible that in the future certain States will take exception to the provisions of paragraph 2 as being too liberal insofar as they entitle stateless persons who are residents of one State to claim equality of treatment not only in the other State but also in their State of residence and thus benefit in particular in the latter from the provisions of double taxation conventions concluded by it with third States. If such States wished to avoid this latter consequence, they would have to modify paragraph 2 as follows:Stateless persons who are residents of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.”

Paragraph 31 as it read after 17 July 2008 corresponded to paragraph 17. On 17 July 2008 paragraph 31 was renumbered as paragraph 50 (see history of paragraph 50) and paragraph 17 was renumbered as paragraph 31 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 17 as it read after 23 July 1992 corresponded to paragraph 19 of the 1977 Model Convention. On 23 July 1992 paragraph 17 of the 1977 Model Convention was renumbered as paragraph 15 (see history of paragraph 29) and paragraph 19 was renumbered as paragraph 17 and amended, by replacing the reference therein to paragraph 3 by a reference to paragraph 2 and by adding the words “in particular with respect to residence” at the end of the suggested provision included therein, 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 19 read as follows:“19. It is possible that in the future certain States will take exception to the provisions of paragraph 3 as being too liberal insofar as they entitle stateless persons who are residents of one State to claim equality of treatment not only in the other State but also in their State of residence and thus benefit in particular in the latter from the provisions of double taxation conventions concluded by it with third States. If such States wished to avoid this latter consequence, they would have to modify paragraph 3 as follows:“Stateless persons who are residents of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, are or may be subjected.””

Paragraph 19 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 19 of the 1963 Draft Convention was amended and renumbered as paragraph 58 (see history of paragraph 81) and a new paragraph 19 was added. At the same time, the heading preceding paragraph 19 was moved immediately before paragraph 57.

Paragraph 32Corresponds to paragraph 18 as it read before 17 July 2008. On that date paragraph 32 was renumbered as paragraph 51 (see history of paragraph 51) and paragraph 18 was renumbered as paragraph 32 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 18 as it read after 23 July 1992 corresponded to paragraph 20 of the 1977 Model Convention. On 23 July 1992 paragraph 18 of the 1977 Model Convention was amended and renumbered as paragraph 16 (see history of paragraph 30) and paragraph 20 was renumbered as paragraph 18 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 20 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 20 of the 1963 Draft Convention was amended and renumbered as paragraph 61 (see history of paragraph 85), the preceding heading was moved with it and a new paragraph 20 was added.

Paragraph 33Corresponds to paragraph 19 as it read before 17 July 2008. On that date paragraph 33 was renumbered as paragraph 52 (see history of paragraph 52), paragraph 19 was renumbered as paragraph 33 and the heading preceding paragraph 19 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 19 as it read after 23 July 1992 corresponded to paragraph 21 of the 1977 Model Convention. On 23 July 1992 paragraph 19 of the 1977 Model Convention was amended and renumbered as paragraph 17 (see history of paragraph 31), paragraph 21 was renumbered as paragraph 19 and the heading preceding paragraph 21 was moved with it and amended by replacing “Paragraph 4” by “Paragraph 3”, 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, the heading preceding paragraph 21 read as follows:“Paragraph 4”

Paragraph 21 of the 1977 Model Convention corresponded to the first and second sentences of paragraph 14 of the 1963 Draft Convention. Paragraph 21 of the 1963 Draft Convention was deleted when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 14 of the 1963 Draft Convention was amended and renumbered as paragraph 21 and the preceding heading was moved with it. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 14 read as follows:“14. Strictly speaking, the type of discrimination which this paragraph is designed to end is discrimination based not on nationality, but on the actual situs of an enterprise. It therefore affects without distinction, and irrespective of their nationality, all residents of a Contracting State who have permanent establishments in the other Contracting State. In this connection, while it is true that most Conventions for the avoidance of double taxation lay down the principle that, for the purpose of charging tax, a permanent establishment of an enterprise of a Contracting State in the other Contracting State must be regarded as an independent enterprise and treated as such, nevertheless the other State does not always extend to the permanent establishment the full benefit of the treatment it applies to its own enterprises. Thus, the permanent establishment may not be allowed the same depreciation facilities, or a proportion of the principal enterprise’s overheads is not always allowed to be attributed to the permanent establishment, or any losses incurred by the permanent establishment are not allowed to be set off. The purpose of paragraph 4 is to put an end to these differences in treatment by stipulating that a permanent establishment which an enterprise of a Contracting State has in the other Contracting State must not be less favourably taxed by that other Contracting State than enterprises of that State carrying on the same activities.”

Paragraph 21 of the 1963 Draft Convention was deleted 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 21 read as follows:“21. Irelandreserves the right not to grant to companies incorporated or managed and controlled outside Ireland certain temporary tax reliefs available to Irish companies on mining profits; and the right to impose a higher rate of Stamp Duty on acquisitions of agricultural land by aliens than that payable by nationals.”

Paragraph 34Amended on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 17 July 2008 and until 22 July 2010, paragraph 34 read as follows:“34. It appears necessary first to make it clear that the wording of the first sentence of paragraph 3 must be interpreted in the sense that it does not constitute discrimination to tax non-resident persons differently, for practical reasons, from resident persons, as long as this does not result in more burdensome taxation for the former than for the latter. In the negative form in which the provision concerned has been framed, it is the result alone which counts, it being permissible to adapt the mode of taxation to the particular circumstances in which the taxation is levied.”

Paragraph 34 as it read after 17 July 2008 corresponded to paragraph 20. On 17 July 2008 paragraph 34 was renumbered as paragraph 53 (see history of paragraph 53) and paragraph 20 was renumbered as paragraph 34 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 20, as it read after 23 July 1992, corresponded to paragraph 22 of the 1977 Model Convention. On 23 July 1992 paragraph 20 of the 1977 Model Convention was renumbered as paragraph 18 (see history of paragraph 32) and paragraph 22 was amended by replacing the reference therein to paragraph 4 by a reference to paragraph 3 and renumbered as paragraph 20 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 22 read as follows:“22. It appears necessary first to make it clear that the wording of the first sentence of paragraph 4 must be interpreted in the sense that it does not constitute discrimination to tax non-resident persons differently, for practical reasons, from resident persons, as long as this does not result in more burdensome taxation for the former than for the latter. In the negative form in which the provision concerned has been framed, it is the result alone which counts, it being permissible to adapt the mode of taxation to the particular circumstances in which the taxation is levied.”

Paragraph 22 of the 1977 Model Convention corresponded to paragraph 16 of the 1963 Draft Convention. Paragraph 16 of the 1963 Draft Convention was amended and renumbered as paragraph 22 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 16 read as follows:“16. Furthermore, it seems indispensable to specify that the wording of the first sub-paragraph of paragraph 4 must be interpreted in the sense that it does not constitute discrimination to tax non-resident persons, for reasons of practical convenience, differently from resident persons so long as this does not result in more burdensome taxation for the former than for the latter. In the negative form in which the provision has been framed it is the result alone that counts, it being permissible to adapt the taxation on the particular circumstances in which it is levied.”

Paragraph 35Corresponds to paragraph 21 as it read before 17 July 2008. On that date paragraph 35 was renumbered as paragraph 54 (see history of paragraph 54) and paragraph 21 was renumbered as paragraph 35 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 21 was amended on 29 April 2000, by replacing the words “industrial and commercial” with the word “business”, 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 23 July 1992 and until 29 April 2000, paragraph 21 read as follows:“21. By the terms of the first sentence of paragraph 3, the taxation of a permanent establishment shall not be less favourably levied in the State concerned than the taxation levied on enterprises of that State carrying on the same activities. The purpose of this provision is to end all discrimination in the treatment of permanent establishments as compared with resident enterprises belonging to the same sector of activities, as regards taxes based on industrial and commercial activities, and especially taxes on business profits.”

Paragraph 21 as it read after 23 July 1992 corresponded to paragraph 23 of the 1977 Model Convention. On 23 July 1992 paragraph 21 of the 1977 Model Convention was amended and renumbered as paragraph 19 (see history of paragraph 33) and paragraph 23 was amended by replacing the reference therein to paragraph 4 by a reference to paragraph 3 and renumbered as paragraph 21 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, the heading preceding paragraph 21 was moved with it. In the 1977 Model Convention and until 23 July 1992, paragraph 23 read as follows:“23. By the terms of the first sentence of paragraph 4, the taxation of a permanent establishment shall not be less favourably levied in the State concerned than the taxation levied on enterprises of that State carrying on the same activities. The purpose of this provision is to end all discrimination in the treatment of permanent establishments as compared with resident enterprises belonging to the same sector of activities, as regards taxes based on business activities, and especially taxes on business profits.”

