Memorandum of the Defendant · Hohenwarter/Metzler (eds.), Taxation of Employment Income in International Tax Law (2009). Lang, Introduction to the Law of Double Taxation Conventions

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International and European Tax Moot Court Competition 2018-2019

Memorandum of the

Defendant

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International and European Tax Moot Court Competition 2018-2019

Memorandum of the

Defendant

T

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I TABLE OF CONTENTS

I Table of Contents ...................................................................................................................................... 2

II List of Sources ........................................................................................................................................... 5

III Statement of Facts ................................................................................................................................... 16

Facts of the Case .......................................................................................................................................... 16

Entities Involved ...................................................................................................................................... 16

Economic Activities ................................................................................................................................ 18

Relevant Aspects of International Law ....................................................................................................... 21

Memberships in International Organisations ........................................................................................... 21

Tax Treaties ............................................................................................................................................. 21

Bilateral Investment Treaties ................................................................................................................... 34

Other Treaties .......................................................................................................................................... 34

Domestic Law .............................................................................................................................................. 34

Terrabrake ................................................................................................................................................ 34

Tyreland ................................................................................................................................................... 35

Crocodile Islands ..................................................................................................................................... 36

Common Domestic Law Rules .................................................................................................................... 36

IV Issues ....................................................................................................................................................... 38

V Arguments ............................................................................................................................................... 39

Interpretation of DTC-TT ............................................................................................................................ 39

Relevance of the 2017 OECD-Commentary and the 2017 UN-Commentary ......................................... 39

Interpretation of the DTC-TT .................................................................................................................. 39

The DTC-TT Is Not Applicable for Ladar .................................................................................................. 40

Ladar’s POEM Is Situated in Crocodile Island ....................................................................................... 40

Interim Conclusion .................................................................................................................................. 43

The DTC-TT Is Not Applicable Since Ladar Is Resident of Crocodile Island ........................................ 44

Ladar’s PE May Not Invoke Treaty Benefits .......................................................................................... 44

Withholding Agents May Not Invoke Treaty Benefits ............................................................................ 45


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Subsidiary Argument: Ladar Is a Resident of Terrabrake ........................................................................... 46

The Payment for the Knowledge-Transfer-Agreement Regarding the Crankshaft ..................................... 47

The Payment Constitutes Royalties According to Art.12 DTC-TT......................................................... 47

The Payment Does Not Fall Under Art.13 DTC-TT ............................................................................... 51


The Payment for the “BYC”-Database and Training of Ladar’s Employees .............................................. 54

The Payment for the “BYC”-Database .................................................................................................... 54

The Payment for the Training of Ladar’s Employees ............................................................................. 55


The Payments with Respect to the Salamander’s App ................................................................................ 61

Renolo Is Not the Beneficial Owner of the Royalties ............................................................................. 61

Abuse of the DTC-TT as RenoloApps Is the Beneficial Owner of the Royalties ................................... 62


The Payments with Respect to the Salamander’s App Are Covered by Art.12 DTC-TT ....................... 63


The Payment for the Use of the Server and the Reports .......................................................................... 66

Subsidiary Argument: The Payments Pertaining to the Salamander’s App Are to Be Regarded

Separately ................................................................................................................................................ 68


The Payment to Mr. Fixer ........................................................................................................................... 71

Art.12A DTC-TT Applies ....................................................................................................................... 71

Art.12A(3)(a) DTC-TT Does Not Apply................................................................................................. 72

The Payment to Mr. Fixer Is Not Covered by Art.12A(7) DTC-TT ....................................................... 73


Subsidiary Argument: Art.21(3) DTC-TT Applies ................................................................................. 75


The BIT-TT Is Not Applicable .................................................................................................................... 77

Taxes “Carved-Out” from the Scope of the BIT-TT ............................................................................... 77

Double Taxation Does Not Constitute Expropriation ............................................................................. 77

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VI Overall Conclusion .................................................................................................................................. 79

VII Request ................................................................................................................................................ 80

VIII Annexes ............................................................................................................................................... 81

Table 1 – Overview of the Facts .................................................................................................................. 81

Table 2 – POEM of Ladar ........................................................................................................................... 82

Table 3 – Crankshaft and “BYC”-Database ................................................................................................ 83

Table 4 – Salamander’s App and Mr. Fixer ................................................................................................ 84

Table 5 – Description of Computer Software .............................................................................................. 85

IX Table of Abbreviations ............................................................................................................................ 86

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II LIST OF SOURCES

BOOKS

De Broe, International Tax Planning and Prevention of Abuse (2008).

Doralt, Steuern im Rechtsstaat: Festschrift für Gerold Stoll zum 65. Geburtstag (1990).

Douma/Engelen, The legal status of the OECD commentaries (2008).

Du Toit, Beneficial Ownership of Royalties in Bilateral Tax Treaties (1999).

Gassner/Lang/Lechner, Aktuelle Entwicklungen im internationalen Steuerrecht – Das neue

Musterabkommen der OECD (1994).

Günther/Tüchler (eds.), Exchange of Information for Tax Purposes (2013).

Haarmann (ed.), Auslegung und Anwendung von Doppelbesteuerungsabkommen (2004).

Haccius, Ireland in International Tax Planning (2004).

Hohenwarter/Metzler (eds.), Taxation of Employment Income in International Tax Law (2009).

Lang, Introduction to the Law of Double Taxation Conventions 2nd ed. (2013).

Lang et al (eds.), The UN Model Convention and Its Relevance for the Global Tax Treaty Network

(2017).

Lang et al, The OECD-Model-Convention Update 2014 (2015).

Lang et al (eds.), Tax Treaty Case Law around the Globe 2012 (2013).

Lang et al (eds.), The Impact of the OECD and UN Model Conventions in Bilateral Tax Treaties

(2012).

Lang/Schuch/Staringer (eds.), Die Grenzen der Gestaltungsmöglichkeiten im Internationalen

Steuerrecht (2009).

6

Lang/Schuch/Staringer (eds.), Die Ansässigkeit im Recht der Doppelbesteuerungsabkommen (2008).

Lang/Pistone/Schuch/Staringer/Storck (eds.), Beneficial Ownership: Recent Trends (2013).

Li, International Taxation in China: A Contextualized Analysis (2016).

Maisto, Residence of companies under tax treaties and EC law (2009).

Moessner (ed.), Taxation of Workers in Europe (2010).

Pinto, E-Commerce and Source-Based Income Taxation (2002).

Schwarz, Schwarz on Tax Treaties (2013).

CONTRIBUTIONS IN BOOKS

Arnold, The Concept of Beneficial Ownership under Canadian Tax Treaties, In:

Lang/Pistone/Schuch/Staringer/Storck (eds.), Beneficial Ownership: Recent Trends (2013).

Avery Jones, The Binding Nature of the OECD Commentaries from the UK Point of View, In:

Douma/Engelen, The legal status of the OECD commentaries (2008).

Canete/Staringer, Missbrauchserfassung im DBA-Recht im Beneficial-Ownership-Konzepten, In:

Lang/Schuch/Staringer (eds.), Die Grenzen der Gestaltungsmöglichkeiten im Internationalen

Steuerrecht (2009).

Cooper, Australia: The Meaning of Royalty and Software License Agreement, In: Lang et al (eds.),

Tax Treaty Case Law around the Globe 2012 (2013).

Deborah, The Legal Relevance of the OECD Standard, In: Günther/Tüchler (eds.), Exchange of

Information for Tax Purposes (2013).

Duff, Beneficial Ownership: Recent Trends, In: Lang/Pistone/Schuch/Staringer/Storck (eds.),

Beneficial Ownership: Recent Trends (2013).

7

Haslinger, Der Ort der tatsächlichen Geschäftsleitung als Tie-Breaker nach Art 4 Abs 3 OECD-MA

und seine in Diskussion befindlichen Reformen, in Lang/Schuch/Staringer (eds.), Die Ansässigkeit

im Recht der Doppelbesteuerungsabkommen (2008).

Jiménez, Beneficial Ownership as a Broad Anti-Avoidance Provision: Decisions by Spanish Courts

and the OECD’s Discussion Draft, In: Lang/Pistone/Schuch/Staringer/Storck (eds.), Beneficial

Ownership: Recent Trends (2013).

Lechner, Ort der Geschäftsleitung von inländisch beherrschten ausländischen Gesellschaften, In:

Doralt, Steuern im Rechtsstaat: Festschrift für Gerold Stoll zum 65. Geburtstag (1990).

Orzechowski, The Relevance of the Commentaries on the OECD and UN Models for the

Interpretation of the UN Model, In: Lang et al (eds.), The UN Model Convention and Its Relevance

for the Global Tax Treaty Network (2017).

Pezzato, The meaning of the term “employment” under article 15 of the OECD Model Convention,

In: Hohenwarter/Metzler (eds.), Taxation of Employment Income in International Tax Law (2009).

Pinto Nogueira, Portugal: The Meaning of Royalties and Payments for Software, In: Lang et al (eds.),

Tax Treaty Case Law around the Globe 2012 (2013).

Pistone, General Report, In: Lang et al (eds.), The Impact of the OECD and UN Model Conventions

in Bilateral Tax Treaties (2012).

Prokisch, Double Taxation Conventions on Taxation on Workers, In: Moessner (ed.), Taxation of

Workers in Europe (2010).

Sasseville, The Meaning of “Place of Effective Management”, In: Maisto, Residence of companies

under tax treaties and EC law (2009).

Sauer, Leasing, In: Gassner/Lang/Lechner, Aktuelle Entwicklungen im internationalen Steuerrecht

– Das neue Musterabkommen der OECD (1994).

Smit, The Concept of Beneficial Ownership and Possible Alternative Remedies in Netherlands Case

Law, In: Lang/Pistone/Schuch/Staringer/Storck (eds.), Beneficial Ownership: Recent Trends (2013).

8

Tumpel, Software, In: Gassner/Lang/Lechner, Aktuelle Entwicklungen im internationalen

Steuerrecht – Das neue Musterabkommen der OECD (1994).

Vallada, Beneficial Ownership under Articles 10, 11 and 12 of the 2014 OECD Model Convention,

In: Lang et al, The OECD-Model-Convention Update 2014 (2015).

Vogel, Auslegung von Doppelbesteuerungsabkommen, In: Haarmann (ed.), Auslegung und

Anwendung von Doppelbesteuerungsabkommen (2004).

COMMENTARIES

Aigner/Kofler/Tumpel (eds.), Doppelbesteuerungsabkommen (DBA) - Kommentar (2016).

Becker/Höppner/Grotherr/Kroppen (eds.), DBA-Kommentar Doppelbesteuerungsabkommen

(2017).

IBFD Global Tax Treaty Commentaries (2017).

Küng/Camp, GmbH-Recht (2006).

Loukota/Jirousek (eds.), Internationales Steuerrecht, 39. Ergänzungslieferung (2016).

Vogel, Klaus Vogel on Double Taxation Conventions, Online edition (Kluwer).

Vogel, Klaus Vogel on Double Taxation Conventions, 4th ed. (2015).

Vogel, Doppelbesteuerungsabkommen – Kommentar, 2nd ed. (1990).

Vogel/Lehner (eds.), Doppelbesteuerungsabkommen – Kommentar, 6th ed. (2015).

Wassermeyer, Doppelbesteuerung (2018).

ARTICLES

Arnold, The Interpretation of Tax Treaties: Myth and Reality, BIT 2010.

Ault, The Role of the OECD Commentaries in the Interpretation of Tax Treaties, Intertax 1994, 144.

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Ault, Treatment of Computer Software, ET 1993, 330.

Avery Jones, Place of Effective Management as a Residence Tie-Breaker, BIT 2005, 20.

Bal, The Sky’s the Limit – the Cloud-Based Services in an International Perspective, BIT 2014, 515.

Bendlinger, Steuerabzug bei Software-Überlassung aus dem Ausland (Teil 1), VWT 2017, 241.

Bendlinger, The “Place of Effective Management” in Tax Treaty Law, SWI 2004, 167.

