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Table of Contents
Cover
Title
Copyright
Acknowledgements
Foreword
Part One: Introduction - Definition of Interest and Policy Perspectives
Chapter 1: Definition of Interest in the Context of Income from Capital: A Comparative Analysis
1.1. Introduction
1.2. What is interest?
1.3. Obligation to pay
1.4. Substance vs form
1.5. Statutory definitions of interest
Chapter 2: A Tax Policy Analysis of the Inclusion of Cross-Border Interest in Income
2.1. Introduction
2.2. Major issues with respect to the taxation of cross-border interest income
2.2.1. The meaning of "interest"
2.2.2. Characterization issues
2.2.2.1. Introduction
2.2.2.2. Hybrid financial instruments
2.2.3. Timing of the inclusion in income of cross-border interest
2.2.3.1. Sale of rights to interest
2.2.3.2. Sale of obligations with accrued interest
2.2.4. Cross-border interest derived from non-arm's length parties
2.2.4.1. Introduction
2.2.4.2. Transfer pricing
2.2.4.3. Other issues with respect to interest income derived from non-arm's length parties: Intercompany loans
2.2.4.3.1. Intercompany interest-free or low-interest loans
2.2.4.3.1.1. Intercompany loan by a subsidiary to its non-resident parent corporation
2.2.4.3.1.2. Intercompany loan by a parent to its subsidiary corporation
2.2.4.3.2. Intercompany loans with excessive interest
2.2.4.3.2.1. Intercompany loan by a subsidiary to its parent corporation
2.2.4.3.2.2. Intercompany loan by a parent to its subsidiary corporation
2.3. The taxation of cross-border interest derived by residents
2.3.1. Introduction
2.3.2. Source rules
2.3.2.1. Interest derived by residents from non-residents
2.3.2.2. Interest derived by non-residents from residents
2.3.3. The elimination of double taxation
2.3.4. CFC rules.
2.4. The taxation of non-residents on cross-border interest income
2.4.1. Introduction
2.4.2. Taxation of interest income derived by non-residents in the course of a non-resident's business carried on in another country
2.4.3. Taxation of non-business interest income derived by non-residents
2.4.3.1. Introduction
2.4.3.2. Issues in designing withholding taxes on cross-border interest
2.4.3.2.1. Introduction
2.4.3.2.2. Payments subject to withholding tax
2.4.3.2.3. Payers of interest subject to an obligation to withhold
2.4.3.2.4. Withholding tax rates
2.4.3.2.5. Exemptions from withholding tax
2.4.3.2.6. Anti-avoidance rules
Part Two: EU Law
Chapter 3: Open Issues in the Application of the EU Interest-Royalties Directive
3.1. Introduction and overview
3.2. Current issues in the application of the EU Interest-Royalties Directive
3.2.1. Autonomous interpretation of Union law and OECD guidance
3.2.2. The concept of "beneficial ownership" in the Interest-Royalties Directive
3.2.3. "Subject-to-tax" and the definition of a "company of a Member State"
3.2.4. Hybrid financing: "Interest", "distribution of profits", or neither?
3.3. Outlook: EU tax policy and the Interest-Royalties Directive
Part Three: Tax Treaties
Chapter 4: The Historical Evolution of Article 11 OECD Model Convention
4.1. Introduction
4.2. The work of the League of Nations
4.2.1. The four economists' report (1923)
4.2.2. The work of the technical experts (1922-1925) and the 1927-1928 models
4.2.3. The Mexico (1943) and London (1946) models
4.3. The work of the OEEC
4.4. The 1977 changes made to article 11
4.5. Changes made to article 11 after 1977
4.6. Conclusion
Chapter 5: Definition of Interest under Article 11 of the OECD Model Convention and Possible Overlap with Other Distributive Rules.
5.1. Overview
5.2. Background to the definition
5.3. Items included in the definition of interest
5.4. Items excluded from the definition of interest
5.5. Interaction with article 10
5.6. Interaction with article 6
5.7. Interaction with article 7
5.8. Interaction with article 9
5.9. Interaction with article 13
Chapter 6: Double Source
6.1. Introduction
6.2. Evolution of article 11(5)
6.3. Commentary on Article 11(5)
6.4. To what extent is article 11(5) adopted in tax treaties?
6.5. Domestic law approaches to source
6.5.1. The League of Nations - No settled approach to the source of interest
6.5.2. Interactions between the development of source doctrine in Australia, Hong Kong, New Zealand, South Africa and the United Kingdom