Paragraph 23 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 36Corresponds to paragraph 22 as it read before 17 July 2008. On that date paragraph 36 was amended and renumbered as paragraph 55 (see history of paragraph 55), the heading preceding paragraph 36 was moved with it and paragraph 22 was renumbered as paragraph 36 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 22 as it read after 23 July 1992 corresponded to paragraph 24 of the 1977 Model Convention. On 23 July 1992 paragraph 22 of the 1977 Model Convention was amended and renumbered as paragraph 20 (see history of paragraph 34) and paragraph 24 was renumbered as paragraph 22 and amended, by replacing the reference therein to paragraph 4 by a reference to paragraph 3, 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 24 read as follows:“24. However, the second sentence of paragraph 4 specifies the conditions under which the principle of equal treatment set forth in the first sentence should be applied to individuals who are residents of a Contracting State and have a permanent establishment in the other State. It is designed mainly to ensure that such persons do not obtain greater advantages than residents, through entitlement to personal allowances and reliefs for family responsibilities, both in the State of which they are residents, by the application of its domestic laws, and in the other State by virtue of the principle of equal treatment. Consequently, it leaves it open to the State in which the permanent establishment is situated whether or not to give personal allowances and reliefs to the persons concerned in the proportion which the amount of the permanent establishment’s profits bears to the world income taxable in the other State.”

Paragraph 24 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 37Replaced on 17 July 2008 when paragraph 37 was renumbered as paragraph 56 (see history of paragraph 56) and a new paragraph 37 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 38Replaced on 17 July 2008 when paragraph 38 was renumbered as paragraph 57 (see history of paragraph 57) and a new paragraph 38 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 39Corresponds to paragraph 23 as it read before 17 July 2008. On that date paragraph 39 was renumbered as paragraph 58 (see history of paragraph 58) and paragraph 23 was renumbered as paragraph 39 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 23, as it read after 23 July 1992, corresponded to paragraph 25 of the 1977 Model Convention. On 23 July 1992 paragraph 23 of the 1977 Model Convention was amended and renumbered as paragraph 21 (see history of paragraph 35) and paragraph 25 was renumbered as paragraph 23 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 25 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 40Amended on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 17 July 2008 and until 22 July 2010, paragraph 40 read as follows:“40. With regard to the basis of assessment of tax, the principle of equal treatment normally has the following implications:Permanent establishments must be accorded the same right as resident enterprises to deduct the trading expenses that are, in general, authorised by the taxation law to be deducted from taxable profits in addition to the right to attribute to the permanent establishment a proportion of the overheads of the head office of the enterprise. Such deductions should be allowed without any restrictions other than those also imposed on resident enterprises.

Permanent establishments must be accorded the same facilities with regard to depreciation and reserves. They should be entitled to avail themselves without restriction not only of the depreciation facilities which are customarily available to enterprises (straight line depreciation, declining balance depreciation), but also of the special systems that exist in a number of countries (“wholesale” writing down, accelerated depreciation, etc.). As regards reserves, it should be noted that these are sometimes authorised for purposes other than the offsetting — in accordance with commercial accounting principles — of depreciation on assets, expenses or losses which have not yet occurred but which circumstances make likely to occur in the near future. Thus, in certain countries, enterprises are entitled to set aside, out of taxable profit, provisions or “reserves” for investment. When such a right is enjoyed by all enterprises, or by all enterprises in a given sector of activity, it should normally also be enjoyed, under the same conditions, by non-resident enterprises with respect to their permanent establishments situated in the State concerned, insofar, that is, as the activities to which such provisions or reserves would pertain are taxable in that State.

Permanent establishments should also have the option that is available in most countries to resident enterprises of carrying forward or backward a loss brought out at the close of an accounting period within a certain period of time (e.g.5 years). It is hardly necessary to specify that in the case of permanent establishments it is the loss on their own business activities, as shown in the separate accounts for these activities, which will qualify for such carry-forward.

Permanent establishments should further have the same rules applied to resident enterprises, with regard to the taxation of capital gains realised on the alienation of assets, whether during or on the cessation of business.”

Paragraph 40 as it read after 17 July 2008 corresponded to paragraph 24. On 17 July 2008 paragraph 40 was deleted, paragraph 24 was renumbered as paragraph 40 and the heading preceding paragraph 24 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 24 as it read after 23 July 1992 corresponded to paragraph 26 of the 1977 Model Convention. On 23 July 1992 paragraph 24 was amended and renumbered as paragraph 22 (see history of paragraph 36) and paragraph 26 was renumbered as paragraph 24 and amended, by changes to the last sentence of subparagraph b), by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, heading preceding paragraph 26 was moved with it. In the 1977 Model Convention and until 23 July 1992, subparagraph b) of paragraph 26 read as follows:When such a right is enjoyed by all enterprises, or by all enterprises in a given sector of activity, it should normally also be enjoyed, under the same conditions, by non-resident enterprises, or by all enterprises in a given sector of activity, it should in the State concerned, insofar, that is, as the activities to which such provisions or reserves would pertain are taxable in that State.”

Paragraph 26 and the heading preceding it were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 40 as it read before 17 July 2008 was deleted by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 40 read as follows:“40. As regards the split-rate system of company tax, it should first be pointed out as being a fact central to the issue here that most OECD member countries which have adopted this system do not consider themselves bound by the provisions of paragraph 3 to extend it to permanent establishments of non-resident companies. This attitude is based, in particular, on the view that the split-rate is only one element amongst others (in particular a withholding tax on distributed income) in a system of taxing company profits and dividends which must be considered as a whole and is therefore, both for legal and technical reasons, of domestic application only. The State where the permanent establishment is situated could claim the right not to tax such profits at the reduced rate as, generally, it does not tax the dividends distributed by the company to which the permanent establishment belongs. Moreover, a State which has adopted a split-rate system usually has other economic policy objectives, such as the promotion of the capital market, by encouraging resident companies to distribute dividends. The extension of the reduced rate to the profits of the permanent establishment would not serve such a purpose at all, as the company distributing the dividends is not a resident of the State concerned.”

Paragraph 40 as it read after 23 July 1992 corresponded to paragraph 42 of the 1977 Model Convention. On 23 July 1992 paragraph 40 of the 1977 Model Convention was amended and renumbered as paragraph 38 (see history of paragraph 57) and paragraph 42 was amended, by replacing the reference therein to paragraph 4 with a reference to paragraph 3, and renumbered as paragraph 40 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 42 read as follows:“42. As regards the split-rate system of company tax, it should first be pointed out as being a fact central to the issue here that most OECD member countries which have adopted this system do not consider themselves bound by the provisions of paragraph 4 to extend it to permanent establishments of non-resident companies. This attitude is based, in particular, on the view that the split-rate is only one element amongst others (in particular a withholding tax on distributed income) in a system of taxing company profits and dividends which must be considered as a whole and is therefore, both for legal and technical reasons, of domestic application only. The State where the permanent establishment is situated could claim the right not to tax such profits at the reduced rate as, generally, it does not tax the dividends distributed by the company to which the permanent establishment belongs. Moreover, a State which has adopted a split-rate system usually has other economic policy objectives, such as the promotion of the capital market, by encouraging resident companies to distribute dividends. The extension of the reduced rate to the profits of the permanent establishment would not serve such a purpose at all, as the company distributing the dividends is not a resident of the State concerned.”

Paragraph 42 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 41Replaced on 17 July 2008 when paragraph 41 was deleted and a new paragraph 41 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 41 read as follows:“41. This view is, however, disputed. The States in favour of extending the split-rate system to permanent establishments urge that as the essential feature of this system is a special technique of taxing profits which enterprises in a corporate form derive from their activities, and is designed to afford immediate relief from the double taxation levied on the profits distributed, it should be applied to permanent establishments in bilateral conventions against double taxation. It is generally recognised that, by the effects of their provisions, such conventions necessarily result in some integration of the taxation systems of the Contracting States. On this account, it is perfectly conceivable that profits made in a State (A) by a permanent establishment of a company resident in another State (B) should be taxed in State A according to the split-rate system. As a practical rule, the tax could in such case be calculated at the reduced rate (applicable to distributed profits) on that proportion of an establishment’s profits which corresponds to the ratio between the profit distributed by the company to which it belongs and the latter’s total profit; the remaining profit could be taxed at the higher rate. Of course, the two Contracting States would have to consult together and exchange all information necessary for giving practical effect to this solution. Similar considerations apply to systems where distributions of profits made can be deducted from the taxable income of a company.”