Burgstaller/Haslinger, Place of Effective Management as a Tie-Breaker-Rule – Concept,

Developments and Prospects, Intertax 2004, 376.

Daurer/Jann, Withholding tax in the era of BEPS, CIVs and digital economy, IFA Cahiers 2018,

Volume 103B, Report Austria, 5.

Desai, Tax Aspects of the Transfer of Technology (Including Software), APTB 1999, 40.

Engelen/Pötgens, Report on “Application of the OECD Model Tax Convention to Partnerships” and

the Interpretation of Tax Treaties, ET 2000, 250.

Falcão/Michel, Scope and Interpretation of Article 12A: Assessing the Impact of the New Fees for

Technical Services Article, BTR 2018, 422.

Formenti/Trouw, Withholding tax in the era of BEPS, CIVs and digital economy, IFA Cahiers 2018,

Volume 103B, Report Brasil, 5.

Gooijer, Beneficial Owner: Judicial Variety in Interpretation Counteracted by the 2012 OECD

Proposals?, Intertax 2014, 204.

Hansen/Christensen/Pedersen, Danish “Beneficial Owner” Cases – A Status Report, BIT 2013, 192.

Heredia, Copyright and Software and Spanish Tax Treaties: An Issue of Balance between

Technology-Importing and Technology-Exporting Countries, ET 2006, 36.

Heredia, Who Knows the Riddle of Know-How? Spain Becomes Entangled in the Web of

Intangibles, ET 2005, 103.

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Heredia, Software Royalties in Tax Treaties: Should Copyright Rights be Reconsidered in the OECD

Commentary on Article 12?, BIT 2005, 227.

Jain/Prebble, Beneficial Ownership and the Contractual Obligation of an Interposed Company to

Pass On Income, BIT 2018.

Jaya, Administrative Requirements for Claiming Treaty Entitlement: Problems and Solutions, BIT

2016.

Jirousek/Loukota, Die DBA-Entlastungsverordnung, ÖStZ 2005, 335.

Kalss, Ausgewählte Fragen zum Informationsrecht des GmbH-Gesellschafters, GesRZ 2017, 15.

Kessler, Qualifikation der Einkünfte aus dem Online-Vertrieb von Standardsoftware nach nationalem

und DBA-Recht (Teil II), IStR 2000, 98.

Kessler/Müller, Ort der Geschäftsleitung einer Kapitalgesellschaft nach nationalem und DBA-Recht

– Bestandsaufnahme und aktuelle Entwicklungen, IStR 2003, 361.

Kofler/Kuschil, Abkommensrechtliche Entlastung von österreichischen Quellensteuern auf

Dividenden, Zinsen und Lizenzgebühren, ÖStZ 2003, 225.

Lan, A comparative study of the “Royalties” Provisions in the tax treaties concluded by China, BIT

2018, 142.

Lang, Art. 3 Abs. 2 OECD-MA und die Auslegung von Doppelbesteuerungsabkommen, IWB 2011,

281.

Lang/Brugger, The role of the OECD Commentary in tax treaty interpretation, ATF 2008, 95.

Ledesma/González-Cotera, The Tax Treatment of Software, ET 2000, 276.

Machfudz, Withholding tax in the era of BEPS, CIVs and digital economy, IFA Cahiers 2018, Volume

103B, Report Indonesia, 5.

Metzler/Stieglitz, Der De Beers-Fall: Vorbild für die Bestimmung der Ansässigkeit von

Kapitalgesellschaften im Recht der Doppelbesteuerungsabkommen?, SWI 2004, 456.

11

Mitterlehner, UN-Musterabkommen – neue Bestimmung zur Besteuerung technischer

Dienstleistungen geplant, SWI 2017, 180.

Pamperl, Auswirkungen einer Verpflichtung zur Weiterleitung passiver Einkünfte auf eine DBA-

rechtliche Quellensteuerreduktion, SWI 2013, 406.

Patel/Visharia, Final Guidance on Place of Effective Management, ITPJ 2017, 377.

Reimer, Interpretation of Tax Treaties, ET 1999, 458.

Schlossmacher, Tax Issues Affecting Virtual Enterprises, Intertax 2002, 96.

Simonis, BITs and Taxes, Intertax 2014, 234.

Sixdorf/Leitsch, Taxation of Technical Services under the New Article 12A of the UN Model –

Improved Taxation or a Step in the Wrong Direction?, ET 2017, 234.

Van der Bruggen, Source Taxation of Consideration for Technical Services and Know-How, APTB

2001, 42.

Van der Laan, Computer Software in International Tax Law, Intertax 1991, 266.

Waelde/Kolo, Investor-State Disputes: The Interface Between Treaty-Based International Investment

Protection and Fiscal Sovereignty, Intertax 2007, 424.

Ward/Avery Jones/Ellis, The Other Income Article of Income Tax Treaties, BTR 1990, 352.

OECD DOCUMENTS

2017 OECD Model Convention.

2017 OECD Model Commentary.

2014 OECD Model Convention.

2014 OECD Model Commentary.

OECD, Base Erosion and Profit Shifting – Action 6: Final Report, 2015.

12

OECD, Clarification of the Meaning of “Beneficial Owner” in the OECD-MC, Discussion Draft,

2011.

OECD, The Impact of the Communications Revolution on the Application of the “Place of Effective

Management” as a Tie Breaker Rule, 2001.

OECD, Tax Treaty Characterisation Issues Arising from E-Commerce, 2001.

UN DOCUMENTS

2017 UN Model Convention.

2017 UN Model Commentary.

UN, Possible Amendments to the Commentary on Article 12 (Royalties), E/C.18/2016/CRP.8,

06.10.2016.

JUDGEMENTS

AUSTRALIA

Australian Federal Court, International Business Machines Corporation and IBM World Trade

Corporation v. Commissioner of Taxation, 12.04.2011.

High Court of Australia, Thiel, 21 A.T.R. 531, 22.08.1990.

AUSTRIA

UFS, RV/0297-W/03, 10.06.2003.

VwGH, 87/14/0001, 24.11.1987.

13

CANADA

Canadian Federal Court of Appeal, Prévost Car Inc. v. Her Majesty the Queen, A-252-08,

26.02.2009.

Canadian Federal Court, Vauban v. Her Majesty the Queen, 05.09.1975.

Canadian Federal Court, Minister of National Revenue v. Paris Canada Films Limited, 1962.

CHINA

Higher People’s Court of Beijing, Gaoxingzhongzi No. 24, 20.12.2002.

DENMARK

Østre Landsret (High Court of Eastern Denmark), B-2152-10, 20.12.2011.

Landsskatteretten (National Tax Tribunal), 09-00064 / SKM No. 2011.57, 22.12.2010.

GERMANY

BFH, no. I R 19/06, 19.12.2007.

BFH, no. I R 73/02, 28.01.2004.

BFH, no. IX R 57/99, 23.04.2003.

BFH, no. I R 109/85, 29.01.1986.

PORTUGAL

Supreme Administrative Court, Appeal 0621/09, 02.02.2011.

SPAIN

Tribunal Economico Administrativo Central, RG 1481/2007, 28.09.2009.

14

Tribunal Económico Administrativo Central, RG 3730/2004, 15.02.2007.

Tribunal Economico Administrativo Central, RG 6294/1996, 22.09.2000.

Spanish Supreme Court, RJ 2003/1968, 19.12.2002.



SWITZERLAND

Tribunal administratif fédéral (Bundesverwaltungsgericht), A-6537/2010, 07.03.2012.

THE NETHERLANDS

Hoge Raad, no. 16.03321 and 16.05066, 19.01.2018.

Hoge Raad, no. 39.719, 17.12.2004.

Hoge Raad, no. 27.293, 23.09.1992.

Hoge Raad, no. 24.189, 20.04.1988.

UNITED KINGDOM

Court of Appeal, A3/2005/2497, Indofood, 02.03.2006.

HL, De Beers Consolidated Mines Ltd v. Howe, AC 455, 30.07.1906.

USA

Tax Court, 16501-15S, Joanna Klubo-Gwiezdzinska v. Commissioners of Internal Revenue,

28.06.2017.

Tax Court, 56 925, Aiken Industries, Inc. v. Commissioners of Internal Revenue, 05.08.1971.

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ARBITRAL JUDGMENTS

London Court of International Arbitration, Case No. UN3481, EnCana vs. Ecuador, 03.02.2006.

INTERNATIONAL DOCUMENTS

US Model Bilateral Investment Treaty (2012).

VCLT, Vienna Convention on the Law of Treaties (1980).

FISCAL AUTHORITIES

AUS: ATO TR 2008/7, Income Tax: royalty withholding tax and the assignment of copyright,

27.08.2008.

AUT: BMF, EAS, F 606/2-IV/4/03, 30.06.2003.

GER: BMF, Beschränkte Steuerpflicht und Steuerabzug bei grenzüberschreitender Überlassung von

Software und Datenbanken, IV C 5 – S 2300/12/10004:000, 27.10.2017.

ZA: SARS, Resident – Place of Effective Management (Companies), 03.11.2015

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III STATEMENT OF FACTS

FACTS OF THE CASE

ENTITIES INVOLVED

Ladar

1 Ladar is a company incorporated in the Companies House of the city Diesela in the state of

Terrabrake in 2010.

2 Ladar engages in car manufacturing. In particular, Ladar specialises in the production of car-

boats, which are called “Salamanders”. The car-boats are entirely produced in Terrabrake.

3 The “Salamanders” have a good reputation among the residents of Terrabrake. As Terrabrake

consists of an archipelago of 15 islands, the car-boats facilitate mobility. The overall sales

performance of Ladar is stable and doing very well. The market quota of the company in the

period between 2019 and 2022 amounted to 75%.

4 Ladar’s Board of Directors (hereinafter:BOD) consists of 3 members. The areas of

responsibility of the BOD comprise various activities, e.g. decisions on the long-term

commercial strategy of Ladar, analysis of the overall performance of the company and

comparisons with the results of the industry. The members of the BOD are all under 30 years

old and have just graduated from a MBA at the Yuppie Business School in Diesela in the state

of Terrabrake. They all live in Terrabrake. The contracts under which the 3 members of the

BOD are employed are all renewable annually. The shareholders of Ladar assess the contracts

during the Annual General Assembly. However, the General Assembly of shareholders may

remove the current members of the BOD and appoint new ones at any time.

5 The Annual General Assembly is usually held in December and takes place in Terrabrake.1

1 See clarification on question 13.

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6 In 2021, Ladar’s shareholders comprise two members, Mr. Pepponen and his niece Mrs.

Hamilton.

7 Mrs. Hamilton holds a share of 40% in Ladar. She lives in Terrabrake with her husband and

two daughters. Mrs. Hamilton received her degree in business administration in 2018 and

intends to participate in the business.

8 Mr. Pepponen, the founder of the company, holds a share of 60% in Ladar. He graduated as an

engineer and, thus, is very active and knowledgeable in the business. Mr. Pepponen used to be

a resident of Terrabrake. However, due to the fact that he had to pay many taxes there in 2018,

he decided to move his tax residence to the state of Crocodile Island (hereinafter:CI).

9 At the beginning and end of each of the meetings of the BOD, which are held at the premises

of Ladar in Terrabrake, Mr. Pepponen is called via telephone. The documents and reports that

the BOD approves and reviews, must be sent to Mr. Pepponen. He also meets final clients in

Terrabrake, which is why he travels there for two days per month. Mr. Pepponen invites the

BOD to a relaxing weekend at his villa in CI twice per semester. The costs incurred in

connection with this invitation are borne by Mr. Pepponen.

Renolo

10 Renolo is a company incorporated under the laws of the state of Tyreland in 1975 and is

registered in the city of Petroldam in the state of Tyreland. It operates under the corporate object

of “automotive research and development, improvement of the vehicles production process and

training for the automotive industry”.

11 A complex crankshaft (a mechanical part able to translate the energy produced by a car motor

to a circular motion) has been developed by the engineers of Renolo. The innovative crankshaft

has the power to increase the final speed of car-boats, while simultaneously reducing the total

consumption of gas.