6.5.3. South Africa
6.5.4. Australia
6.5.5. Hong Kong (Malaysia, Qatar and Singapore, etc.)
6.5.6. New Zealand
6.5.7. Other jurisdictions considered in the Country Reports
6.6. Themes
Chapter 7: Departures from Article 11 of the OECD Model Convention
7.1. Introduction
7.2. Allocation of taxing rights between residence state and source state
7.3. Article 11(1) OECD Model: Departures in tax treaty practice
7.4. Article 11(2) OECD Model: Departures in the allocation of taxing rights to the source state
7.4.1. Introduction and scope of paragraph 2
7.4.2. Source tax limitation: Reservations and positions expressed by OECD member countries and non-OECD member countries
7.4.3. Use of the alternative provisions of the OECD and UN Models
7.4.4. Other departures found in treaties and the most favoured-nation clauses
7.5. Article 11(3) OECD Model: Inconsistent definitions of interest in treaty practice
7.5.1. Introduction and countries' reservations
7.5.2. Reference to domestic law
7.5.3. Relationship with other distributive rules.
7.5.4. Specific inclusions and exclusions
7.5.5. Penalty charges
7.6. Article 11(4) OECD Model: The PE throwback rule in actual treaties and other deviating provisions dealing with PEs
7.6.1. Introduction and frequent minor deviations
7.6.2. Limited force of attraction and PE exception rule
7.6.3. Interest paid to PEs in a third state
7.7. Article 11(5) OECD Model: Deviations concerning the source of interest
7.7.1. Introduction and more common deviations
7.7.2. Concepts of "resident" and "borne by" in article 11
7.7.3. More radical departures: Different or additional sourcing nexuses and branch level interest tax
7.8. Article 11(6) OECD Model: Different country practices with respect to non-arm's length interest
Chapter 8: Interest and Non-Discrimination under the OECD Model Convention
8.1. Introduction
8.2. The meaning of "interest" in article 24 OECD Model Convention
8.2.1. Defining "interest" for purposes of article 24 OECD Model Convention
8.2.1.1. Lack of treaty definition
8.2.1.2. Autonomous or nationally derived definition
8.2.1.3. The lack of importance of a sharp definition
8.2.2. Borderline cases
8.2.2.1. Notional interest payments
8.2.2.2. Penalty interest
8.2.2.3. Interest recharacterized as dividend
8.3. Discrimination of interest under article 24(4) OECD Model Convention
8.3.1. The core of the rule
8.3.2. Comparability analysis under article 24(4) OECD Model Convention
8.3.3. Relationship to article 9(1) and 11(6) OECD Model Convention
8.3.4. Interest payments to shareholders and the relationship between article 24(4) and (5)
8.3.5. A special case: Interest deduction limitations
8.4. Discrimination of interest payments under article 24(3) OECD Model Convention
8.4.1. The core of the rule.
8.4.2. Relationship between article 24(4) and 24(3) OECD Model Convention
8.4.3. Deductibility discrimination falling under article 24(3) OECD Model Convention
8.4.4. Other discrimination falling under article 24(3) OECD Model Convention
8.5. Conclusion
Chapter 9: Conduit Companies Involving Interest Payments under Double Taxation Conventions: A Beneficial Ownership or a Principal Purpose Test Problem?