Paragraph 41 as it read after 23 July 1992 corresponded to paragraph 43 of the 1977 Model Convention. On 23 July 1992 paragraph 41 of the 1977 Model Convention was renumbered as paragraph 39 (see history of paragraph 58) and paragraph 43 was renumbered as paragraph 41 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 43 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 42Replaced on 17 July 2008 when paragraph 42 was deleted and a new paragraph 42 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 42 read as follows:“42. As regards the imputation system (“avoir fiscal” or “tax credit”), it seems doubtful, at least on a literal interpretation of the provisions of paragraph 3, whether it should be extended to non-resident companies in respect of dividends paid out of profits made by their permanent establishments. In fact, it has identical effects to those of the split-rate system but these effects are not immediate as they occur only at the time of the shareholder’s personal taxation. From a purely economic and financial standpoint, however, it is conceivable that such profits should be treated as though they were profits of a distinct company in State A where the permanent establishment of a company which is a resident of State B is situated, and, to the extent that they are distributed, carry theavoir fiscalor tax credit. But to take the matter further, to avoid all discrimination it is necessary that this advantage should already have been accorded to shareholders who are residents of State B of companies which are residents of State A. From the practical standpoint, the two States concerned should, of course, agree upon the conditions and procedures for allowing theavoir fiscalor tax credit to shareholders who are themselves residents of either State, of the companies concerned that are residents of State B.”

Paragraph 42 as it read after 23 July 1992 corresponded to paragraph 44 of the 1977 Model Convention. On 23 July 1992 paragraph 42 of the 1977 Model Convention was amended and renumbered as paragraph 40 (see history of paragraph 40) and paragraph 44 was renumbered as paragraph 42 and amended, by replacing the reference therein to paragraph 4 by a reference to paragraph 3, 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 44 read as follows:“44. As regards the imputation system (“avoir fiscal” or “tax credit”), it seems doubtful, at least on a literal interpretation of the provisions of paragraph 4, whether it should be extended to non-resident companies in respect of dividends paid out of profits made by their permanent establishments. In fact, it has identical effects to those of the split-rate system but these effects are not immediate as they occur only at the time of the shareholder’s personal taxation. From a purely economic and financial standpoint, however, it is conceivable that such profits should be treated as though they were profits of a distinct company in State A where the permanent establishment of a company which is a resident of State B is situated, and, to the extent that they are distributed, carry theavoir fiscalor tax credit. But to take the matter further, to avoid all discrimination it is necessary that this advantage should already have been accorded to shareholders who are residents of State B of companies which are residents of State A. From the practical standpoint, the two States concerned should, of course, agree upon the conditions and procedures for allowing theavoir fiscalor tax credit to shareholders who are themselves residents of either State, of the companies concerned that are residents of State B.”

Paragraph 44 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 43Corresponds to paragraph 25 as it read before 17 July 2008. On that date paragraph 43 was deleted and paragraph 25 was amended and renumbered as paragraph 43 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 25 read as follows:“25. Although the general rules mentioned above rarely give rise to any difficulties with regard to the principle of non-discrimination, the same does not always hold good for the tax incentive measures which most countries, faced with such problems as decentralisation of industry, development of economically backward regions, or the promotion of new activities necessary for the expansion of the economy, have introduced in order to facilitate the solution of these problems by means of tax exemptions, reductions or other tax advantages given to enterprises for investment which is in line with official objectives.”

Paragraph 25 as it read after 23 July 1992 corresponded to paragraph 27 of the 1977 Model Convention. On 23 July 1992, paragraph 25 of the 1977 Model Convention was renumbered as paragraph 23 (see history of paragraph 39) and paragraph 27 was renumbered as paragraph 25 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 27 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 43 as it read before 17 July 2008 was deleted by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 43 read as follows:“43. Contracting States which are faced with the problems described above may settle them in bilateral negotiations in the light of their peculiar circumstances.”

Paragraph 43 as it read after 23 July 1992 corresponded to paragraph 45 of the 1977 Model Convention. On 23 July 1992 paragraph 43 of the 1977 Model Convention was renumbered as paragraph 41 (see history of paragraph 41) and paragraph 45 was renumbered as paragraph 43 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 45 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 44Corresponds to paragraph 26 as it read before 17 July 2008. On that date paragraph 44 was renumbered as paragraph 62 (see history of paragraph 62), the heading preceding paragraph 44 was moved with it and paragraph 26 was renumbered as paragraph 44 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 26 was amended on 29 April 2000, by replacing the words “industrial and commercial” with the word “business”, 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 23 July 1992 and until 29 April 2000, paragraph 26 read as follows:“26. As such measures are in furtherance of objectives directly related to the economic activity proper of the State concerned, it is right that the benefit of them should be extended to permanent establishments of enterprises of another State which has a double taxation convention with the first embodying the provisions of Article 24, once they have been accorded the right to engage in industrial or commercial activity in that State, either under its legislation or under an international agreement (treaties of commerce, establishment conventions, etc.) concluded between the two States.”

Paragraph 26 as it read after 23 July 1992 corresponded to paragraph 28 of the 1977 Model Convention. On 23 July 1992, paragraph 26 of the 1977 Model Convention was amended and renumbered as paragraph 24 (see history of paragraph 40), the heading preceding paragraph 26 was moved with it and paragraph 28 was renumbered as paragraph 26 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 28 and the heading preceding it were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 45Corresponds to paragraph 27 as it read before 17 July 2008. On that date paragraph 45 was renumbered as paragraph 63 (see history of paragraph 63) and paragraph 27 was renumbered as paragraph 45 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 27 as it read after 23 July 1992 corresponded to paragraph 29 of the 1977 Model Convention. On 23 July 1992 paragraph 27 of the 1977 Model Convention was renumbered as paragraph 25 (see history of paragraph 43) and paragraph 29 was renumbered as paragraph 27 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 29 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 46Corresponds to paragraph 28 as it read before 17 July 2008. On that date paragraph 46 was renumbered as paragraph 64 (see history of paragraph 64) and paragraph 28 was renumbered as paragraph 46 and amended, by replacing the word “Finally” with “Also” at the beginning of the paragraph, by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 28 read as follows:“28. Finally, it goes without saying that non-resident enterprises are not entitled to tax advantages attaching to activities the exercise of which is strictly reserved, on grounds of national interest, defence, protection of the national economy, etc., to domestic enterprises, since non-resident enterprises are not allowed to engage in such activities.”

Paragraph 28 as it read after 23 July 1992 corresponded to paragraph 30 of the 1977 Model Convention. On 23 July 1992 paragraph 28 of the 1977 Model Convention was renumbered as paragraph 26 (see history of paragraph 44) and paragraph 30 was renumbered as paragraph 28 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 30 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 47Replaced on 17 July 2008 when paragraph 47 was renumbered as paragraph 65 (see history of paragraph 65) and a new paragraph 47 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 48Corresponds to paragraph 29 as it read before 17 July 2008. On that date paragraph 48 was renumbered as paragraph 66 (see history of paragraph 66), paragraph 29 was renumbered as paragraph 48 and the heading preceding paragraph 29 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 29 as it read after 23 July 1992 corresponded to paragraph 31 of the 1977 Model Convention. On 23 July 1992 paragraph 29 of the 1977 Model Convention was renumbered as paragraph 27 (see history of paragraph 45), paragraph 31 was renumbered as paragraph 29 and amended, by replacing the reference therein to paragraph 4 by a reference to paragraph 3, and the heading preceding paragraph 31 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 31 read as follows:“31. In many countries special rules exist for the taxation of dividends distributed between companies (parent company-subsidiary treatment, theSchachtelprivileg, the rule non bis in idem). The question arises whether such treatment should, by effect of the provisions of paragraph 4, also be enjoyed by permanent establishments in respect of dividends on holdings forming part of their assets.”

Paragraph 31 and the preceding heading were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 49Corresponds to paragraph 30 as it read before 17 July 2008. On that date paragraph 49 was amended and renumbered as paragraph 67 (see history of paragraph 67), the heading preceding paragraph 49 was moved with it and paragraph 30 was renumbered as paragraph 49 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 30 as it read after 23 July 1992 corresponded to paragraph 32 of the 1977 Model Convention. On 23 July 1992 paragraph 30 of the 1977 Model Convention was renumbered as paragraph 28 (see history of paragraph 46) and paragraph 32 was renumbered as paragraph 30 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 32 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 50Corresponds to paragraph 31 as it read before 17 July 2008. On that date paragraph 50 was amended and renumbered as paragraph 68 (see history of paragraph 68) and paragraph 31 was renumbered as paragraph 50 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 31 as it read after 23 July 1992 corresponded to paragraph 33 of the 1977 Model Convention. On 23 July 1992 paragraph 31 of the 1977 Model Convention was amended and renumbered as paragraph 29 (see history of paragraph 48), the heading preceding paragraph 31 was moved with it and paragraph 33 was renumbered as paragraph 31 and amended, by replacing the reference therein to paragraph 4 by a reference to paragraph 3, 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 33 read as follows:“33. Other States, on the contrary, consider that assimilating permanent establishments to their own enterprises does not entail any obligation to accord such special treatment to the former. They justify their position on various grounds. The purpose of such special treatment is to avoid economic double taxation of dividends and it should be for the recipient company’s State of residence and not the permanent establishment’s State to bear its cost, because it is more interested in the aim in view. Another reason put forward relates to the sharing of tax revenue between States. The loss of tax revenue incurred by a State in applying such special treatment is partly offset by the taxation of the dividends when they are redistributed by the parent company which has enjoyed such treatment (withholding tax on dividends, shareholder’s tax). A State which accorded such treatment to permanent establishments would not have the benefit of such a compensation. Another argument made is that when such treatment is made conditional upon redistribution of the dividends, its extension to permanent establishments would not be justified, for in such a case the permanent establishment, which is only a part of a company of another State and does not distribute dividends, would be more favourably treated than a resident company. Finally, the States which feel that paragraph 4 does not entail any obligation to extend such treatment to permanent establishments argue that there is a risk that companies of one State might transfer their holdings in companies of another State to their permanent establishments in that other State for the sole purpose of availing themselves of such treatment.”