12 Besides its research activities, Renolo provides specialised training and courses to vehicle

engineers. The company’s research and training activities have been acknowledged by the

Ministry of Industry of Tyreland. Therefore, from 2015 onwards, Renolo has been entitled to

issue the “Official Certificate of Expert in Motors” to the courses’ participants.

18

13 The registered losses of Renolo in the year 2021 amount to $ 300,000 and increased by $ 35,000

in the following year, to a total of $ 335,000 of accumulated losses.

RenoloApps

14 RenoloApps, a wholly-owned subsidiary of Renolo, is a company incorporated under the laws

of CI in 2015 and registered in the House of CI.

15 The corporate object of RenoloApps comprises application software for automotive companies.

Almost all employees and the directors of RenoloApps are residents of CI. The CEO and some

freelancers, however, are residents of Tyreland.

16 Renolo and RenoloApps entered into a general agreement in 2017, allowing Renolo to

negotiate, licence or even sell RenoloApps’ products. In exchange, Renolo withholds a total fee

of 10% on all revenues received and immediately transfers 90% of the payments to

RenoloApps.2

ECONOMIC ACTIVITIES

17 In 2021, Ladar and Renolo entered into a 5-year commercial agreement that comprises various

terms and conditions described hereinafter.

18 Firstly, Renolo provides Ladar all the necessary information and technical documents

pertaining to the production of the crankshaft. The sales of car-boats might increase in the

period 2023 – 2030. In order to constantly update the crankshaft and prevent it from becoming

obsolete, Ladar is allowed to perform research on its own. Any activity regarding the research

on the crankshaft must be communicated to Renolo. Ladar is also entitled to commission a third

party to carry out research in order to update the crankshaft. However, Renolo must be informed

in advance and issue an authorisation. In exchange for the information and technical documents

provided by Renolo, Ladar obliges itself to pay 7% of the net selling price of the “Salamanders”

for each year during the agreement, which results in a payment of $300,000 in 2021.

2 See clarification on question no. 7.

19

19 Secondly, Ladar is granted access to a database, “Building Your Car”3 (hereinafter:BYC),

developed by Renolo. It has to pay a subscription fee of $50,000 for each year of the contract

period. The database provides technical solutions to the main problems that may occur in the

production of cars. However, it does not provide tailored solutions for problems in the

production of car-boats. Nevertheless, the BOD of Ladar is convinced that the solutions can

also be applied to the benefit of their own production process in some cases. The database is

regularly updated with practical problems and potential solutions that Renolo’s engineers come

across in their daily research and courses they offer.

20 In addition to the database access, several employees of Ladar took part in a two-day training

event held by two of Renolo’s employees in the state of Terrabrake in February 2021. The focus

of the training was the functioning of the database. However, some sessions were also dedicated

to the explanation of the most common problems in connection with the production of car-

boats. After passing an exam at the end of the course, the attendees received the “Official

Certificate of Expert in Motors”.

21 In the year 2021, Ladar paid a lump sum of $100,000 to Renolo for both of the abovementioned

services. Since no further trainings will be held in the remaining years of the contract period,

solely the annual subscription fee for the database of $50,000 will be charged for the years 2022

– 2025.

22 Thirdly, Renolo provides Ladar with a mobile application software (“Salamander’s App”)

which was entirely developed by RenoloApps. In addition, a server located in CI is provided to

ensure the proper functioning of the app during the 5-year contract period. This server can be

accessed by Ladar remotely.4 Ladar is entitled to distribute the app to its customers but is

prohibited from copying, de-compiling, de-assembling, or reverse engineering the software.

The primary functions of the “Salamander’s App” are described as follows:

1. Keeping the users informed about their consumption of gas, providing graphics and

comparisons to other vehicles sold by rival companies;

3 The “BYC”-Database is located in Tyreland, see clarification on question no. 50. 4 See clarification on question 22.

20

2. Creating a community of users (so-called “Salamander Lovers”). Salamanders’ owners

are enabled to exchange information and experiences, share pictures or even organise

special events with their car-boats;

3. Implementing a communication channel between Ladar and the Salamander’s owners.

By using the app, the users are enabled to talk to Ladar’s employees online in order to

solve technical doubts or even to schedule an appointment at one of the mechanical

workshops;

4. Collecting information about the crankshaft.

23 In reality, only the fourth function is of importance for Ladar and was the crucial reason for

launching the app. The inclusion of the other three functions has the mere purpose of attracting

potential customers. At the very moment when a user downloads the app and connects their

phone via Bluetooth to the car-boats, the collection of data begins. The relevant information

about each crankshaft is immediately sent to the server of RenoloApps located in the state of

CI and subsequently is forwarded to engineers of Renolo in Tyreland.

24 Once a month the engineers have to elaborate a descriptive report and a technical opinion about

the received information. These reports are then stored on the server and can be accessed by

Ladar as well. The information from the app, the reports and the technical opinions is essential

for keeping the crankshaft updated. According to the commercial agreement, Ladar is allowed

to transfer the data received to a third party for research purposes if this is communicated to

Renolo in advance.

25 In the year 2021, Ladar paid a lump sum of $50,000 to Renolo as a compensation for all services

in connection with the app. Furthermore, Ladar agrees to pay $1,000 per month over the entire

contract period for the use of the server located in the state of CI resulting in an additional

payment of $12,000 in 2021.

26 Lastly, on 15 September 2021, an incident occurred where the crankshaft in a car-boat caught

fire. The Salamander’s App was not in use at the time and therefore was of no help in diagnosing

the cause. As the crankshaft was produced using the technology of Renolo, the Chief Engineer

in Ladar called Renolo asking for an explanation. Thereupon, Renolo sent the engineer Mr.

Fixer, who has been employed at Renolo for the past 20 years, to Ladar to investigate the cause

21

of the fire. After being at Ladar’s site for one week, Mr. Fixer returned home to Tyreland. The

results of his investigations were sent to Ladar in form of an extensive report outlining that the

likely cause of the fire was a chain reaction related to the use of copper in the cables. Ladar was

not obliged to pay for the elaborated report but instead granted full reimbursement of all Mr.

Fixer’s incurred expenses in Terrabrake. Due to his luxurious lifestyle, this payment amounts

to $10,000 and contains reimbursements for a first-class flight, accommodation at a five-star

hotel and various forms of entertainment.

27 The contract between Ladar and Renolo does not include any exclusivity clauses for Renolo

rendering services solely to Ladar.5

RELEVANT ASPECTS OF INTERNATIONAL LAW

MEMBERSHIPS IN INTERNATIONAL ORGANISATIONS

28 All of the states are OECD member countries as well as members of the UN.

TAX TREATIES

29 A tax treaty between Terrabrake and Tyreland (hereinafter:DTC-TT) has been in force since

2019. It is based on the 2017 OECD-MC. The treaty implements the credit method as the

method to eliminate double taxation. There are some deviations from the OECD-MC. Firstly,

Art.4(3) defines the residence of a company as the state where its place of effective management

(hereinafter: POEM) is situated and, thus, is based on the 2014 OECD-MC. Secondly, the

Articles stated in the table below have been concluded according to the 2017 UN-MC. They

deviate from the OECD-MC as the text in bold shows:

5 See clarification on question 73 lit b.

22

UN-MC OECD-MC

Article 7 UN-MC Article 7 OECD-MC

1. The profits of an enterprise of a

Contracting State shall be taxable only in

that State unless the enterprise carries on

business in the other Contracting State

through a permanent establishment

situated therein. If the enterprise carries

on business as aforesaid, the profits of

the enterprise may be taxed in the

other State but only so much of them

as is attributable to (a) that permanent

establishment; (b) sales in that other

State of goods or merchandise of the

same or similar kind as those sold

through that permanent

establishment; or (c) other business

activities carried on in that other State

of the same or similar kind as those

effected through that permanent

establishment.

1. Profits of an enterprise of a Contracting

State shall be taxable only in that State

unless the enterprise carries on business

in the other Contracting State through a

permanent establishment situated

therein. If the enterprise carries on

business as aforesaid, the profits that are

attributable to the permanent

establishment in accordance with the

provisions of paragraph 2 may be taxed

in that other State.

2. Subject to the provisions of paragraph 3,

where an enterprise of a Contracting

State carries on business in the other

Contracting State through a permanent

establishment situated therein, there shall

in each Contracting State be attributed to

that permanent establishment the profits

which it might be expected to make if it

were a distinct and separate enterprise

2. For the purposes of this Article and

Article [23 A] [23 B], the profits that are

attributable in each Contracting State to

the permanent establishment referred to

in paragraph 1 are the profits it might be

expected to make, in particular in its

dealings with other parts of the

enterprise, if it were a separate and

independent enterprise engaged in the

23

engaged in the same or similar activities

under the same or similar conditions and

dealing wholly independently with the

enterprise of which it is a permanent

establishment.

same or similar activities under the same

or similar conditions, taking into account

the functions performed, assets used and

risks assumed by the enterprise through

the permanent establishment and through

the other parts of the enterprise.

3. In the determination of the profits of a

permanent establishment, there shall be

allowed as deductions expenses which

are incurred for the purposes of the

business of the permanent establishment

including executive and general

administrative expenses so incurred,

whether in the State in which the

permanent establishment is situated or

elsewhere. However, no such deduction

shall be allowed in respect of amounts, if

any, paid (otherwise than towards

reimbursement of actual expenses) by the

permanent establishment to the head

office of the enterprise or any of its other

offices, by way of royalties, fees or other

similar payments in return for the use of

patents or other rights, or by way of

commission, for specific services

performed or for management, or, except

in the case of a banking enterprise, by

way of interest on moneys lent to the

permanent establishment. Likewise, no

account shall be taken, in the

determination of the profits of a

3. Where, in accordance with paragraph 2,

a Contracting State adjusts the profits

that are attributable to a permanent

establishment of an enterprise of one of

the Contracting States and taxes

accordingly profits of the enterprise that

have been charged to tax in the other

State, the other State shall, to the extent

necessary to eliminate double taxation on

these profits, make an appropriate

adjustment to the amount of the tax

charged on those profits. In determining

such adjustment, the competent

authorities of the Contracting States shall

if necessary consult each other.

24

permanent establishment, for amounts

charged (otherwise than towards

reimbursement of actual expenses), by

the permanent establishment to the head

office of the enterprise or any of its other

offices, by way of royalties, fees or other

similar payments in return for the use of

patents or other rights, or by way of

commission for specific services

performed or for management, or, except

in the case of a banking enterprise, by

way of interest on moneys lent to the

head office of the enterprise or any of its

other offices.

4. In so far as it has been customary in a

Contracting State to determine the profits

to be attributed to a permanent

establishment on the basis of an

apportionment of the total profits of the

enterprise to its various parts, nothing in

paragraph 2 shall preclude that

Contracting State from determining the

profits to be taxed by such an

apportionment as may be customary; the

method of apportionment adopted shall,

however, be such that the result shall be

in accordance with the principles

contained in this Article.

5. For the purposes of the preceding

paragraphs, the profits to be attributed to

the permanent establishment shall be

25

determined by the same method year by

year unless there is good and sufficient

reason to the contrary.

6. Where profits include items of income

which are dealt with separately in other

Articles of this Convention, then the

provisions of those Articles shall not be

affected by the provisions of this Article.

4. Where profits include items of income

which are dealt with separately in other

Articles of this Convention, then the

provisions of those Articles shall not be

affected by the provisions of this Article.


1. Royalties arising in a Contracting State

and paid to a resident of the other

Contracting State may be taxed in that

other State.

1. Royalties arising in a Contracting State

and beneficially owned by a resident of

the other Contracting State shall be

taxable only in that other State.

2. However, such royalties may also be

taxed in the Contracting State in which

they arise and according to the laws of

that State, but if the beneficial owner of

the royalties is a resident of the other

Contracting State, the tax so charged

shall not exceed 15% of the gross amount

of the royalties. The competent

authorities of the Contracting States shall

by mutual agreement settle the mode of

application of this limitation.