9.1. Introduction, opening considerations and scope of the discussion
9.2. Blurring between beneficial ownership and abuse in the pre-BEPS era - Selected considerations Indofood
9.2.1. The UK case and HMRC's guidance
9.2.1.1. Facts and findings in Indofood
9.2.1.2. UK HMRC's guidance
9.2.2. The conduit arrangement clause model
9.3. The post-BEPS era: The continuing tension between beneficial ownership and the PPT
9.3.1. The approach to conduit companies under the PPT and the 2001 UK-US DTC exchanges of notes as inspirational source
9.3.2. The problem of the articulation between beneficial ownership and the PPT
9.3.2.1. The easy question: The order of application
9.3.2.2. The more difficult question: Restrictive or broad meaning of beneficial ownership?
9.3.2.2.1. Arguments in favour of a restrictive meaning of beneficial ownership
9.3.2.2.2. Arguments in favour of a broad meaning of beneficial ownership
9.3.2.3. Can a broad meaning of beneficial ownership "neutralize" the PPT policy?
9.4. Conclusions and proposed solutions
Part Four: National Reports
Chapter 10: Australia
10.1. General law meaning of "interest" and definition of terms used by article 11(3) of the OECD Model Convention
10.1.1. The meaning of "interest" under general law
10.1.2. The meaning of the terms included in the treaty definition of "interest" under general law
10.1.2.1. Debenture
10.1.2.2. Bond.
10.1.2.3. Securities and Government Securities.
Title
Copyright
Acknowledgements
Foreword
Part One: Introduction - Definition of Interest and Policy Perspectives
Chapter 1: Definition of Interest in the Context of Income from Capital: A Comparative Analysis
1.1. Introduction
1.2. What is interest?
1.3. Obligation to pay
1.4. Substance vs form
1.5. Statutory definitions of interest
Chapter 2: A Tax Policy Analysis of the Inclusion of Cross-Border Interest in Income
2.1. Introduction
2.2. Major issues with respect to the taxation of cross-border interest income
2.2.1. The meaning of "interest"
2.2.2. Characterization issues
2.2.2.1. Introduction
2.2.2.2. Hybrid financial instruments
2.2.3. Timing of the inclusion in income of cross-border interest
2.2.3.1. Sale of rights to interest
2.2.3.2. Sale of obligations with accrued interest
2.2.4. Cross-border interest derived from non-arm's length parties
2.2.4.1. Introduction
2.2.4.2. Transfer pricing
2.2.4.3. Other issues with respect to interest income derived from non-arm's length parties: Intercompany loans
2.2.4.3.1. Intercompany interest-free or low-interest loans
2.2.4.3.1.1. Intercompany loan by a subsidiary to its non-resident parent corporation
2.2.4.3.1.2. Intercompany loan by a parent to its subsidiary corporation
2.2.4.3.2. Intercompany loans with excessive interest
2.2.4.3.2.1. Intercompany loan by a subsidiary to its parent corporation
2.2.4.3.2.2. Intercompany loan by a parent to its subsidiary corporation
2.3. The taxation of cross-border interest derived by residents
2.3.1. Introduction
2.3.2. Source rules
2.3.2.1. Interest derived by residents from non-residents
2.3.2.2. Interest derived by non-residents from residents
2.3.3. The elimination of double taxation
2.3.4. CFC rules.
2.4. The taxation of non-residents on cross-border interest income
2.4.1. Introduction
2.4.2. Taxation of interest income derived by non-residents in the course of a non-resident's business carried on in another country
2.4.3. Taxation of non-business interest income derived by non-residents
2.4.3.1. Introduction
2.4.3.2. Issues in designing withholding taxes on cross-border interest
2.4.3.2.1. Introduction
2.4.3.2.2. Payments subject to withholding tax
2.4.3.2.3. Payers of interest subject to an obligation to withhold
2.4.3.2.4. Withholding tax rates
2.4.3.2.5. Exemptions from withholding tax
2.4.3.2.6. Anti-avoidance rules
Part Two: EU Law
Chapter 3: Open Issues in the Application of the EU Interest-Royalties Directive
3.1. Introduction and overview
3.2. Current issues in the application of the EU Interest-Royalties Directive
3.2.1. Autonomous interpretation of Union law and OECD guidance
3.2.2. The concept of "beneficial ownership" in the Interest-Royalties Directive
3.2.3. "Subject-to-tax" and the definition of a "company of a Member State"
3.2.4. Hybrid financing: "Interest", "distribution of profits", or neither?
3.3. Outlook: EU tax policy and the Interest-Royalties Directive
Part Three: Tax Treaties
Chapter 4: The Historical Evolution of Article 11 OECD Model Convention
4.1. Introduction
4.2. The work of the League of Nations
4.2.1. The four economists' report (1923)
4.2.2. The work of the technical experts (1922-1925) and the 1927-1928 models
4.2.3. The Mexico (1943) and London (1946) models
4.3. The work of the OEEC
4.4. The 1977 changes made to article 11
4.5. Changes made to article 11 after 1977
4.6. Conclusion
Chapter 5: Definition of Interest under Article 11 of the OECD Model Convention and Possible Overlap with Other Distributive Rules.
5.1. Overview
5.2. Background to the definition
5.3. Items included in the definition of interest
5.4. Items excluded from the definition of interest
5.5. Interaction with article 10
5.6. Interaction with article 6
5.7. Interaction with article 7
5.8. Interaction with article 9
5.9. Interaction with article 13
Chapter 6: Double Source
6.1. Introduction
6.2. Evolution of article 11(5)
6.3. Commentary on Article 11(5)
6.4. To what extent is article 11(5) adopted in tax treaties?
6.5. Domestic law approaches to source
6.5.1. The League of Nations - No settled approach to the source of interest
6.5.2. Interactions between the development of source doctrine in Australia, Hong Kong, New Zealand, South Africa and the United Kingdom