Paragraph 33 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 51Corresponds to paragraph 32 as it read before 17 July 2008. On that date paragraph 51 was renumbered as paragraph 69 (see history of paragraph 69), the heading preceding paragraph 51 was amended and moved with it and paragraph 32 was renumbered as paragraph 51 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 32 as it read after 23 July 1992 corresponded to paragraph 34 of the 1977 Model Convention. On 23 July 1992 paragraph 32 of the 1977 Model Convention was renumbered as paragraph 30 (see history of paragraph 49) and paragraph 34 was renumbered as paragraph 32 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 34 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 52Corresponds to paragraph 33 as it read before 17 July 2008. On that date paragraph 52 was amended and renumbered as paragraph 70 (see history of paragraph 70) and paragraph 33 was renumbered as paragraph 52 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 33 as it read after 23 July 1992 corresponded to paragraph 35 of the 1977 Model Convention. On 23 July 1992, paragraph 33 of the 1977 Model Convention was amended and renumbered as paragraph 31 (see history of paragraph 50) and paragraph 35 was renumbered as paragraph 33 and amended, by replacing the reference therein to paragraph 4 by a reference to paragraph 3, 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 35 read as follows:“35. In view of these divergent attitudes, as well as of the existence of the situations just described, it would be advisable for States, when concluding bilateral conventions, to make clear the interpretation they give to the first sentence of paragraph 4. They can, if they so desire, explain their position, or change it as compared with their previous practice, in a protocol or any other document annexed to the convention.”

Paragraph 35 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 53Corresponds to paragraph 34 as it read before 17 July 2008. On that date paragraph 53 was renumbered as paragraph 71 (see history of paragraph 71) and paragraph 34 was renumbered as paragraph 53 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 34 as it read after 23 July 1992 corresponded to paragraph 36 of the 1977 Model Convention. On 23 July 1992 paragraph 34 of the 1977 Model Convention was renumbered as paragraph 32 (see history of paragraph 51) and paragraph 36 was renumbered as paragraph 34 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 36 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 54Corresponds to paragraph 35 as it read before 17 July 2008. On that date paragraph 54 was renumbered as paragraph 72 (see history of paragraph 72) and paragraph 35 was renumbered as paragraph 54 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 35 as it read after 23 July 1992 corresponded to paragraph 37 of the 1977 Model Convention. On 23 July 1992 paragraph 35 of the 1977 Model Convention was amended and renumbered as paragraph 33 (see history of paragraph 52) and paragraph 37 was renumbered as paragraph 35 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 37 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 55Corresponds to paragraph 36 as it read before 17 July 2008. On that date paragraph 55 was renumbered as paragraph 73 (see history of paragraph 73), the heading preceding paragraph 55 was moved with it, paragraph 36 was amended and renumbered as paragraph 55 and the heading preceding paragraph 36 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 36 read as follows:“36. In countries where enterprises, mainly companies, are charged a tax on their profits which is specific to them, the provisions of paragraph 3 raise, with regard to the rate applicable in the case of permanent establishments, especially difficult and delicate problems, which here too arise from the fact that the permanent establishment is only a part of a legal entity which is not under the jurisdiction of the State where the permanent establishment is situated.”

Paragraph 36 as it read after 23 July 1992 corresponded to paragraph 38 of the 1977 Model Convention. On 23 July 1992 paragraph 36 of the 1977 Model Convention was renumbered as paragraph 34 (see history of paragraph 53) and paragraph 38 was amended, by replacing the reference therein to paragraph 4 with a reference to paragraph 3, and renumbered as paragraph 36, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, the heading preceding paragraph 38 was moved with it. In the 1977 Model Convention and until 23 July 1992, paragraph 38 read as follows:“38. In countries where enterprises, mainly companies, are charged a tax on their profits which is specific to them, the provisions of paragraph 4 raise, with regard to the rate applicable in the case of permanent establishments, especially difficult and delicate problems, which here too arise from the fact that the permanent establishment is only a part of a legal entity which is not under the jurisdiction of the State where the permanent establishment is situated.”

Paragraph 38 and the heading preceding it were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 56Corresponds to paragraph 37 as it read before 17 July 2008. On that date paragraph 56 was amended and renumbered as paragraph 74 (see history of paragraph 74) and paragraph 37 was renumbered as paragraph 56 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 37 as it read after 23 July 1992 corresponded to paragraph 39 of the 1977 Model Convention. On 23 July 1992 paragraph 37 of the 1977 Model Convention was renumbered as paragraph 35 (see history of paragraph 54) and paragraph 39 was renumbered as paragraph 37 and amended, by replacing the reference therein to paragraph 77 by a reference to paragraph 79 of the Commentary on Articles 23A and 23B, 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 39 read as follows:“39. When the taxation of profits made by companies which are residents of a given State is calculated according to a progressive scale of rates, such a scale should, in principle, be applied to permanent establishments situated in that State. If in applying the progressive scale, the permanent establishment’s State takes into account the profits of the whole company to which such a permanent establishment belongs, such a rule would not appear to conflict with the equal treatment rule, since resident companies are in fact treated in the same way (see paragraphs 55, 56 and 77 of the Commentary on Articles 23 A and 23 B). States that tax their own companies in this way could therefore define in their bilateral conventions the treatment applicable to permanent establishments.”

Paragraph 39 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 57Corresponds to paragraph 38 as it read before 17 July 2008. On that date paragraph 57 was renumbered as paragraph 76 (see history of paragraph 76), the heading preceding paragraph 57 was moved with it and paragraph 38 was renumbered as paragraph 57 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 38 as it read after 23 July 1992 corresponded to paragraph 40 of the 1977 Model Convention. On 23 July 1992 paragraph 38 of the 1977 Model Convention was amended and renumbered as paragraph 36 (see history of paragraph 55), the heading preceding paragraph 38 was moved with it and paragraph 40 was renumbered as paragraph 38 and amended, by replacing the reference therein to paragraph 4 by a reference to paragraph 3, 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 40 read as follows:“40. When a system of taxation based on a progressive scale of rates includes a rule that a minimum rate is applicable to permanent establishments, it cannot be claimeda priorithat such a rule is incompatible with the equal treatment principle. The profits of the whole enterprise to which the permanent establishment belongs should be taken into account in determining the rate applicable according to the progressive scale. The provisions of the first sentence of paragraph 4 are not observed only if the minimum rate is higher.”

Paragraph 40 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 58Amended on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 17 July 2008, and until 22 July 2010, paragraph 58 read as follows:“58. However, even if the profits of the whole enterprise to which the permanent establishment belongs are taken into account when applying either a progressive scale of rates or a minimum rate, this should not conflict with the principle of the distinct and separate enterprise, according to which the profits of the permanent establishment must be determined under paragraph 2 of Article 7. The minimum amount of the tax levied in the State where the permanent establishment is situated is, therefore, the amount which would be due if it were a distinct and separate enterprise, without reference to the profits of the whole enterprise to which it belongs. The State where the permanent establishment is situated is, therefore, justified in applying the progressive scale applicable to resident enterprises solely to the profits of the permanent establishment, leaving aside the profits of the whole enterprise when the latter are less than those of the permanent establishment. This State may likewise tax the profits of the permanent establishment at a minimum rate, provided that the same rate applies also to resident enterprises, even if taking into account the profits of the whole enterprise to which it belongs would result in a lower amount of tax, or no tax at all.”

Paragraph 58 as it read after 17 July 2008 corresponded to paragraph 39. On 17 July 2008 paragraph 58 was deleted and paragraph 39 was renumbered as paragraph 58 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 39 as it read after 23 July 1992 corresponded to paragraph 41 of the 1977 Model Convention. On 23 July 1992 paragraph 39 of the 1977 Model Convention was amended and renumbered as paragraph 37 (see history of paragraph 56) and paragraph 41 was renumbered as paragraph 39 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 41 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 58 as it read before 17 July 2008 was deleted by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 58 read as follows:“58. Paragraph 5, though relevant in principle to thin capitalisation, is worded in such general terms that it must take second place to more specific provisions in the Convention. Thus paragraph 4 (referring to paragraph 1 of Article 9 and paragraph 6 of Article 11) takes precedence over this paragraph in relation to the deduction of interest.”