3. The term “royalties” as used in this

Article means payments of any kind

received as a consideration for the use of,

or the right to use, any copyright of

literary, artistic or scientific work

2. The term “royalties” as used in this

Article means payments of any kind

received as a consideration for the use of,

or the right to use, any copyright of

literary, artistic or scientific work

26

including cinematograph films, or films

or tapes used for radio or television

broadcasting, any patent, trade mark,

design or model, plan, secret formula or

process, or for the use of, or the right

to use, industrial, commercial or

scientific equipment or for information

concerning industrial, commercial or

scientific experience.

including cinematograph films, any

patent, trade mark, design or model, plan,

secret formula or process, or for

information concerning industrial,

commercial or scientific experience.

4. The provisions of paragraphs 1 and 2

shall not apply if the beneficial owner of

the royalties, being a resident of a

Contracting State, carries on business in

the other Contracting State in which the

royalties arise, through a permanent

establishment situated therein, or

performs in that other State

independent personal services from a

fixed base situated therein, and the

right or property in respect of which the

royalties are paid is effectively connected

with (a) such permanent establishment

or fixed base, or with (b) business

activities referred to in (c) of

paragraph 1 of Article 7. In such cases

the provisions of Article 7 or Article 14,

as the case may be, shall apply.

3. The provisions of paragraph 1 shall not

apply if the beneficial owner of the

royalties, being a resident of a


the other Contracting State in which the

royalties arise through a permanent

establishment situated therein and the


royalties are paid is effectively connected

with such permanent establishment. In

such case the provisions of Article 7 shall

apply.

5. Royalties shall be deemed to arise in a

Contracting State when the payer is a

resident of that State. Where,

however, the person paying the

27

royalties, whether he is a resident of a

Contracting State or not, has in a

Contracting State a permanent

establishment or a fixed base in

connection with which the liability to

pay the royalties was incurred, and

such royalties are borne by such

permanent establishment or fixed

base, then such royalties shall be

deemed to arise in the State in which

the permanent establishment or fixed

base is situated.

6. Where by reason of a special relationship

between the payer and the beneficial

owner or between both of them and some

other person, the amount of the royalties,

having regard to the use, right or

information for which they are paid,

exceeds the amount which would have

been agreed upon by the payer and the

beneficial owner in the absence of such

relationship, the provisions of this

Article shall apply only to the last-

mentioned amount. In such case, the

excess part of the payments shall remain

taxable according to the laws of each

Contracting State, due regard being had

to the other provisions of this

Convention.

4. Where, by reason of a special relationship

between the payer and the beneficial

owner or between both of them and some

other person, the amount of the royalties,

having regard to the use, right or

information for which they are paid,

exceeds the amount which would have

been agreed upon by the payer and the

beneficial owner in the absence of such

relationship, the provisions of this

Article shall apply only to the last-

mentioned amount. In such case, the

excess part of the payments shall remain

taxable according to the laws of each

Contracting State, due regard being had

to the other provisions of this

Convention.

28

Article 12A UN-MC

There is no similar provision in the 2017

OECD-MC.

1. Fees for technical services arising in a

Contracting State and paid to a resident

of the other Contracting State may be

taxed in that other State.

2. However, notwithstanding the provisions

of Article 14 and subject to the

provisions of Articles 8, 16 and 17, fees

for technical services arising in a

Contracting State may also be taxed in

the Contracting State in which they arise

and according to the laws of that State,

but if the beneficial owner of the fees is

a resident of the other Contracting State,

the tax so charged shall not exceed 15%

of the gross amount of the fees.

3. The term “fees for technical services” as

used in this Article means any payment

in consideration for any service of a

managerial, technical or consultancy

nature, unless the payment is made: (a) to

an employee of the person making the

payment; (b) for teaching in an

educational institution or for teaching by

an educational institution; or (c) by an

individual for services for the personal

use of an individual.

4. The provisions of paragraphs 1 and 2

shall not apply if the beneficial owner of

29

fees for technical services, being a

resident of a Contracting State, carries on

business in the other Contracting State in

which the fees for technical services arise

through a permanent establishment

situated in that other State, or performs in

the other Contracting State independent

personal services from a fixed base

situated in that other State, and the fees

for technical services are effectively

connected with a) such permanent

establishment or fixed base, or b)

business activities referred to in (c) of

paragraph 1 of Article 7. In such cases

the provisions of Article 7 or Article 14,

as the case may be, shall apply.

5. For the purposes of this Article, subject

to paragraph 6, fees for technical services

shall be deemed to arise in a Contracting

State if the payer is a resident of that

State or if the person paying the fees,

whether that person is a resident of a

Contracting State or not, has in a

Contracting State a permanent

establishment or a fixed base in

connection with which the obligation to

pay the fees was incurred, and such fees

are borne by the permanent

establishment or fixed base.

6. For the purposes of this Article, fees for

technical services shall be deemed not to

30

arise in a Contracting State if the payer is

a resident of that State and carries on

business in the other Contracting State or

a third State through a permanent

establishment situated in that other State

or the third State, or performs

independent personal services through a

fixed base situated in that other State or

the third State and such fees are borne by

that permanent establishment or fixed

base.

7. Where, by reason of a special

relationship between the payer and the

beneficial owner of the fees for technical

services or between both of them and

some other person, the amount of the

fees, having regard to the services for

which they are paid, exceeds the amount

which would have been agreed upon by

the payer and the beneficial owner in the

absence of such relationship, the

provisions of this Article shall apply only

to the last-mentioned amount. In such

case, the excess part of the fees shall

remain taxable according to the laws of

each Contracting State, due regard being

had to the other provisions of this

Convention.

31

Article 14 UN-MC There is no similar provision in the 2017

OECD-MC.

1. Income derived by a resident of a

Contracting State in respect of

professional services or other activities

of an independent character shall be

taxable only in that State except in the

following circumstances, when such

income may also be taxed in the other

Contracting State:

(a) If he has a fixed base regularly

available to him in the other

Contracting State for the purpose of

performing his activities; in that

case, only so much of the income as

is attributable to that fixed base may

be taxed in that other Contracting

State; or

(b) If his stay in the other Contracting

State is for a period or periods

amounting to or exceeding in the

aggregate 183 days in any twelve-

month period commencing or

ending in the fiscal year concerned;

in that case, only so much of the

income as is derived from his

activities performed in that other

State may be taxed in that other

State.

2. The term “professional services”

includes especially independent

32

scientific, literary, artistic, educational or

teaching activities as well as the

independent activities of physicians,

lawyers, engineers, architects, dentists

and accountants.


1. Items of income of a resident of a

Contracting State, wherever arising, not

dealt with in the foregoing Articles of

this Convention shall be taxable only in

that State.

1. Items of income of a resident of a

Contracting State, wherever arising, not


this Convention shall be taxable only in

that State.


apply to income other than income from

immovable property as defined in

paragraph 2 of Article 6, if the recipient

of such income, being a resident of a


the other Contracting State through a

permanent establishment situated

therein, or performs in that other State

independent personal services from a

fixed base situated therein, and the


income is paid is effectively connected

with such permanent establishment or

fixed base. In such case the provisions of

Article 7 or Article 14, as the case may

be, shall apply.


apply to income, other than income from

immovable property as defined in

paragraph 2 of Article 6, if the recipient

of such income, being a resident of a


the other Contracting State through a

permanent establishment situated therein

and the right or property in respect of

which the income is paid is effectively

connected with such permanent

establishment. In such case the

provisions of Article 7 shall apply.

3. Notwithstanding the provisions of

paragraphs 1 and 2, items of income of

33

a resident of a Contracting State not


this Convention and arising in the

other Contracting State may also be

taxed in that other State.

30 Finally, Art.29 DTC-TT constitutes a general anti-abuse rule which is similar to Art.6 ATAD

(EU Anti Tax Avoidance Directive):

Article 29 DTC-TT Article 6 ATAD

1. Notwithstanding the other provisions

of this Convention, a Contracting

State shall ignore an arrangement or a

series of arrangements which, having

been put into place for the main purpose

or one of the main purposes of obtaining

a tax advantage that defeats the object or

purpose of the relevant provisions of

this Convention, are not genuine having

regard to all relevant facts and

circumstances. An arrangement may

comprise more than one step or part.

1. For the purposes of calculating the

corporate tax liability, a Member State

shall ignore an arrangement or a series of

arrangements which, having been put

into place for the main purpose or one of

the main purposes of obtaining a tax

advantage that defeats the object or

purpose of the applicable tax law, are not

genuine having regard to all relevant

facts and circumstances. An arrangement

may comprise more than one step or part.

2. For the purposes of paragraph 1, an

arrangement or a series thereof shall be

regarded as non-genuine to the extent

that they are not put into place for valid

commercial reasons which reflect

economic reality.

2. For the purposes of paragraph 1, an

arrangement or a series thereof shall be

regarded as non-genuine to the extent

that they are not put into place for valid

commercial reasons which reflect

economic reality.

34

3. Where arrangement or series thereof are

ignored in accordance with paragraph 1,

the tax liability shall be calculated in

accordance with national law.

3. Where arrangements or a series thereof

are ignored in accordance with paragraph

1, the tax liability shall be calculated in

accordance with national law.

31 Neither Tyreland nor Terrabrake are signatories of the Multilateral Convention to Implement

Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). However,

both states are members of the OECD BEPS Inclusive Framework.

32 CI has not concluded a tax treaty with Terrabrake.

BILATERAL INVESTMENT TREATIES

33 There are bilateral investment treaties in force between Terrabrake and Tyreland. The latest

version of these treaties has been in force since 2012 and is based on the 2012 version of the

US Model Bilateral Investment Treaty.

OTHER TREATIES

34 Finally, the Vienna Convention on the Law of Treaties has been in force in all of the three states

since 2000.

DOMESTIC LAW

TERRABRAKE

General Rules

35 In Terrabrake, corporate income is taxed at 30%.

36 Furthermore, no unilateral relief for juridical double taxation exists in Terrabrake.

37 Terrabrake is a monist state.

35

Rules Concerning Royalties and Technical Services

38 A withholding tax of 20% is levied on payments of dividends, interest and royalties made by

resident companies to foreign recipients.

39 A withholding tax of 20% is imposed on payments for technical services made by resident

companies to foreign recipients.

40 Payments for technical services provided by non-resident companies paid by companies

resident in Terrabrake as well as by permanent establishments located in Terrabrake are subject

to withholding tax.6 It is a common understanding of domestic legislation that both resident

companies and permanent establishments should be subject to the same withholding tax

obligations.7

Residence Rules

41 According to the domestic laws of Terrabrake, a company is resident in Terrabrake provided

that its POEM is there.

TYRELAND

General Rules

42 In Tyreland, corporate income is taxed at 20%.

43 Furthermore, no unilateral relief for juridical double taxation exists in Tyreland.

44 No carry-forward of the tax credit derived from taxes paid abroad is possible.

45 Tyreland is a dualist state.

6 See clarification on question no. 1. 7 Ibid.

36

Residence Rules

46 According to the domestic law of Tyreland, a company with its POEM situated in Tyreland is

deemed to be a resident.

CROCODILE ISLANDS

General Rules

47 In CI, corporate income is taxed at 5%.

Rules Concerning Royalties and Technical Services

48 No withholding tax is levied on payments of dividends, interest and royalties made by resident

companies to foreign recipients.

49 No tax provision exists for payments for technical services.

Residence Rules

50 Contrary to Terrabrake and Tyreland, a company is deemed to be resident in CI if

• it is incorporated in the Companies House of CI or

• its POEM is situated there.

COMMON DOMESTIC LAW RULES

51 The legal systems of these countries do not correspond specifically to the “civil law” or

“common law” models, but rather combine elements of the two systems.

