This question - which is of utmost importance as the OECD commentaries provide key insights to tax authorities, taxpayers and judges, on how a double tax treaty shall be applied - is highly debated among the OECD member countries.
Reasserting a recommendation of the OECD Council dated 23 October 1997 (C(97)195/FINAL), the OECD commentary expressly states that “Needless to say, amendments to the Articles of the Model Convention and changes to the Commentaries that are a direct result of these amendments are not relevant to the interpretation or application of previously concluded conventions where the provisions of those conventions are different in substance from the amended Articles...However, other changes or additions to the Commentaries are normally applicable to the interpretation and application of conventions concluded before their adoption of these changes, because they reflect the consensus of the OECD member countries as to the proper interpretation of existing provisions and their application to specific situations” (paragraph 35 of the Introduction to the 2017 version).
This non-binding recommendation is, however, not followed by all OECD member countries, as illustrated by examples from Germany, Spain, the UK and Italy:
- The German Federal Tax Court does not take into account OECD commentaries published after the adoption of the relevant double tax treaty.
- The Spanish Supreme Court has traditionally adopted an ambivalent approach on the subject of “dynamic” vs. “static” interpretation of tax treaties, but in a recent 2020 ruling concluded that that OECD commentaries “cannot be applied retroactively”.
- According to the UK Supreme Court in Fowler v HMRC (previously covered on this blog), OECD commentaries which post-date a particular double tax treaty should be given “such persuasive force as aids to interpretation as the cogency of their reasoning deserves”.
- The Italian Supreme Court refuses to give decisive importance to these commentaries, but agrees to consider them as a comforting element of a prima facie interpretation of the treaty.
France and The Netherlands contribute to this list of varied positions, as illustrated by two important recent decisions (which we will discuss in more detail in two follow-up posts – so, subscribe to be alerted).
The French Administrative Supreme Court referred to post-dated OECD commentaries when interpreting the French-Irish double tax treaty in a decision dated 11 December 2020, confirming that post-dated OECD commentaries can be given a persuasive or comforting value and then be used to clarify the meaning of an earlier treaty provision, but not to extend its scope. The practical result is that it will need to be considered on a case-by-case basis whether subsequent OECD commentaries merely clarify a treaty provision or modify it – which is likely to create some uncertainty for taxpayers.
The Amsterdam Appeal Court, in a decision dated 22 December 2020 in the respect of the French-Dutch double-tax treaty, considered that the relevant post-dated OECD commentary could not be used to interpret the business profits article, given that intervening amendments to the corresponding article in the OECD’s model treaty had made it different in substance, rending the commentary on the amended article irrelevant in accordance with the above-cited paragraph 35 and prior Dutch case law. It is hoped that, when the case comes before the Dutch Supreme Court, we will receive a well-argued, principled decision which provides further clarity.
As the OECD's role has expanded from setting tax policy in the context of double tax treaties to also taking the lead in the implementation thereof, it is likely that the question of how much weight should be given to the OECD commentaries will become more important in the future. Subsequent OECD commentaries may definitively be seen as a useful interpretation tool given that they allow a dynamic interpretation of the relevant treaty – which is clearly crucial in an ever-changing world. However, as evidenced by the recent French and Dutch decisions, judges need to keep in mind that a double tax treaty is, in the first place, an agreement between two States and that their role is to apply the treaty in a manner consistent with the initial intentions of both contracting parties, and this should preclude an automatic and unlimited use of subsequent OECD commentaries.
...judges need to keep in mind that a double tax treaty is, in the first place, an agreement between two States and that their role is to apply the treaty in a manner consistent with the initial intentions of both contracting parties, and this should preclude an automatic and unlimited use of subsequent OECD commentaries.