Paragraph 58 of the 1977 Model Convention was replaced on 23 July 1992 when it was renumbered as paragraph 60 (see history of paragraph 81) and a new paragraph 58 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of subparagraph 87 b) of a previous report entitled “Thin Capitalisation” (adopted by the OECD Council on 26 November 1986). At the same time, the heading preceding paragraph 58 was amended and moved with it.

Paragraph 59Replaced on 17 July 2008 when paragraph 59 was renumbered as paragraph 80 (see history of paragraph 80) and a new paragraph 59 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 60Replaced on 17 July 2008 when paragraph 60 was renumbered as paragraph 81 (see history of paragraph 81), the heading preceding paragraph 60 was moved with it and a new paragraph 60 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 61Replaced on 17 July 2008 when paragraph 61 was renumbered as paragraph 82 (see history of paragraph 82) and a new paragraph 61 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 62Amended on 22 July 2010, by replacing the cross reference to “paragraph 62” of the Commentary on Article 7 with “paragraph 74” by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 17 July 2008 and until 22 July 2010, paragraph 62 read as follows:“62. When permanent establishments receive dividends, interest, or royalties such income, by virtue of paragraph 4 of Articles 10 and 11 and paragraph 3 of Article 12, respectively, comes under the provisions of Article 7 and consequently — subject to the observations made in paragraph 53 above as regards dividends received on holdings of permanent establishment — falls to be included in the taxable profits of such permanent establishments (see paragraph 62 of the Commentary on Article 7).”

Paragraph 62 as it read after 17 July 2008 corresponded to paragraph 44. On 17 July 2008 paragraph 62 was renumbered as paragraph 83 (see history of paragraph 83) and paragraph 44 was renumbered as paragraph 62 and amended, by replacing the cross-references “paragraph 34 above” with “paragraph 53 above” and replacing “paragraph 35” of the Commentary on Article 7 with “paragraph 62”, by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). At the same time, the heading preceding paragraph 44 was moved with it. After 23 July 1992 and until 17 July 2008, paragraph 44 read as follows:“44. When permanent establishments receive dividends, interest, or royalties such income, by virtue of paragraph 4 of Articles 10 and 11 and paragraph 3 of Article 12, respectively, comes under the provisions of Article 7 and consequently — subject to the observations made in paragraph 34 above as regards dividends received on holdings of permanent establishment — falls to be included in the taxable profits of such permanent establishments (see paragraph 35 of the Commentary on Article 7).”

Paragraph 44 as it read after 23 July 1992 corresponded to paragraph 46 of the 1977 Model Convention. On 23 July 1992 paragraph 44 of the 1977 Model Convention was amended and renumbered as paragraph 42 (see history of paragraph 42), paragraph 46 was renumbered as paragraph 44 and amended, by replacing the cross-references to “paragraph 36” and “paragraph 34” with “paragraph 34” and “paragraph 35” respectively, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, the heading preceding paragraph 46 was moved with it. In the 1977 Model Convention and until 23 July 1992, paragraph 46 read as follows:“46. When permanent establishments receive dividends, interest, or royalties such income, by virtue of paragraph 4 of Articles 10 and 11 and paragraph 3 of Article 12, respectively, comes under the provisions of Article 7 and consequently — subject to the observations made in paragraph 36 above as regards dividends received on holdings of permanent establishment — falls to be included in the taxable profits of such permanent establishments (see paragraph 34 of the Commentary on Article 7).”

Paragraph 46 and the preceding heading were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 63Corresponds to paragraph 45 as it read before 17 July 2008. On that date paragraph 63 was amended and renumbered as paragraph 84 (see history of paragraph 84) and paragraph 45 was renumbered as paragraph 63 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 45 as it read after 23 July 1992 corresponded to paragraph 47 of the 1977 Model Convention. On 23 July 1992 paragraph 45 of the 1977 Model Convention was renumbered as paragraph 43 (see history of paragraph 43) and paragraph 47 was renumbered as paragraph 45 and amended, by replacing the references therein to paragraphs 30, 22 and 15 of the Commentary on Articles 10, 11 and 12 respectively with references to paragraph 31, 24 and 20 thereof, 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 47 read as follows:“47. According to the respective Commentaries on the above-mentioned provisions of Articles 10, 11 and 12 (see respectively paragraphs 30, 22 and 15), these provisions dispense the State of source of the dividends, interest or royalties received by the permanent establishment from applying any limitation provided for in those Articles, which means — and this is the generally accepted interpretation — that they leave completely unaffected the right of the State of source, where the permanent establishment is situated, to apply its withholding tax at the full rate.”

Paragraph 47 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 64Corresponds to paragraph 46 as it read before 17 July 2008. On that date paragraph 64 was amended and renumbered as paragraph 85 (see history of paragraph 85) and paragraph 46 was renumbered as paragraph 64 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 46 as it read after 23 July 1992 corresponded to paragraph 48 of the 1977 Model Convention. On 23 July 1992 paragraph 46 of the 1977 Model Convention was amended and renumbered as paragraph 44 (see history of paragraph 62), the heading preceding paragraph 46 was moved with it and paragraph 48 was amended by replacing the reference therein to paragraph 4 by a reference to paragraph 3 and renumbered as paragraph 46 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 48 read as follows:“48. While this approach does not create any problems with regard to the provisions of paragraph 4 of Article 24 in the case of countries where a withholding tax is levied on all such income, whether the latter be paid to residents (permanent establishments, like resident enterprises, being allowed to set such withholding tax off against the tax on profits due by virtue of Article 7) or to non residents (subject to the limitations provided for in Articles 10, 11 and 12), the position is different when withholding tax is applied exclusively to income paid to non-residents.”

Paragraph 48 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 65Corresponds to paragraph 47 as it read before 17 July 2008. On that date paragraph 65 was renumbered as paragraph 87 (see history of paragraph 87) and paragraph 47 was renumbered as paragraph 65 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 47 as it read after 23 July 1992 corresponded to paragraph 49 of the 1977 Model Convention. On 23 July 1992 paragraph 47 of the 1977 Model Convention was amended and renumbered as paragraph 45 (see history of paragraph 63) and paragraph 49 was amended, by replacing the reference therein to paragraph 4 with a reference to paragraph 3, and renumbered as paragraph 47 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 49 read as follows:“49. In this latter case, in fact, it seems difficult to reconcile the levy of withholding tax with the principle set out in paragraph 4 that for the purpose of taxing the income which is derived from their activity, or which is normally connected with it — as is recognised to be the case with dividends, interest and royalties referred to in paragraph 4 of Articles 10 and 11 and in paragraph 3 of Article 12 — permanent establishments must be treated as resident enterprises and hence in respect of such income be subjected to tax on profits solely.”

Paragraph 49 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 66Corresponds to paragraph 48 as it read before 17 July 2008. On that date paragraph 66 as it read before 17 July 2008 was renumbered as paragraph 88 (see history of paragraph 88), the heading preceding paragraph 66 was moved with it and paragraph 48 was renumbered as paragraph 66 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 48 as it read after 23 July 1992 corresponded to paragraph 50 of the 1977 Model Convention. On 23 July 1992 paragraph 48 of the 1977 Model Convention was amended and renumbered as paragraph 46 (see history of paragraph 64) and paragraph 50 was renumbered as paragraph 48 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 50 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 67Corresponds to paragraph 49 as it read before 17 July 2008. On that date paragraph 67 was renumbered as paragraph 89 (see history of paragraph 89), paragraph 49 was amended and renumbered as paragraph 67 and the heading preceding paragraph 49 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 49 read as follows:“49. In a related context, when a permanent establishment receives foreign income which is included in its taxable profits, it is right by virtue of the same principle to grant to the permanent establishment credit for foreign tax borne by such income when such credit is granted to resident enterprises under domestic laws.”

Paragraph 49 as it read after 23 July 1992 corresponded to paragraph 51 of the 1977 Model Convention. On 23 July 1992 paragraph 49 of the 1977 Model Convention was amended and renumbered as paragraph 47 (see history of paragraph 65), paragraph 51 was renumbered as paragraph 49 and the heading preceding paragraph 51 was moved with it by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 51 and the preceding heading were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 68Corresponds to paragraph 50 as it read before 17 July 2008. On that date paragraph 68 was renumbered as paragraph 90 (see history of paragraph 90), the heading preceding paragraph 68 was moved with it and paragraph 50 was amended and renumbered as paragraph 68 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 50 read as follows:“50. If in a Contracting State (A) in which is situated a permanent establishment of an enterprise of the other Contracting State (B), credit for tax levied in a third State (C) can be allowed only by virtue of a convention, then the more general question arises as to the extension to permanent establishments of the benefit of conventions concluded with third States. This question is examined below, the particular case of dividends, interest and royalties being dealt with in paragraph 51.”