52 In all countries concerned, the tax year runs from 1 January until 31 December.

37

53 None of the domestic laws provides a definition of the terms “place of effective management”

or “software”.8

54 There are no domestic General Anti-Abuse Rules (hereinafter:GAARs) in any of the states,

apart from the GAAR that was included in the DTC-TT.9

55 All countries involved are members of the UN as well as the OECD.

56 None of the countries involved are EU or EEA/EFTA Member States.

8 See clarification on questions 72 and 73 lit. a. 9 See clarification on question 27.

38

IV ISSUES

57 In early 2022, Terrabrake’s tax authorities noticed that Ladar did not levy any withholding taxes

on the payments made to Renolo in the period 2021. At the end of the tax audit, the tax

authorities of Terrabrake issued an assessment of tax. They took the view that all the payments

were subject to withholding tax.

58 The applicant is the taxpayer (Ladar), and the defendant is the tax authorities of Terrabrake.

The taxpayer does not agree with the notice of assessment made by the tax authorities (in the

sequence of a random audit) and has appealed to the Court.

59 The tax authorities consider that the income should be taxed in their state (and this was the

reason why they made an assessment accordingly), as:

a) The DTC between Tyreland and Terrabrake does not apply since Ladar is a company

resident in the Crocodile Islands.

b) Even if Ladar is considered resident in Terrabrake, and therefore the DTC applies, all

payments paid to Renolo, included the expense reimbursement to Mr. Fixer, are subject to

withholding tax.

39

V ARGUMENTS

INTERPRETATION OF DTC-TT

RELEVANCE OF THE 2017 OECD-COMMENTARY AND THE 2017

UN-COMMENTARY

60 The DTC-TT is based on the 2017 OECD-MC. However, there are some deviations from the

OECD-MC (m.no.29). Therefore, the 2017 OECD-MC and its corresponding OECD-

Commentary have to be consulted for interpretation purposes.10

61 Art.4(3) DTC-TT, which deviates from the 2017 OECD-MC, is based on the 2014 OECD-MC.

As the Contracting States (hereinafter:CS) obviously intended the provision of the treaty to be

understood in the same way as the 2014 OECD-MC, the 2014 OECD-Commentary needs to be

taken into account for the interpretation of this provision.11 Arts. 12, 12A, 14 and 21 DTC-TT

have been concluded according to the 2017 UN-MC. The relevance of the 2017 UN-

Commentary is induced as the CS intended the provisions should have the same meaning as

under the 2017 UN-MC.12 Where the UN-Commentary adopted the identical provisions of the

OECD-Commentary, the OECD-Commentary also needs to be taken into account for

interpretation purposes.13 Therefore, the 2017 OECD-Commentary as well as the 2017 UN-

Commentary must be considered when interpreting the DTC-TT.14

INTERPRETATION OF THE DTC-TT

62 Since most terms in DTCs following the OECD-MC are undefined, the interpretation rule in

Art.3(2) OECD-MC needs to be applied. This rule states that undefined terms have to be

10 AUS:High Court of Australia(22.08.1990); Ault, Intertax(1994),145 et seqq.; Vogel in Haarmann(2004),13 et seq.;

Avery Jones in Douma/Engelen(2008),161; Lang/Brugger, ATF(2008),105; Deborah in Günther/Tüchler(2013),58

et seqq.; Lang(2013),48; Vallada in Lang et al(2015),35; Vogel/Rust in Vogel(2017),Introduction(para.99);

Art.31(1)-(4) VCLT. 11 Ibid. 12 Ibid. 13 Orzechowski in Lang et al(2017),15 et seqq. 14 Pistone in Lang et al(2012),4; Orzechowski in Lang et al(2017),22 et seq.

40

interpreted with reference to the domestic tax legislation in force when the Convention is being

applied “unless the context otherwise requires”.15

63 As a consequence, the context of a DTC, meaning its object and purpose, is determinant when

interpreting specific provisions.16 As the general purpose of a DTC (avoidance of double

taxation) can only be achieved if tax authorities of both CS interpret terms stipulated in the tax

treaty uniformly, an autonomous interpretation is preferred.17 Only if an autonomous

interpretation scarcely leads to satisfying results, domestic law can be taken into consideration

for interpretation purposes.18

THE DTC-TT IS NOT APPLICABLE FOR LADAR

LADAR’S POEM IS SITUATED IN CROCODILE ISLAND

64 Ladar is neither a resident of Terrabrake nor Tyreland. Since its POEM is located in CI, it is a

resident thereof. For this reason, the DTC-TT is not applicable and Terrabrake may tax all

payments pursuant to its domestic law.

65 Pursuant to the domestic laws of Terrabrake and CI, Ladar is a resident of CI. A company is

a resident of CI if it is either incorporated under its laws or if it has its POEM therein. A

company is a resident of Terrabrake if its POEM is situated therein.

66 Regarding the interpretation of the POEM, both countries rely on the treaty criteria. This stems

from the fact that neither of the two CS explicitly define the term “POEM” in their domestic

law.19 However, the term is contained in Art.4(3) DTC-TT and the use of the wording “POEM”

in each CS’s domestic law implies a reference to the OECD-definition. Any deviation thereupon

15 Lang(2013),56 et seq.; Dürrschmidt in Vogel/Lehner(2015),Art.3(para.116a); 2017 OECD-

Commentary,Art.3(para.11). 16 Engelen/Pötgens, ET(2000),257; Lang/Brugger, ATF(2008),99; Lang, IWB(2011),282; Deborah in

Günther/Tüchler(2013),59 et seq. 17 Arnold, BIT(2010),10; Dürrschmidt in Vogel/Lehner(2015),Art.3(para.99); Reimer, ET(1999),462. 18 Reimer, ET(1999),463 et seq.; Lang, IWB(2011),288; Lang(2013),56 et seq; Dürrschmidt in

Vogel/Lehner(2015),Art.3(para.116b-117a). 19 See clarification on question 73 lit a.

41

could be implemented by either CS if they insisted. However, the case states nothing about such

deviations.

67 The POEM is defined as “the place where key management and commercial decisions that are

necessary for the conduct of the entity’s business as a whole are in substance made.”20 All

relevant facts and circumstances have to be taken into account. The criteria include e.g. the

place where the BOD meets, the place where the company has its head office or the place of

residence of the shareholders.21

68 There are two common approaches for determining the POEM: The POEM is either the place

where the most senior executives exercise their control determining the long-term strategy or

the place where day-to-day affairs for the ordinary course of business are overseen.22 However,

the prevailing opinion follows the former approach.23

69 Thus, a two-step approach has to be followed:

• Firstly, the persons which actually make the key management decisions

(hereinafter:KMD) have to be identified.

• Secondly, the place where those decisions are effectively taken has to be determined.24

70 KMD are decisions that fundamentally affect the company. These decisions can only be made

by the most senior persons that exercise the top-level management functions.25 Older versions

of the OECD-Commentary state the BOD as an explicit example. However, if the decision-

making authority is de facto delegated to any other person, e.g. a shareholder, and the decisions

therefrom are routinely approved by the BOD, the place of such actual decision-making is the

POEM.26

20 2014 OECD-Commentary,Art.4(para.24). 21 Meijeren in Maisto(2009),9 et seq.; NL:Hoge Raad(23.09.1992); 2014 OECD-Commentary,Art.4(para.24). 22 Schlossmacher, Intertax(2002),98; Kessler/Müller, IStR(2003),363; Burgstaller/Haslinger, Intertax(2004),378;

Lechner in Doralt(1990),397. 23 UK:HL(30.07.1906); Burgstaller/Haslinger, Intertax(2004),378; Metzler/Stieglitz, SWI(2004),461 et seqq; Sasseville

in Maisto(2009),293 et seq; NL:Hoge Raad(19.01.2018). 24 Patel/Visharia, ITPJ(2017),380. 25 Avery Jones, BIT(2005),21; Haslinger in Lang/Schuch/Staringer(2008),196 et seq. 26 NL:Hoge Raad(23.09.1992),(17.12.2004); Patel/Visharia, ITPJ(2017),380 et seq.

42

71 Regarding the importance of the principal shareholder’s (hereinafter:PS) involvement for

the determination of the POEM, one has to make a distinction between two different types of

actions performed.27 On the one hand, matters with respect to decisions reserved for

shareholders under company law. These decisions either affect the company’s existence or the

rights attributable to the shareholders as such and should be disregarded in determining the

POEM.28 On the other hand, the shareholder’s contribution by way of a formal arrangement or

actual conduct. If the authority to conclude decisions is taken from the BOD or senior

management for the shareholder’s benefit, his participation is to be deemed as usurpation. This

is, in particular, the case if the BOD solely implements the shareholder’s decisions or does not

decide independently. Therefore, the exerted influence results in effective management

exercised by the PS meaning that the company’s POEM will be where those decision are

effectively taken.29

72 The place where KMD are taken depends on the organisation of the company.30 The

determination may, however, be very difficult due to the increasing use of advanced

communications technology.31

73 In the underlying case Mr. Pepponen, the PS, materially performs management functions and

takes KD. Ladar’s BOD is responsible for decisions on the long-term strategy of Ladar, the

analysis of the overall performance of the company and the comparison with the results of the

industry. Nevertheless, Mr. Pepponen’s possible and factual influence on the decision-making

process of the BOD is material:

a) Firstly, shareholders are usually entitled to receive documents and reports only upon

request.32 In casu, the BOD is obliged to send all documents and reports to Mr. Pepponen.

As he receives those documents automatically, this allows him to examine the work and

decisions of the BOD and provides him with the opportunity to scrutinise the overall

performance of the BOD. In addition, he has to be informed when each BOD-meeting

commences and ends.

27 Bendlinger, SWI(2004),169 et seq. 28 SARS(03.11.2015),9 et seq.; Patel/Visharia, ITPJ(2017),381 et seq. 29 Ibid; Haslinger in Lang/Schuch/Staringer(2008),200. 30 OECD,POEM,2001(para.33). 31 Ibid(para.37 et seq). 32 Kalss, GesRZ(2017),15 et seqq.; Küng/Camp(2006),§802(para.3).

43

b) Secondly, Mr. Pepponen is the PS. It is possible for the General Assembly to remove all

members and appoint new ones at any time. Since Mr. Pepponen has a share of 60%, he

is entitled to vote accordingly, should he be discontent with the BOD decisions. If the other

shareholder, Mrs. Hamilton, voted otherwise, his vote would still prevail. Therefore, it is

factually his consent that determines the outcome of any decision made by the BOD.

c) Another important fact to consider is who materially contributes the relevant know-how

regarding the conduct of business.33 All three members of the BOD are still young and have

just graduated. Hence, none of them possesses sufficient working experience regarding the

business operations of Ladar. Additionally, Mrs. Hamilton does not possess much

experience. Mr. Pepponen, however, is the founder of the company and works in this field

of business since the incorporation of Ladar in 2010. Furthermore, he graduated as an

engineer and is very active in the business.

d) Regarding the place where the decisions are taken, Mr. Pepponen communicates with the

BOD via telephone. The POEM is located where the person making KD is situated.34

Physical presence is becoming rather obsolete due to modern communication technology.

Hence, there is no need for any physical presence of Mr. Pepponen in Terrabrake. The fact

that he has the possibility to factually intervene in any decision-making process is

illustrated by the obligatory phone calls at the beginning and at the end of any BOD-

meeting.

Independent decisions can, thus, not be concluded by the BOD. The role of Mr. Pepponen

within Ladar is too significant to disregard it for the determination of who is actually taking

KD. He is a resident in CI and, thus, all KD are taken there.

INTERIM CONCLUSION

74 To sum up, Ladar is a resident of CI for domestic law and treaty purposes, because its POEM

is located there.

33 NL:Hoge Raad(20.04.1988). 34 Patel/Visharia, ITPJ(2017),380.

44

THE DTC-TT IS NOT APPLICABLE SINCE LADAR IS RESIDENT OF

CROCODILE ISLAND

75 As has been established, Ladar is a resident of CI pursuant to domestic law and therefore the

DTC-TT is not applicable for the reasons stated hereinafter.