6.5.3. South Africa
6.5.4. Australia
6.5.5. Hong Kong (Malaysia, Qatar and Singapore, etc.)
6.5.6. New Zealand
6.5.7. Other jurisdictions considered in the Country Reports
6.6. Themes
Chapter 7: Departures from Article 11 of the OECD Model Convention
7.1. Introduction
7.2. Allocation of taxing rights between residence state and source state
7.3. Article 11(1) OECD Model: Departures in tax treaty practice
7.4. Article 11(2) OECD Model: Departures in the allocation of taxing rights to the source state
7.4.1. Introduction and scope of paragraph 2
7.4.2. Source tax limitation: Reservations and positions expressed by OECD member countries and non-OECD member countries
7.4.3. Use of the alternative provisions of the OECD and UN Models
7.4.4. Other departures found in treaties and the most favoured-nation clauses
7.5. Article 11(3) OECD Model: Inconsistent definitions of interest in treaty practice
7.5.1. Introduction and countries' reservations
7.5.2. Reference to domestic law
7.5.3. Relationship with other distributive rules.
7.5.4. Specific inclusions and exclusions
7.5.5. Penalty charges
7.6. Article 11(4) OECD Model: The PE throwback rule in actual treaties and other deviating provisions dealing with PEs
7.6.1. Introduction and frequent minor deviations
7.6.2. Limited force of attraction and PE exception rule
7.6.3. Interest paid to PEs in a third state
7.7. Article 11(5) OECD Model: Deviations concerning the source of interest
7.7.1. Introduction and more common deviations
7.7.2. Concepts of "resident" and "borne by" in article 11
7.7.3. More radical departures: Different or additional sourcing nexuses and branch level interest tax
7.8. Article 11(6) OECD Model: Different country practices with respect to non-arm's length interest
Chapter 8: Interest and Non-Discrimination under the OECD Model Convention
8.1. Introduction
8.2. The meaning of "interest" in article 24 OECD Model Convention
8.2.1. Defining "interest" for purposes of article 24 OECD Model Convention
8.2.1.1. Lack of treaty definition
8.2.1.2. Autonomous or nationally derived definition
8.2.1.3. The lack of importance of a sharp definition
8.2.2. Borderline cases
8.2.2.1. Notional interest payments
8.2.2.2. Penalty interest
8.2.2.3. Interest recharacterized as dividend
8.3. Discrimination of interest under article 24(4) OECD Model Convention
8.3.1. The core of the rule
8.3.2. Comparability analysis under article 24(4) OECD Model Convention
8.3.3. Relationship to article 9(1) and 11(6) OECD Model Convention
8.3.4. Interest payments to shareholders and the relationship between article 24(4) and (5)
8.3.5. A special case: Interest deduction limitations
8.4. Discrimination of interest payments under article 24(3) OECD Model Convention
8.4.1. The core of the rule.
8.4.2. Relationship between article 24(4) and 24(3) OECD Model Convention
8.4.3. Deductibility discrimination falling under article 24(3) OECD Model Convention
8.4.4. Other discrimination falling under article 24(3) OECD Model Convention
8.5. Conclusion
Chapter 9: Conduit Companies Involving Interest Payments under Double Taxation Conventions: A Beneficial Ownership or a Principal Purpose Test Problem?
9.1. Introduction, opening considerations and scope of the discussion
9.2. Blurring between beneficial ownership and abuse in the pre-BEPS era - Selected considerations Indofood
9.2.1. The UK case and HMRC's guidance
9.2.1.1. Facts and findings in Indofood
9.2.1.2. UK HMRC's guidance
9.2.2. The conduit arrangement clause model
9.3. The post-BEPS era: The continuing tension between beneficial ownership and the PPT
9.3.1. The approach to conduit companies under the PPT and the 2001 UK-US DTC exchanges of notes as inspirational source
9.3.2. The problem of the articulation between beneficial ownership and the PPT
9.3.2.1. The easy question: The order of application
9.3.2.2. The more difficult question: Restrictive or broad meaning of beneficial ownership?
9.3.2.2.1. Arguments in favour of a restrictive meaning of beneficial ownership
9.3.2.2.2. Arguments in favour of a broad meaning of beneficial ownership
9.3.2.3. Can a broad meaning of beneficial ownership "neutralize" the PPT policy?
9.4. Conclusions and proposed solutions
Part Four: National Reports
Chapter 10: Australia
10.1. General law meaning of "interest" and definition of terms used by article 11(3) of the OECD Model Convention
10.1.1. The meaning of "interest" under general law
10.1.2. The meaning of the terms included in the treaty definition of "interest" under general law
10.1.2.1. Debenture
10.1.2.2. Bond.
10.1.2.3. Securities and Government Securities.