Paragraph 50 as it read after 23 July 1992 corresponded to paragraph 52 of the 1977 Model Convention. On 23 July 1992 paragraph 50 of the 1977 Model Convention was renumbered as paragraph 48 (see history of paragraph 66) and paragraph 52 was amended and renumbered as paragraph 50 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 60 of another report entitled “Triangular Cases” (adopted by the OECD Council on 23 July 1992). In the 1977 Model Convention and until 23 July 1992, paragraph 52 read as follows:“52. If in a Contracting State (A) in which is situated a permanent establishment of an enterprise of the other Contracting State (B) credit for tax levied in a third State (C) can be allowed only by virtue of a convention, then the more general question arises, as to the extension to permanent establishments of the benefit of conventions concluded with third States, which is examined in paragraph 54 below.”

Paragraph 52 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 69Corresponds to paragraph 51 as it read before 17 July 2008. On that date paragraph 51 was amended and renumbered as paragraph 69 and the heading preceding paragraph 51 was amended and replaced the heading preceding paragraph 69 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 51 and the heading preceding it read as follows:Extension to permanent establishments of the benefit of double taxation conventions concluded with third States51. When the permanent establishment in a Contracting State of a resident enterprise of another Contracting State receives dividends, interest or royalties from a third State, then the question arises as to whether and to what extent the Contracting State in which the permanent establishment is situated should credit the tax that cannot be recovered from the third State.”

Paragraph 51 of the 1977 Model Convention was replaced on 23 July 1992 when it was renumbered as paragraph 49 (see history of paragraph 67) and a new paragraph 51 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 60 of another report entitled “Triangular Cases” (adopted by the OECD Council on 23 July 1992). At the same time, the heading preceding paragraph 51 was moved with it and he heading preceding paragraph 54 was moved immediately before paragraph 51.

Paragraph 69 as it read before 23 October 1997 was deleted by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 23 July 1992 and until 23 October 1997, paragraph 69 and the heading preceding it read as follows:“Paragraph 369. Belgiumreserves in principle the right to apply the provisions of its internal law for the purpose of taxing the profits of Belgian permanent establishments of companies resident in countries with which it undertakes negotiations. However, whenever such an attitude is warranted by the general treatment accorded in such countries to permanent establishments of companies resident in Belgium, Belgium will agree to tax these profits at the normal rate applicable to Belgian companies. Belgium also reserves the right to levy, as a minimum tax, its movable property prepayment (précompte mobilier) on dividends received by Belgian permanent establishments of non-resident companies.”

Paragraph 69 as it read after 23 July 1992 corresponded to paragraph 64 of the 1977 Model Convention. On 23 July 1992 paragraph 64 of the 1977 Model Convention was amended and renumbered as paragraph 69 and the heading preceding paragraph 64 was moved with it and amended by replacing “Paragraph 4” with “Paragraph 3” 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 64 and the heading preceding it read as follows:“Paragraph 464. Belgiumreserves the right to apply the provisions of its internal law for the purpose of taxing the profits of Belgian permanent establishments of companies and associations resident in countries with which it undertakes negotiations, whenever such an attitude is warranted by the general treatment accorded in such countries to permanent establishments of companies and associations resident in Belgium (paragraph 4).”

Paragraph 64 and the preceding heading were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 70Corresponds to paragraph 52 as it read before 17 July 2008. On that date paragraph 70 was amended and renumbered as paragraph 91 (see history of paragraph 91) and paragraph 52 was renumbered as paragraph 70 and amended, by amending the suggested provision and adding the final sentence, by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 October 1997 and until 17 July 2008, paragraph 52 read as follows:“52. There is agreement that double taxation arises in these situations and that some method of relief should be found. The majority of member countries are able to grant credit in these cases on the basis of their domestic law or under paragraph 3. States that cannot give credit in such a way or that wish to clarify the situation may wish to supplement the provision in their convention with the Contracting State in which the enterprise is resident by wording that allows the State in which the permanent establishment is situated to credit the tax liability in the State in which the income originates to an amount that does not exceed the amount that resident enterprises in the Contracting State in which the permanent establishment is situated can claim on the basis of the Contracting State’s convention with the third State. If the tax that cannot be recovered under the convention between the third State and the State of residence of the enterprise which has a permanent establishment in the other Contracting State is lower than that under the convention between the third State and the Contracting State in which the permanent establishment is situated, then only the lower tax collected in the third State shall be credited. This result would be achieved by adding the following words after the first sentence of paragraph 3.“When a permanent establishment in a Contracting State of an enterprise of the other Contracting State receives dividends, interest or royalties from a third State and the right or the asset in respect of which the dividends, interest or royalties are paid is effectively connected with that permanent establishment, the first-mentioned State shall grant a tax credit in respect of the tax paid in the third State on the dividends, interest or royalties, as the case may be, by applying the rate of tax provided in the convention with respect to taxes on income and capital between the State of which the enterprise is a resident and the third State. However, the amount of the credit shall not exceed the amount that an enterprise that is a resident of the first-mentioned State can claim under that State’s convention on income and capital with the third State.””

Paragraph 52 was amended on 23 October 1997, by replacing the suggested provision included at the end of the paragraph, by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 23 July 1992 and until 23 October 1997, the suggested provision of paragraph 52 read as follows:“When a permanent establishment in a Contracting State of an enterprise of the other Contracting State receives dividends, interest or royalties from a third State and the right or the asset in respect of which the dividends, interest or royalties are paid is effectively connected with that permanent establishment, the first-mentioned State shall grant a tax credit in respect of the tax paid in the third State on the dividends, interest or royalties, as the case may be, but the amount of such credit shall not exceed the amount calculated by applying the appropriate rate provided for under the convention with respect to taxes on income and on capital between the Contracting State of which the enterprise is a resident and the third.”

Paragraph 52 of the 1977 Model Convention was replaced on 23 July 1992 when it was amended and renumbered as paragraph 50 (see history of paragraph 68) and new paragraph 52 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 60 of another report entitled “Triangular Cases” (adopted by the OECD Council on 23 July 1992).

Paragraph 71Corresponds to paragraph 53 as it read before 17 July 2008 when it was deleted and paragraph 53 was renumbered as paragraph 71 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 53 of the 1977 Model Convention was replaced on 23 July 1992 when it was deleted and new paragraph 53 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 60 of another report entitled “Triangular Cases” (adopted by the OECD Council on 23 July 1992). In the 1977 Model Convention and until 23 July 1992, paragraph 53 read as follows:“53. It should, however, be pointed out that difficulties may arise as to the amount of the credit to be allowed, if permanent establishments in State A benefit from the convention which State B has concluded with State C. Such amount may be either the amount of tax effectively collected by State C or the amount of tax which State C may collect by virtue either of its convention with State A or its convention with State B. Moreover, the question arises whether such credit is not given twice,i.e.once in State A, where the permanent establishment is situated and again in State B, the State of residence. It is for Contracting States to settle such problems, if necessary, in their bilateral negotiations.”

Paragraph 53 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 71 as it read after 23 July 1992 was deleted on 31 March 1994 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 31 March 1994, paragraph 71 read as follows:“71. Greeceaccepts the provisions of paragraph 4 but wishes to reserve the possibility of not applying the provisions of Articles 11 and 12 where the debt-claim in respect of which the interest is paid, and the property or the right giving rise to royalties, were created or assigned mainly for the purpose of taking advantage of Articles 11 and 12 respectively and not forbona fidecommercial reasons.”

Paragraph 71 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 72Amended on 15 July 2014, by replacing the word “ascribable” with “attributed”, by the Report entitled “The 2014 Update to the Model Tax Convention”, adopted by the Council of the OECD on 15 July 2014. After 17 July 2008 and until 15 July 2014, paragraph 72 read as follows:“72. In addition to the typical triangular case considered here, other triangular cases arise, particularly that in which the State of the enterprise is also the State from which the income ascribable to the permanent establishment in the other State originates (see also paragraph 5 of the Commentary on Article 21). States can settle these matters in bilateral negotiations.”