76 According to the Vogel-Commentary35 and Prokisch36 “it follows from the context of Articles

1, 2 and 4 OECD and UN-MC that a treaty only applies if the person invoking the treaty is a

resident of one of the Contracting States”. Therefore, it can be concluded that the withholding

agent (hereinafter:WHA) also has to fulfil the requirements contained in Art.1, 2 and 4 in order

to be entitled to treaty benefits.

77 Pursuant to Art.1, the DTC shall apply to a person that is resident of one or both CS. According

to Art.4(1), a resident of a CS is any person who is subject to unlimited tax liability under the

laws of that state.37 The residency criterion is fulfilled if the company is a resident in at least

one of the CS.

78 Ladar is not entitled to the benefits of the DTC-TT since it does not fall within its personal

scope.38 The company undoubtedly fulfils the requirements of Art.1 icw Art.3 DTC-TT, as

Ladar is a company. However, Ladar has its POEM in CI by virtue of Terrabrake’s domestic

law. Therefore, the residence criterion of Art.4 is not fulfilled. Since Ladar is neither resident

in Tyreland nor in Terrabrake, the DTC-TT is not applicable.

LADAR’S PE MAY NOT INVOKE TREATY BENEFITS

79 Ladar consequently has a PE in Terrabrake pursuant to Art.5(1) DTC-TT since it has “a fixed

place of business through which the business is wholly carried on”. However, it still may not

invoke treaty benefits.

35 De Broe in Vogel(2017),Art.15(para.28). 36 Prokisch in Moessner(2010),56. 37 2017 OECD-Commentary,Art.4(para.1). 38 2017 OECD-Commentary,Arts.1-4.

45

80 Wassermeyer39 and other academics40 state that the PE of a resident of a third country may not

invoke treaty benefits because PEs do not fulfill the requirements of a person pursuant to

Art.3(1)(a) DTC-TT.

81 Ladar’s PE may not invoke the treaty benefits provided by the DTC-TT since it is not a “person”

under Art.3(1)(a) DTC-TT. Only the company Ladar is considered a “person”.

WITHHOLDING AGENTS MAY NOT INVOKE TREATY BENEFITS

82 Should the Court hold the opinion that Ladar is a resident of Terrabrake, we will show that

Ladar is then not entitled to treaty benefits because of its status as WHA. The purpose of the

DTC-TT is not to go beyond what is stated therein: the avoidance of double taxation through

the reduction or elimination of the tax liability of the taxpayer in either CS.41

83 Procedural aspects regarding the application of the provisions in the DTC-TT are not regulated.

Therefore, domestic rules pertaining to procedural issues have to be enacted by each CS if rules

regarding the application of the treaty provisions are not already implemented.42

84 A mechanism for procedural issues is in particular needed. Two methods are provided by the

OECD-Commentary: the direct method or the refund method. The direct method results in

an automated application of e.g. reduced treaty rates. The refund method, however, entitles the

Source State to levy its domestic rate regardless of any potential reduction provided by the tax

treaty. The Source State must, as a consequence, provide a refund for the excess part of taxes

levied above the applicable treaty rates.43

85 It is ultimately the Source State’s domestic law that determines whether or not the tax liability

is reduced at source or eliminated.44 Connected therewith is also the obligation of the WHA to

withhold any taxes on payments made to a resident of the other CS. Should a relief at source be

39 Wassermeyer in Wassermeyer(2014),Art.1(para.38); Wassermeyer/Kaeser in Wassermeyer(2014),Art.3(para.11). 40 GER:BFH(29.01.1986); Wilke in Becker/Höppner/Grotherr/Kroppen(1997),Art.1(para.8); Tumpel in

Aigner/Kofler/Tumpel(2016),Art.1(para.7). 41 Lang(2013),30 and 35 et seqq. 42 Jaya, BIT(2016),1. 43 Pinto(2002),220 et seqq.; Kofler/Kuschil, ÖStZ(2003),225 et seq.; Jirousek/Loukota, ÖStZ(2005),335; Jaya,

BIT(2016),3. 44 2017 OECD-Commentary,Art.1(para.109).

46

provided domestically, then the WHA has no or a reduced withholding obligation. If, however,

a refund system is implemented in the domestic law of the Source State and taxation irrespective

of any limitations provided by tax treaties applies, then the WHA has to withhold taxes by virtue

of the Source State’s domestic law. Hence, the WHA may not rely on the treaty benefits of the

payee in order to be relieved of its duty of levying WHT.45

86 Ladar only faces the obligation to withhold taxes on payments effected to a resident of the other

CS. The DTC-TT only contains allocation rules. However, it does not eliminate the duty of

levying a WHT. Hence, only the domestic rules of Terrabrake could relieve Ladar of its duty

to levy WHT at a domestic rate. In Terrabrake’s domestic law, however, there is a duty to

withhold taxes on payments effected by residents or PE’s of non-residents to residents of other

states. Since no other domestic rule derogates from this withholding duty, the refund method

has to be applied. Thus, Ladar may not invoke treaty benefits directly, since its withholding

duty could only be eliminated by domestic law.

INTERIM CONCLUSION

87 The arguments above show that Ladar neither fulfills the personal scope of the DTC-TT nor is

entitled to invoke treaty benefits as a WHA. Therefore, the DTC-TT cannot be applied, which

results in taxation by virtue of domestic rules.

88 Consequently, a 20% WHT on outbound payments of royalties and fees for technical services

(hereinafter:FTS) to non-resident companies may be levied by Terrabrake.

SUBSIDIARY ARGUMENT: LADAR IS A RESIDENT OF

TERRABRAKE

89 Should the court consider Ladar resident in Terrabrake and the DTC-TT to be applied, it will

be demonstrated that Ladar is still obliged to withhold taxes pursuant to the interpretation of

the allocation rules stated hereinafter.

45 Jaya, BIT(2016),2 et seqq.

47

THE PAYMENT FOR THE KNOWLEDGE-TRANSFER-

AGREEMENT REGARDING THE CRANKSHAFT

THE PAYMENT CONSTITUTES ROYALTIES ACCORDING TO ART.12

DTC-TT

90 The payments made to Renolo for transferring information and technical documents on the

production of the crankshaft qualify as royalties according to Art.12 DTC-TT. It will be

demonstrated that this payment is not for the sale of IP rights, which is why Art.13 DTC-TT is

inapplicable. Consequently, Terrabrake is allowed to levy a WHT of 15% on these payments.

Definition of “Royalties”

91 Art.12 DTC-TT covers payments for royalties arising in a CS paid to a resident of the other

state. Whereas the Residence State of the recipient has the taxing right, the Source State is also

entitled to tax a certain amount. If the payee, however, is the beneficial owner (hereinafter:BO),

this WHT is restricted to 15%. A detailed examination of the term “beneficial ownership” will

be provided below (m.nos.95 et seq.).

92 Pursuant to Art.12(3) DTC-TT royalties are payments for the use of, or the right to use protected

IP, e.g. literary, artistic as well as scientific work or know-how.46 This enumeration is

exhaustive.47 As there is an autonomous definition of know-how in the treaty itself, domestic

law cannot be applied.48 However, domestic law is used for interpreting the different terms

listed in the paragraph, as those do not have a (full) autonomous definition in the DTC.49

However, in applying the domestic law, the interpretation must also take into consideration the

treaty context and, thus, the respective Commentary.50

46 2017 OECD-Commentary,Art.12(para.8). 47 Valta in Vogel(2017),Art.12(para.113). 48 Jiménez in IBFD(2017),Art.12(para.5.1.1.2.1.); Valta in Vogel(2017),Art.12(para.64). 49 Valta in Vogel(2017),Art.12(para.65). 50 Jiménez in IBFD(2017),Art.12(para.5.1.1.2.4).

48

93 The term “information concerning industrial, commercial or scientific (hereinafter:ICS)

experience” in Art.12(3) DTC-TT refers to the concept of know-how. Know-how can be

defined as information that is neither patented nor published to the general or professional

public, arises from previous experience and can be used for the operations of an enterprise in

a way that could result in commercial success.51 Therefore, payments for services designed to

bring new information into existence do not represent past experience and, thus, do not qualify

as know-how.52 Know-how is specific expertise, which means it is gained by persons in the

course of their activities.53 In order to use this know-how for one’s own business purposes, ICS

experience needs to be disclosed to the transferee.54 Another characteristic of a know-how

contract is that the grantor neither takes part in the application of the transferred know-how nor

guarantees the result thereof.55

94 Royalties could be seen as a form of business income to which Art.7 DTC-TT applies. However,

Art.7(6) DTC-TT includes a priority rule stating that Art.12 DTC-TT takes priority as the more

special rule.

Definition of “Beneficial Ownership”

95 Even though the term “beneficial ownership” (hereinafter:BOS) is not defined in the

UN-/OECD-MC, the OECD-Commentary provides a negative definition stating that the direct

recipient of the royalties is not the BO if he does not have the right of usage over the royalties.56

The term should have an autonomous treaty interpretation.57 Moreover, the concept of BOS

“should be understood in its context and in light of the object and purpose of the Convention,

including avoiding double taxation and the prevention of fiscal evasion and avoidance.”58

51 Loukota/Jirousek in Internationales Steuerrecht,I/1(29. Lfg),Art.12(para.83); 2017 OECD-

Commentary,Art.12(para.11); Valta in Vogel(2017),Art.12(para.160); Lan, BIT(2018),146 et seq. 52 Schwarz on Tax Treaties(2013),273; 2017 OECD-Commentary,Art.12(para.11). 53 Aigner D./Aigner H.-J/Buzanich in Aigner/Kofler/Tumpel(2016),Art.12(para.66); Valta in

Vogel(2017),Art.12(para.160). 54 2017 OECD-Commentary,Art.12(para.11.1); Valta in Vogel(2017),Art.12(para.160). 55 Heredia, ET(2005),106; 2017 OECD-Commentary,Art.12(para.11.1). 56 2017 OECD-Commentary,Art.12(para.4.3). 57 Du Toit(1999),236; UK:Court of Appeal(02.03.2006); DK:Landsskatteretten(22.12.2010); Tischbirek in

Vogel/Lehner(2015),Art.10-12(para.15); Vallada in Lang et al(2015),32. 58 Duff in Lang/Pistone/Schuch/Staringer/Storck(2013),1; 2017 OECD-Commentary,Art.10(para.12), Art.11(para.9),

Art.12(para.4).

49

96 The concept of BOS addresses constructions where entities in third countries try to benefit from

the treaty by interposing an intermediate company.59 The purpose of a treaty is not to grant

treaty benefits to agents, nominees or companies that merely act as conduit companies obtaining

income on behalf of another company.60 In this regard, various Courts held that BOS should be

determined from a substantive economic perspective based on the substance of the matter.61

97 For determining the BOS, it is necessary to assess who factually has the “full privilege” to

benefit from the income.62 This is, inter alia, the case when there is no obligation to pass on the

income received.63 This is why in most court decisions the key factor was whether there was

any (contractual) obligation to pass on the income.64 If such an obligation includes a direct

link between the income received and the amount forwarded, the intermediary is not the BO.65

98 Another factor concerns the amount of income received and passed on.66 In cases where the

exact amount of income received is forwarded, the intermediary does not have the “full

privilege” to benefit from the income and is not the BO.67 Even if the intermediary keeps a

small margin, the qualification as BO is not granted.68 The Spanish TEAC held that even if the

intermediary retains almost 20% of the income received, this will not necessarily lead to BO

status.69

99 Moreover, the predetermination and automatism of the flow of funds is regarded as another

indicator for denying BOS.70 In such cases, the intermediary is not the BO because it has no

free use and enjoyment of this income.71 What is more, the period between the receipt and the

59 OECD-Report,Beneficial Owner,2011. 60 Canete in Lang/Schuch/Staringer(2009),185; 2017 OECD-Commentary,Art.10(para.12.2.), Art.11(para.10),

Art.12(para.4.1). 61 UK:Court of Appeal(02.03.2006); CA:FCOA(26.02.2009); DK:Østre Landsret(20.12.2011); CH:TAF(07.03.2012). 62 UK:Court of Appeal(02.03.2006).

