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Amsterdam Appeal Court: what are the limits to using post-dated OECD commentaries in interpreting a double tax treaty?

The Amsterdam Appeal Court decision which addresses this question deals with the double tax treaty between France and the Netherlands of 16 March 1973 (the French-Dutch Treaty).

The case involved the acquisition of a Dutch company by a French company through a tender offer. Following the completion of the tender offer, the French company allocated the shares in the Dutch company that it had acquired to a Dutch permanent establishment. The French company incurred costs in connection with the issuance of shares and other equity instruments and claimed a deduction for these costs in the Dutch corporate income tax return of its Dutch permanent establishment. Under Dutch domestic law, there is clear case law that the costs involved in raising equity for the acquisition of the Dutch company constitute costs which are incurred as a result of the legal form of the French company ('orgaankosten') which cannot be allocated to the income from the shares in the Dutch company acquired and, therefore, cannot be claimed as a deduction in the Dutch permanent establishment.

The Amsterdam Appeal Court considered, among other things, whether the French-Dutch Treaty overrides Dutch tax law in this respect. The court first established that the text of the French-Dutch Treaty does not unequivocally provide that the costs should be attributed to the Dutch permanent establishment and that the Dutch official explanation to the treaty does not discuss Article 7 (Business profits) of the French-Dutch Treaty or the allocation issues associated with that provision. The court then held that both treaty partners had referred to the OECD commentary to Article 7 of the OECD model tax convention of 1963 for the interpretation of Article 7 of the French-Dutch Treaty. Because the text of Article 7 of the French-Dutch Treaty is almost identical to the text of Article 7 of the OECD model tax convention of 1963, the court held that the commentary to that model could serve as an additional means of interpretation within the meaning of Article 32 of the Vienna Convention on the laws of treaties of 23 May 1969. The court also referred to a decision of the Dutch Supreme Court in which it held that OECD Commentaries are 'of great relevance' for the interpretation of treaties that are based on the OECD model tax convention (Hoge Raad 2 September 1992, ECLI:NL:HR:1992:ZC5045, BNB 1992/379). The court analysed the OECD commentaries to Article 7, paragraph 2 of the OECD model tax convention of 1963, in particular paragraphs 12-14 thereof, and came to the conclusion that the commentaries did not support the conclusion that the costs incurred by the French company are attributable to the Dutch permanent establishment.

The court then went on to consider whether the commentary to the OECD model tax convention of 2010 could be of relevance for the purposes of interpreting Article 7 of the French-Dutch Treaty and held that these commentaries would not necessarily be 'of great relevance' because the text of the relevant treaty provision had changed. The court referred to what it called the 'limited dynamic interpretation' (as per paragraph 35 of the OECD commentary to the preamble of the Model tax convention 2010, which read in substance the same as paragraph 35 of the Introduction to the 2017 OECD commentary cited in this earlier post) and to a Dutch Supreme Court case (Hoge Raad 9 December 1998, nr. 32.709, BNB 1999/267), and held that the OECD model tax convention of 2010 changed the text of Article 7 by introducing the so-called 'authorized OECD approach'. Under this approach the methodology followed to attribute profits to a permanent establishment differed from the methodology that was prevalent under the OECD model tax convention of 1963. Therefore, the OECD commentary to the OECD model tax convention of 2010 could not be used to interpret Article 7 of the French-Dutch Treaty; doing so would be in conflict with the 'limited dynamic approach' according to the court.

The court has essentially decided that, with the changed text of article 7 of the OECD model tax convention and the commentary thereto, the OECD has crossed the line of 'being different in substance' (as referred to in the above-mentioned paragraph 35). Although admittedly the authorized OECD approach changed the methodology for the attribution of profits to a permanent establishment, it is not certain that this change was supposed to have an effect on the allocation of costs such as the ones at stake in this case.

The French taxpayer involved has lodged an appeal against the decision of the Amsterdam Appeal Court with the Dutch Supreme Court. The way in which the Amsterdam Appeal Court has set out its reasoning, including specific references to prior Dutch Supreme Court decisions, sets the stage for a principled decision by the Dutch Supreme Court on how to deal, in this time and age where we have seen an increase of the role of the OECD, with changes to provisions of the OECD model tax convention and OECD commentaries that were published after a treaty between the Netherlands and a third state has been concluded.


mvanderweijden, debrauw, oecd tax, oecd commentaries, double taxation treaty, double tax treaties, dutch tax