Paragraph 72 as it read before 17 July 2008 corresponded to paragraph 54. Paragraph 72 was renumbered as paragraph 92 (see history of paragraph 92), the heading preceding paragraph 72 was moved with it and paragraph 54 was renumbered as paragraph 72 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 54 of the 1977 Model Convention was replaced on 23 July 1992 when it was deleted, the heading preceding paragraph 54 was moved immediately before paragraph 51 and a new paragraph 54 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 60 of another report entitled “Triangular Cases” (adopted by the OECD Council on 23 July 1992). In the 1977 Model Convention and until 23 July 1992, paragraph 54 read as follows:“54. While an enterprise of a State (A) can normally claim, in respect of the permanent establishment which it possesses in another State (B), the benefit of the provisions of the convention between those two States A and B, it nevertheless cannot, should such permanent establishment derive income from a third State (C), invoke the provisions of the convention between States B and C for the benefit of such permanent establishment since it, the enterprise, is in fact resident of neither of those two States (see Article 1). This is the consequence of the well-known principle of the relative effect of treaties, which means that they have effect only as between the Contracting States.”

Paragraph 54 and the preceding heading were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 73Corresponds to paragraph 55 as it read before 17 July 2008. On that date paragraph 55 was renumbered as paragraph 73 and the heading preceding paragraph 55 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 55 as it read after 23 July 1992 corresponded to paragraph 56 of the 1977 Model Convention. On 23 July 1992 paragraph 55 of the 1977 Model Convention was deleted, paragraph 56 was renumbered as paragraph 55, the heading preceding paragraph 56 was moved with it and amended by replacing “Paragraph 5” with “Paragraph 4”, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 56 was added and the preceding heading was moved from immediately before paragraph 18 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 55 of the 1977 Model Convention was deleted on 23 July 1992 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). In the 1977 Model Convention and until 23 July 1992, paragraph 55 it read as follows:“55. Nor could such an enterprise invoke for this purpose a most-favoured-nation clause, however general its terms, included in a treaty or agreement concluded between States A and B. In fact, it has always been accepted that such a clause did not apply in the case of double taxation conventions because these are essentially based on the principle of reciprocity. It should, however, be noted that some States have made provision in their double taxation conventions enabling the provisions of the latter to be applied, “in special cases”, to permanent establishments of enterprises of a third State.”

Paragraph 55 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 74Corresponds to paragraph 56 as it read on 17 July 2008 when it was amended and renumbered as paragraph 74 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 56 read as follows:“56. Paragraph 4 does not prohibit the country of the borrower from treating interest as a dividend under its domestic rules on thin capitalisation insofar as these are compatible with paragraph 1 of Article 9 or paragraph 6 of Article 11. However, if such treatment results from rules which are not compatible with the said Articles and which only apply to non-resident creditors (to the exclusion of resident creditors), then such treatment is prohibited by paragraph 4.”

Paragraph 56 of the 1977 Model Convention was replaced on 23 July 1992 when it was renumbered as paragraph 55 (see history of paragraph 73), the heading preceding paragraph 56 was moved with it and amended and a new paragraph 56 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of subparagraph 66 a) of a previous report entitled “Thin Capitalisation” (adopted by the OECD Council on 26 November 1986).

Paragraph 75Added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 76Corresponds to paragraph 57 of the 1977 Model Convention as it read until 17 July 2008. On that date paragraph 57 was renumbered as paragraph 76 and the heading preceding paragraph 57 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

The heading preceding paragraph 57 of the 1977 Model Convention was amended on 23 July 1992, by replacing “Paragraph 6” with “paragraph 5” 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, the heading preceding paragraph 57 read as follows:“Paragraph 6”

Paragraph 57 of the 1977 Model Convention corresponded to paragraph 18 of the 1963 Draft Convention, adopted by the OECD Council on 30 July 1963. Paragraph 18 of the 1963 Draft Convention was amended and renumbered as paragraph 57 and the heading preceding paragraph 19 was moved immediately before paragraph 57 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 18 read as follows:“18. Paragraph 5 forbids a State to give different treatment to two enterprises residing on its territory, the capital of one of which is wholly or partly owned or controller, directly or indirectly, by one or more residents of the other Contracting State. This provision, and the discrimination which it puts an end to, relates to the taxation only of enterprises and not of the persons owning or controlling their capital. Its object therefore is to ensure equal treatment for taxpayers residing in the same State, and not to subject foreign capital, in the hands of the partners or shareholders, to identical treatment to that applied to domestic capital. Paragraph 5 has no connection with nationality as defined in paragraph 2 and in no way does it purport to introduce into the Article a new concept of “nationality of capital”.”

Paragraph 77Added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 78Added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 79Added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 80Corresponds to paragraph 59 as it read before 17 July 2008 when it was renumbered as paragraph 80 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 59 of the 1977 Model Convention was replaced on 23 July 1992 when it was amended and renumbered as paragraph 61 (see history of paragraph 82), the heading preceding paragraph 59 was moved with it and a new paragraph 59 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraphs 30 and 31 of a previous report entitled “Double Taxation Conventions and the Use of Base Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 81Corresponds to paragraph 60 as it read before 17 July 2008. On that date paragraph 60 was renumbered as paragraph 81 and the heading preceding paragraph 60 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 60 as it read after 23 July 1992 corresponded to paragraph 58 of the 1977 Model Convention. On 23 July 1992 paragraph 60 of the 1977 Model Convention was renumbered as paragraph 62 (see history of paragraph 83) and paragraph 58 was renumbered as paragraph 60, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, the heading preceding paragraph 58 was moved with it and amended, by replacing “Paragraph 7” with “Paragraph 6”. In the 1977 Model Convention and until 23 July 1992, the heading preceding paragraph 58 read as follows:“Paragraph 7”

Paragraph 58 of the 1977 Model Convention corresponded to paragraph 19 of the 1963 Draft Convention, adopted by the OECD Council on 30 July 1963. Paragraph 19 of the 1963 Draft Convention was amended and renumbered as paragraph 58 and the preceding heading was added 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 19 read as follows:“19. This paragraph states that the word “taxation” used in the preceding paragraphs of the Article means taxes of every kind and description levied by, or on behalf of the State, its political subdivisions or local authorities. It does not call for any special comment.”

Paragraph 82Deleted 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 17 July 2008 and until 15 July 2014, paragraph 82 read as follows:“82. The interpretation given in paragraphs 57 and 58 above is not endorsed by Germany, the tax laws of which require the application of a minimum rate on exclusively inbound sources with respect to non-residents; the minimum rate is close to the lower end of the progressive tax scale.”

Paragraph 82 as it read after 17 July 2008 corresponded to paragraph 61. On 17 July 2008 paragraph 61 was amended, by replacing the cross-references to paragraphs “38 and 39” with “57 and 58”, and renumbered as paragraph 82 and the heading preceding paragraph 61 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 31 March 1994 and until 17 July 2008, paragraph 61 read as follows:“61. The interpretation given in paragraphs 38 and 39 above is not endorsed by Germany, the tax laws of which require the application of a minimum rate on exclusively inbound sources with respect to non-residents; the minimum rate is close to the lower end of the progressive tax scale.”

Paragraph 61 was amended on 31 March 1994 by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. After 23 July 1992 and until 31 March 1994, paragraph 61 read as follows:“61. The interpretation given in paragraphs 38 and 39 above is not endorsed byGermany, the tax laws of which require the application of a minimum rate with respect to non-residents. Under German tax laws, the profits of a permanent establishment of an enterprise operated in Germany by a non-resident individual are charged income tax at a minimum rate of 25 per cent. On the other hand, the German tax laws restrict the application of higher rates by strictly limiting the basis for determining the rate applicable to profits derived from German sources — thus excluding any profits derived by those parts of the enterprise which are situated abroad. Moreover, since the minimum rate of 25 per cent is close to the lower end of the progressive tax scale which ranges from 22 per cent to 56 per cent, Germany is of the opinion that the application of the minimum rate of 25 per cent does not violate the provisions of paragraph 3.”

Paragraph 61 as it read after 23 July 1992 corresponded to paragraph 59 of the 1977 Model Convention. On 23 July 1992, paragraph 61 of the 1977 Model Convention was renumbered as paragraph 64 (see history of paragraph 85), the heading preceding paragraph 61 was moved with it, paragraph 59 was renumbered as paragraph 61 and amended, by replacing the references therein to paragraphs 40 and 41 and to paragraph 4 of the Article by references to paragraphs 38 and 39 and to paragraph 3 of the Article respectively, and the heading preceding paragraph 59 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 59 read as follows:“59. The interpretation given in paragraphs 40 and 41 above is not endorsed byGermany, the tax laws of which require the application of a minimum rate with respect to non-residents. Under German tax laws, the profits of a permanent establishment of an enterprise operated in Germany by a non-resident individual are charged income tax at a minimum rate of 25 per cent. On the other hand, the German tax laws restrict the application of higher rates by strictly limiting the basis for determining the rate applicable to profits derived from German sources — thus excluding any profits derived by those parts of the enterprise which are situated abroad. Moreover, since the minimum rate of 25 per cent is close to the lower end of the progressive tax scale which ranges from 22 per cent to 56 per cent, Germany is of the opinion that the application of the minimum rate of 25 per cent does not violate the provisions of paragraph 4.”