63 De Broe(2008),687. 64 US:Tax Court(05.08.1971); UK:Court of Appeal(02.03.2006); DK:Østre Landsret(20.12.2011);

DK:Landsskatteretten(22.12.2010); Gooijer, Intertax(2014),216; Jain/Prebble, BIT(2018),7. 65 Smit in Lang et al(2013),64 et seq. 66 UK:Court of Appeal(02.03.2006); Canete/Staringer in Lang/Schuch/Staringer(2009),188 et seqq. 67 UK:Court of Appeal(02.03.2006); Pamperl, SWI(2013),407. 68 Jiménez in Lang et al(2013),128 et seq. 69 ES:TEAC(28.09.2009). 70 CA:FCOA(26.02.2009); Arnold in Lang et al(2013),42; Hansen/Christensen/Pedersen, BIT(2013),196. 71 Canete/Staringer in Lang/Schuch/Staringer(2009),191 et seq; Pamperl, SWI(2013),408.

50

forwarding is crucial. The UK Court of Appeal denied the BOS of an intermediary because it

only held the income received for one day.72

Art.12 DTC-TT Is Applicable

100 The scope of Art.12 DTC-TT is fulfilled since the payments

• are made by a company (Ladar) resident in Terrabrake;

• to a company (Renolo) resident in Tyreland which is the BO, because Renolo

undoubtedly has the full privilege to directly benefit from the income (m.nos.95 et

seqq.);

• are to be considered as royalty payments.

This payment has to be subsumed under “information concerning ICS experience” according

to Art.12(3) DTC-TT for the reasons stated below.

101 Renolo’s business is “automotive research” and “development and improvement of the vehicle

production process”. Renolo has conducted this business since 1975 and therefore built up

significant know-how. All of this experience of Renolo’s engineers is contained in the

information, which is disclosed to Ladar. Furthermore, there is no indication that this know-

how is patented or divulged to the public. In addition, this know-how has practical application

in the operation of Ladar for improving the crankshaft. Consequently, this may lead to an

economic benefit for Ladar. Renolo, however, is neither required to contribute to the

application of the know-how nor does it guarantee the results thereof. According to the OECD,

if a customer is provided with undivulged technical information concerning a product, the

payments constitute royalties as they are made for the supply of know-how.73 For all these

reasons, the transfer of information and technical documents on the production of the crankshaft

is to be qualified as know-how.

102 Consequently, the payment for the crankshaft constitutes a royalty pursuant to Art.12 DTC-

TT.

72 UK:Court of Appeal(02.03.2006). 73 OECD-Report,E-Commerce,2001,Annex 2(para.33).

51

THE PAYMENT DOES NOT FALL UNDER ART.13 DTC-TT

103 The knowledge-transfer-agreement is not a transfer of full ownership of the IP and, therefore,

the payments are clearly not covered by Art.13 DTC-TT. The transfer of full ownership

inherently consists of a transfer of the exclusive ownership rights.

104 The Spanish Supreme Court explicitly deems know-how to be only within the scope of Art.12

in numerous decisions. The transferor cannot grant any exclusive right to know-how, as he still

retains and remembers the information even in the case of a “sale”.74 Thus, the transfer of know-

how can never result in alienation since there is no transfer of full ownership thereto.

105 Furthermore, the OECD-Commentary does not refer to “information concerning ICS

experience” when it comes to the distinctions drawn between alienation under Art.13 DTC-TT

and the “use-of/right to use” criterion for constituting royalties under Art.12 DTC-TT either.75

This is why know-how is just transferred and not sold.76

106 Should the Court not follow the previous argument, it will be shown that the payment for the

knowledge transfer does not fall under the definition of alienation.

Definition of “Alienation”

107 The term “alienation” is neither defined in the OECD-MC nor in the UN-MC. However, the

OECD-MC distinguishes between “the full ownership of an element” and “the use of, or the

right to use”.77 If e.g. all rights to an IP are granted exclusively to another party, this could be

seen as alienation.78 Despite making this distinction, the Commentary overall leaves much room

to manoeuvre on this point as it suggests that the classification of a transaction as an “alienation”

should be made on a case-by-case basis and relies to some extent on national law.79

74 ES:Spanish Supreme Court(02.04.2002),(14.05.2002),(19.12.2002); Heredia, ET(2005),107 et seq. 75 2017 OECD-Commentary,Art.12(para.8.2). 76 Heredia, ET(2005),108; Pöllath/Lohbeck in Vogel/Lehner(2015),Art.12(para.10a); Aigner D./Aigner H.-J/Buzanich

in Aigner/Kofler/Tumpel(2016),Art.12(para.71). 77 2017 OECD-Commentary, Art. 12 para. 8.2. 78 Ibid. 79 Ibid.

52

108 Since “alienation“ is not defined in the DTC-TT and no autonomous interpretation leads to a

satisfying result, reference has to be made to domestic law (m.nos.62 et seq.). Generally

speaking, there are certain common features that definitions of “alienation” have in common.

One characteristic of alienation is that a full permanent and exclusive transfer of ownership

rights is made.80 Another indicator for alienation is that there is no temporal limitation.81

Moreover, an alienation implies that the alienator has no right of disposition or right of use

anymore.82 A licence agreement, on the other hand, is characterised by the fact that the licensor

remains the owner of the property and retains important rights in respect of the property, while

the licensee is entitled to only a part of these rights.83

Art. 13 DTC-TT Is Not Applicable

109 The first indicator pointing towards treating the payments as a royalty is that the assigned rights

are limited by time, as the contract between Ladar and Renolo refers to a limited period of five

years. The Canadian Tax Court highlighted the importance of time limitations when

characterising royalties.84 Hence, a transfer limited by time is not an alienation.

110 Secondly, Ladar is allowed to use the know-how subject to a certain condition. Renolo only

authorises Ladar (or third parties entrusted by Ladar) to conduct research itself; however, in

this case, Ladar has to report those activities to Renolo. This indicates that Renolo can

terminate the contract unilaterally if Ladar does not respect these conditions. Obviously,

relevant property rights are retained by Renolo. As a result, Ladar has only a limited, not a full

right of disposal over the IP.

111 Consequently Art.13 DTC-TT is not applicable.

112 Therefore, this transfer of know-how can only be classified as royalties and, thus, fall under

Art.12 DTC-TT.

80 Valta in Vogel(2017),Art.12(para.88). 81 AUT:VwGH(24.11.1987); GER:BFH(23.04.2003); Wassermeyer in Wassermeyer(2011),Art. 12(para.11); Valta in

Vogel(2017),Art. 12(para.90). 82 AUT:VwGH(24.11.1987); Heredia, ET(2005),108. 83 Heredia, ET(2005),108. 84 CA:Canadian Federal Court(1962),(05.09.1975); ATO(27.08.2008),para.129 et seq.

53

INTERIM CONCLUSION

113 For all these reasons, the payment made by Ladar to Renolo with respect to the crankshaft is

taxed at source in Terrabrake, since it constitutes royalties under Art.12 DTC-TT. As a

consequence, Terrabrake is entitled to levy a WHT of 15%.

54

THE PAYMENT FOR THE “BYC”-DATABASE AND TRAINING

OF LADAR’S EMPLOYEES

114 Ladar’s payment for the “BYC”-Database and the training of its employees has to be considered

uniformly and, thus, is as a whole royalty income under Art.12 DTC-TT. As such, it is subject

to WHT in Terrabrake. Should the Court not follow this view, the payments will be split. The

payment for the “BYC”-Database would still fall under Art.12 DTC-TT and the payment for

the training under Art.12A DTC-TT. Thus, Terrabrake retains the right to levy a WHT of 15%

on the whole payment.

THE PAYMENT FOR THE “BYC”-DATABASE

Art.12 DTC-TT Applies

115 The payment for the database fulfils the requirements of Art.12 DTC-TT, since the payments

• arise in Terrabrake because the payor (Ladar) is a resident therein;

• are paid to Renolo, a resident company of Tyreland, which is the BO, because it

undoubtedly has the full privilege to directly benefit from the income (m.nos.95 et

seqq.);

• are to be considered royalty payments.

116 Upon closer examination of the term “royalties” (m.nos.91 et seqq.), the database has to be

subsumed under one of the IP listed in the catalogue under Art.12(3) DTC-TT.85 According to

the Vogel-Commentary, a “compilation of databases” falls under “related rights”. This type of

rights falls under the ambit of “Copyright of Literary, Artistic or Scientific work”.86

117 The database is ultimately regarded as copyright if the data contained therein and its cross-

linking fulfil a minimum threshold of creativity.87 The “BYC”-Database’s purpose is to provide

technical solutions to problems regarding the production of cars. Practical problems and

85 Valta in Vogel(2017),Art.12(para.113 et seqq.); Falcão/Michel, BTR(2018),432. 86 Ibid. 87 ES:TEAC(15.02.2007); Valta in Vogel(2017),Art.12(para.129).

55

potential solutions are continuously fed into the database. This database goes beyond simply

providing data – it prepares and structures complex data pertaining to the production of cars

and provides the user with information on potential solutions. Therefore, the database is to be

regarded as copyright and, hence, the payments for access as royalties.

118 In addition, the payments are received for the use of information concerning ICS experience.88

The question arises whether know-how is involved in this particular transaction regarding the

“BYC”-Database.

119 The definition of “know-how” (m.no.93) is fulfilled. The information that is fed into the “BYC”-

Database by Renolo is not divulged to the general or professional public, since only selected

clients have access. Furthermore, there is no indication that the information contained in the

database has already been published.

120 Another important fact is whether the information transmitted was specifically generated

(m.no.93). The information provided to Ladar is not new information resulting from performing

services at the request of the payer. Rather, it is information based on experience and

expertise. The database is constantly updated and fed with new information. However, those

updates are not a result of any request made by Ladar.

Interim Conclusion

121 To sum up, Art.12 DTC-TT is the only article applicable to the payments regarding the

“BYC”-Database. Consequently, Terrabrake may levy a 15% WHT on this payment.

THE PAYMENT FOR THE TRAINING OF LADAR’S EMPLOYEES

122 Our following argumentation is built on the assumption that the payments for the database-

access and for the training are not separable. Should the Court deem both payments to be

separable and to fall under the ambit of different distributive rules, the payment for the training

falls only under the ambit of Art.12A DTC-TT.

88 ES:TEAC(15.02.2007); 2017 UN-Commentary,Art.12A(para.12); Lan, BIT(2018),146.

56


123 The question of a possible categorization as a “mixed contract” arises when it comes to the

training. According to Vogel,89 elements of an IP can be mixed with other elements, e.g. related

complementary services. Each element of the contract has to be analysed individually and

characterised according to its object and function. Accordingly, each element is taxed based on

this characterisation. Should, however, one element predominate by “constituting by far the

principal purpose of the contract” while the other is “of ancillary and largely unimportant

character”, then only what is considered to be the principal purpose of the contract is taken into

consideration for the classification.90

124 Since the database is not accessible to everyone, the training is necessary as user knowledge is

otherwise not available to Ladar. The purpose of this training is to convey know-how in order

to access and use the database in the best and most efficient way possible. The accessibility and

the usability are therefore dependent on the user-skills of Ladar’s employees. If the employees

did not have this specific knowledge, they would not be able to use the database efficiently.

125 The provision of the access to the database constitutes “one of the principal purposes of the

contract”, since the know-how contained therein has to be made accessible to Ladar. The

payment for the training is of “ancillary character”, as the training would be useless without

access to the database. Therefore, the payment for the training falls under the same distributive

rules as the payment for the “principal purpose of the contract”. Since the payment for the

database-access falls under Art.12 DTC-TT, the same must apply for the payment for the

training.

Subsidiary Argument: Art.12A DTC-TT Applies

126 Should the Court consider that the payments have to be separated, we will show that the

payment for the training falls under the ambit of Art.12A DTC-TT. The application of Art.12A

DTC-TT results in a taxing right of Terrabrake of 15% WHT on this payment.