Paragraph 59 and the preceding heading were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 83Corresponds to paragraph 62 as it read before 17 July 2008 when it was amended and renumbered as paragraph 83 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 62 as it read after 23 July 1992 corresponded to paragraph 60 of the 1977 Model Convention. On 23 July 1992 paragraph 62 of the 1977 Model Convention was amended and renumbered as paragraph 66 (see history of paragraph 88), the heading preceding paragraph 62 was moved with it and paragraph 60 was renumbered as paragraph 62 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 60 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 84Corresponds to paragraph 63 as it read before 17 July 2008. On that date paragraph 63 was amended, by replacing the cross-reference to “paragraph 53” with a cross-reference to “paragraph 71”, and renumbered as paragraph 84 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 63 read as follows:“63. With respect to paragraph 53, theNetherlandsacknowledges that States may wish to include in their bilateral conventions a provision to assure that the benefits of the Convention are denied in “triangular cases” which may be regarded as abusive. In drafting provisions like this, however, the starting point should always be that the benefits of the Convention can be claimed unless the situation is regarded to be abusive. Further the Netherlands would like to express the opinion that the notion “normally taxed” is too ambiguous to serve as a decisive landmark in determining whether a situation is abusive or not.”

Paragraph 63 of the 1977 Model Convention was replaced on 23 July 1992 when it was renumbered as paragraph 67 (see history of paragraph 89) and a new paragraph 63 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 85Corresponds to paragraph 64 as it read before 17 July 2008. On that date paragraph 64 was amended, by deleting Australia from the list of countries making the observation, renumbered as paragraph 85 and the heading preceding paragraph 64 was moved with it, by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 64 read as follows:“64. Australia,CanadaandNew Zealandreserve their positions on this Article.”

Paragraph 64 as it read after 23 July 1992 corresponded to paragraph 61 of the 1977 Model Convention. Paragraph 64 of the 1977 Model Convention was amended and renumbered as paragraph 69 (see history of paragraph 69), and the heading preceding paragraph 64 was moved with it and amended by replacing “Paragraph 4” with “Paragraph 3”, paragraph 61 was renumbered as paragraph 64 and the heading preceding paragraph 61 was moved with it by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 61 of the 1977 Model Convention corresponded to paragraph 20 of the 1963 Draft Convention. Paragraph 20 of the 1963 Draft Convention was amended and renumbered as paragraph 61 and the preceding heading 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 20 read as follows:“20. Canadareserves its position on this Article.”

Paragraph 86Added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 87Corresponds to paragraph 65 as it read before 17 July 2008 when it was renumbered as paragraph 87 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 65 of the 1977 Model Convention was replaced on 23 July 1992 when it was deleted and a new paragraph 65 was added 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 65 read as follows:“65. Japanreserves the right not to extend to the permanent establishments of non-residents the benefit of tax incentive measures introduced for national policy objectives.”

Paragraph 65 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 88Corresponds to paragraph 66 as it read before 17 July 2008. On that date paragraph 66 was renumbered as paragraph 88 and the heading preceding paragraph 66 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 66 was amended 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. After 23 July 1992 and until 21 September 1995, paragraph 66 read as follows:“66. Francewishes to reserve the possibility of applying the provisions of paragraph 1 only to individuals, in view of the French case law and of the fact that paragraphs 3, 4 and 5 already provide companies with wide protection against discrimination. It also wishes to reserve the possibility of granting only to French nationals the exemption, provided for in its domestic laws, of gains from the alienation of immovable property which constitutes the residence in France of French nationals who are domiciled abroad.”

Paragraph 66 as it read after 23 July 1992 corresponded to paragraph 62 of the 1977 Model Convention. On 23 July 1992 paragraph 66 of the 1977 Model Convention was amended and renumbered as paragraph 70 (see history of paragraph 91), the heading preceding paragraph 66 was moved with it and amended, paragraph 62 was amended and renumbered as paragraph 66 and the heading preceding paragraph 62 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 62 read as follows:“62. Franceaccepts the provisions of paragraph 1 but wishes to reserve the possibility of granting only to French nationals the exemption, provided for in its domestic laws, of gains from the alienation of immovable property which constitutes, whether in whole or in part, the residence in France of French nationals who are domiciled abroad.”

Paragraph 62 and the preceding heading were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 89Amended on 22 July 2010, by adding Chile as a country 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 17 July 2008 and until 22 July 2010, paragraph 89 read as follows:“89. TheUnited Kingdomreserves its position on the second sentence of paragraph 1.”

Paragraph 89 as it read after 17 July 2008 corresponded to paragraph 67. On 17 July 2008, paragraph 67 was renumbered as paragraph 89 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 67 as it read after 23 July 1992 corresponded to paragraph 63 of the 1977 Model Convention. On 23 July 1992 paragraph 63 of the 1977 Model Convention was renumbered as paragraph 67 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 63 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 90Amended on 15 July 2014, by adding Estonia to the list of countries making the reservation, by the Report entitled “The 2014 Update to the Model Tax Convention”, adopted by the Council of the OECD on 15 July 2014. After 22 July 2010 and until 15 July 2014, paragraph 90 read as follows:“90. ChileandSwitzerlandreserve the right not to insert paragraph 2 in their conventions.”

Paragraph 90 was previously amended on 22 July 2010, by adding Chile as a country 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 17 July 2008 and until 22 July 2010, paragraph 90 read as follows:“90. Switzerlandreserves the right not to insert paragraph 2 in its conventions.”

Paragraph 90 as it read after 17 July 2008 corresponded to paragraph 68. On 17 July 2008 paragraph 68 was renumbered as paragraph 90 and the heading preceding paragraph 68 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 68 and the heading preceding it were added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 90.1Added together with the preceding heading on 22 July 2010 by the report entitled the “2010 Update to the Model Tax Convention” adopted by the OECD Council on 22 July 2010.

Paragraph 91Corresponds to paragraph 70 as it read before 17 July 2008. On that date paragraph 70 was amended and renumbered as paragraph 91 and the heading preceding paragraph 70 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008). After 23 July 1992 and until 17 July 2008, paragraph 70 read as follows:“70. Franceaccepts the provisions of paragraph 4 but wishes to reserve the possibility of applying the provisions in its domestic laws relative to the limitation to the deduction of interest paid by a French company to a foreign parent company.”

Paragraph 70 as it read after 23 July 1992 corresponded to paragraph 66 of the 1977 Model Convention. On 23 July 1992 paragraph 66 of the 1977 Model Convention was amended by replacing the reference therein to paragraph 5 by a reference to paragraph 4, renumbered paragraph 70, and the heading preceding paragraph 66 was moved with it and amended, by replacing “Paragraph 5” with “Paragraph 4”, 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 66 and the heading preceding it read as follows:“Paragraph 566. Franceaccepts the provisions of paragraph 5 but wishes to reserve the possibility of applying the provisions in its domestic laws relative to the limitation to the deduction of interest paid by a French company to a foreign parent company.”

Paragraph 66 and the preceding heading were added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 92Amended on 15 July 2014, by deleting Ireland from the list of countries making the reservation, by the Report entitled “The 2014 Update to the Model Tax Convention”, adopted by the Council of the OECD on 15 July 2014. After 22 July 2010 and until 15 July 2014, paragraph 92 read as follows:“92. Chile,Greece,Irelandand theUnited Kingdomreserve the right to restrict the application of the Article to the taxes covered by the Convention.”

Paragraph 92 was previously amended on 22 July 2010, by changing the list of countries making the reservation by adding Chile and deleting Luxembourg, by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 17 July 2008 and until 22 July 2010, paragraph 92 read as follows:“92. Greece,Ireland,Luxembourgand theUnited Kingdomreserve the right to restrict the application of the Article to the taxes covered by the Convention.”

Paragraph 92 as it read before 17 July 2008 corresponded to paragraph 72. On 17 July 2008 paragraph 72 was renumbered as paragraph 92 and the heading preceding paragraph 72 was moved with it by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008, on the basis of another report entitled “The Application and Interpretation of Article 24 (Non-Discrimination)” (adopted by the OECD Committee on Fiscal Affairs on 20 June 2008).

Paragraph 72 was amended on 28 January 2003, by adding Luxembourg to the list of countries making the reservation, 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 72 read as follows:“72. Greece,Irelandand theUnited Kingdomreserve the right to restrict the scope of the Article to the taxes covered by the Convention.”

Paragraph 72 was previously amended on 21 September 1995 by adding Greece and Ireland to the list of countries making the reservation, 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 72 read as follows:“72. TheUnited Kingdomreserves the right to restrict the scope of the Article to the taxes covered by the Convention.”

Paragraph 72 and the heading preceding it were was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.