89 Valta in Vogel(2017),Art.12(para.163 et seqq.). 90 Valta in Vogel(2017),Art.12(para.164 et seq.); Falcão/Michel, BTR(2018),431, AT:UFS(10.06.2003).

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The Payment for the Training Is Covered by Art.12A DTC-TT

127 With respect to both Art.7 and Art.14, Art.12A DTC-TT prevails unless the payee either has a

PE or a fixed base in the Source State. Neither is the case.

128 Moreover, the scope of Art.12A DTC-TT is different from that of Art.12 DTC-TT, because

performing TS does not include the transfer of the use of, or the right to use property.

129 The requirements for FTS pursuant to Art.12A(1) DTC-TT are that

• the payment must stem from FTS,

• arise in one CS, and

• is made to a resident of the other CS.

130 A definition of the term FTS is contained in Art.12A(3) DTC-TT according to which it covers

“any payment in consideration for any service of a managerial, technical or consultancy

(hereinafter:MTC) nature”.91 According to the ordinary meaning of the terms MTC, the

services have to include the application of specialised knowledge, skill or expertise on behalf

of the client, or the transfer thereof to the client, whereas the transfer of information is covered

by Art.12(3) DTC-TT.92

131 The term “technical” includes any application of specialised knowledge, skill or expertise with

respect to a particular art, science, profession or occupation. Thus, services provided by

regulated professions (e.g. engineering) fall under the definition of FTS.93

132 The ordinary meaning of “consultancy” comprises the provision of advice or services of a

specialised nature. In some cases, consultancy services may also be considered activities that

are of a “managerial or technical nature”.94 There is an overlap between all three terms.

However, as long as a service falls under one of these three terms, the result remains the same,

namely that the service in question falls within the ambit of Art.12A(3) DTC-TT.95

91 Falcão/Michel, BTR(2018),427 et seq.; 2017 UN-Commentary,Art.12A(para.62). 92 Ibid. 93 Falcão/Michel, BTR(2018),428. 94 Ibid. 95 2017 UN-Commentary,Art.12A(para.67 et seq.).

58

133 The term “services” is neither defined in Art.12A DTC-TT nor in any other distributive rule.

In this case an autonomous interpretation is required, as it is required by the context (m.nos.62

et seq.). A broad interpretation of this term is necessary. It should include activities that are

carried on by one person in order to benefit another person paying a fee in consideration. What

is more, the character of the payments as FTS is not altered by the variety of possibilities and

the manner in which the services are provided.96

134 Art.12A(2) DTC-TT explicitly states that FTS apply “notwithstanding the provisions of Article

14”. Therefore, if a payment fulfils the ambit of both Art.12A and Art.14, then Art.12A DTC-

TT takes precedence over Art.14 DTC-TT.97

135 Art.12A(3) DTC-TT limits the above-mentioned definition of FTS by listing payments which

do not fall within its ambit. If the payment is made “(a) to an employee of the person making

the payment; (b) for teaching in an educational institution or for teaching by an educational

institution; or (c) by an individual for services for the personal use of an individual”, Art.12A

DTC-TT is inapplicable.98

136 Art.12A(3)(b) DTC-TT expressly states the irrelevance of payments for teaching in an

educational institution. The provision, however, gives no definition of “educational

institution”. According to the UN-Commentary the meaning comprises universities, colleges,

and other post-secondary educational institutions. 99 The US Tax Court100 ruled that the purpose

of an “educational organisation” is to provide educational activities. Should the institution also

conduct other activities, so-called “non-educational activities”, then the latter should be merely

incidental. Any payments conducted to those aforementioned institutions are not FTS.

137 The payments for the training services are FTS. The trainers sent by Renolo are experts on the

database sharing and thus, making available, their specialised expertise. The training

concentrates on how to make the most of the database for the car-boats, although the “BYC”-

Database contains information regarding the production of cars more generally. As a result,

96 Sixdorf/Leitsch, ET(2017),236; Falcão/Michel, BTR(2018),429. 97 2017 UN-Commentary,Art.12A(para.64). 98 Falcão/Michel, BTR(2018),429. 99 2017 UN-Commentary,Art.12A(para.70). 100 US:Tax Court(28.06.2017).

59

Ladar’s employees will be able to determine the information needed for the production of car-

boats and make efficient use of the database.

138 Renolo provides training courses and is entitled to issue an “Official Certificate of Expert in

Motors”. Nevertheless, Renolo cannot be deemed a university, a college or any other post-

secondary educational institution. Such institutions have a broader educational goal, offer

several classes on a broad range of subjects over a longer period of time and equip students

with general knowledge. In contrast, Renolo offers specialised technical trainings over a short

period of time. This is not altered by the fact that Renolo issues certificates. Even though

Renolo is entitled to do this, the conclusion does not change because these are truly targeted,

specialised certificates unlike degrees from universities and similar institutions. As a result,

Renolo cannot constitute a “post-secondary education institution” since no substantial

educational activities are provided.

139 Moreover, Renolos non-educational activities far exceed its training activities and, thus, cannot

be considered “incidental to” the educational activities. After all, education is not the

company’s primary corporate object. This is also indicated by the amount of money Renolo

receives for the training which is merely $50,000, whereas the payment for the transfer of know-

how regarding the crankshaft is $300,000. Thus, the non-educational activities obviously are

not incidental to the educational activities and Renolo cannot be regarded as an educational

institution for tax treaty purposes. The fact that Tyreland acknowledges Renolo’s activities and

entitles them to issue a Certificate for courses held cannot change this view.

140 From the above, it can be concluded that, if the payments for the training services were to be

regarded separately from the payments for access to the database, the payments for the training

would unquestionably fall under Art.12A DTC-TT.

INTERIM CONCLUSION

141 In conclusion, the payments for the database and for the training provided to Renolo’s

employees are royalty payments under Art.12 DTC-TT. The training services are only of

ancillary character. Should the Court disagree on this point, then the payments for the training

fall within the ambit of Art.12A DTC-TT.

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142 In either case, by applying Art.12 or Art.12A DTC-TT, a source taxing right is allocated to

Terrabrake. This source taxing right entitles Terrabrake to levy a 15% WHT.

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THE PAYMENTS WITH RESPECT TO THE SALAMANDER’S

APP

143 The payments for the Salamander’s App are not covered by the DTC-TT, because RenoloApps,

which is a resident of CI, is the BO of the payments. Moreover, those payments are royalties

which are inseparable and, thus, must be considered as one uniform whole. Therefore, the

payments are subject to a 20% domestic WHT in Terrabrake.

144 Should, the Court consider Renolo to be the BO of the payments, these fall within the scope of

Art.12 DTC-TT and Terrabrake may levy a 15% WHT.

RENOLO IS NOT THE BENEFICIAL OWNER OF THE ROYALTIES

145 According to the criteria explained above (m.nos.95 et seqq.), Renolo cannot be considered the

BO because the requirements for BOS are not fulfilled.

146 In casu, RenoloApps is a wholly-owned subsidiary of Renolo incorporated in CI. Renolo

receives the payment from Ladar and transfers 90% of the payment to RenoloApps. Hence,

Renolo acts as an interposed company that passes on passive income under a contractual

obligation. Renolo has only narrow powers in respect of this passive income, meaning it is not

free to decide how to use that income as it must pass it on to RenoloApps.

147 What is more, RenoloApps is specialised in programming application software while Renolo is

not involved in this business at all. Therefore, RenoloApps is the owner of the copyrights of

the software, whereas Renolo’s only task is to collect royalties and deliver them to the owner

of the copyright. The Spanish TEAC stated that companies merely managing copyrights are not

the BOs of the royalty and, thus, not entitled to the treaty benefits.101

148 Considering the amount forwarded, it is obvious that Renolo cannot be the BO of the royalty

income. Firstly, the amount forwarded to RenoloApps is 90% of the payment. Thus, Renolo

keeps only a small margin and does not have the full privilege to directly benefit from the

income it receives. Moreover, the amount payable is fixed by agreement at 10% on all proceeds

101 ES:TEAC(22.09.2000).

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obtained, stipulating a predetermined and automatic flow of funds. Regarding the holding

period, Renolo immediately transfers 90% of the income to RenoloApps and, thus, has no

control over the income.

149 As a consequence, Renolo does not have the right to use and enjoy the royalty income received

from Ladar and is therefore not the BO of the income.

ABUSE OF THE DTC-TT AS RENOLOAPPS IS THE BENEFICIAL

OWNER OF THE ROYALTIES

150 Even if the Court comes to the conclusion that Renolo is the BO, it cannot be denied that the

structure as such is abusive and was created only to avoid the 20% WHT in Terrabrake.

151 The clear goal of the concept of BOS is its function as anti-treaty shopping device.102 It is also

essential to consider the GAAR in Art.29 DTC-TT for counteracting treaty shopping.

152 According to Art.29 DTC-TT, an arrangement or a series of arrangements “having been put

into place for the main purpose or one of the main purposes of obtaining a tax advantage that

defeats the object or purpose of the relevant provisions of this Convention, are not genuine

having regard to all relevant facts and circumstances.” The following terms have to be

interpreted in order to construe Art.29 DTC-TT:

• Firstly, the term “arrangement” needs to be interpreted broadly and, thus, could be any

kind of agreement, understanding, or transaction, regardless whether they are legally

binding or not.103

• Secondly, the “main purpose” or “one of the main purposes” is gaining a “tax

advantage”.

• Lastly, this tax advantage, or benefit, needs to be achieved through the arrangement.

153 In the case at hand, the arrangement is the general agreement between Renolo and RenoloApps

icw the contract between Renolo and Ladar. Although Renolo has economic substance and

business functions, the inclusion of Renolo in this particular transaction has the same effect as

102 Jiménez in Lang et al(2013),130. 103 OECD-Report, Action 6,57.

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setting up a conduit company in Tyreland. It would have been economically sensible to directly

conclude a contract between Ladar and RenoloApps. This would have even resulted in a saving

of the 10% fee paid to Renolo. This indicates that this transaction has no valid economic or

business purpose.

154 In order to illustrate the tax advantage obtained by RenoloApps, one must consider the

differences in the tax burden. Without this structure, the royalty payment from Ladar to

RenoloApps would be taxed at a 20% WHT in Terrabrake. With this structure, the application

of the DTC-TT results in a reduced WHT rate of 15%.

155 As a consequence, even if the Court is of the opinion that Renolo is the BO of the royalties, the

transactional structure as a whole is abusive and was set up with the sole purpose of allowing

RenoloApps to reduce taxes through unduly obtaining benefits under the DTC-TT.

INTERIM CONCLUSION

156 To conclude, since RenoloApps is the BO of the payment and resident in CI, the benefits of

the DTC-TT must be denied. Renolo only serves as an intermediary for RenoloApps to benefit

from Art.12 DTC-TT. As the main purpose of the BOS concept as well as the GAAR is to

prevent treaty shopping and one of the main purposes of this arrangement is to obtain a tax

advantage, the Court must deny the entitlement to treaty benefits regarding this payment.

THE PAYMENTS WITH RESPECT TO THE SALAMANDER’S APP ARE

COVERED BY ART.12 DTC-TT

157 Should the Court deem Renolo to be the BO, we will show that the payment regarding the

Salamander’s App is covered by Art.12 DTC-TT.

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The Definition of “Software”

158 The question arises whether software falls under the ambit of Art.12 DTC-TT. The OECD-

Commentary deals with the term “software” in detail104 stating, inter alia, that rights in

computer programs are a form of IP.105 According to literature and the OECD-Commentary,

the suggested treatment for software is under the category of “scientific” work.106 García points

out that even if software would not fall under the three categories (literary, artistic, scientific)

cited in Art.12, it is still protected by copyright law in another way because it falls within the

ambit of the royalty concept.107

159 Software can be defined as the result of mental human labour developed into a program legible

to computers.108 As such, software is “a program, or series of programs, containing

instructions for a computer” and can either be classified as operational software or as

application software.109 Application software, as compared to operational software, is aimed

at performing a specific function dictated by the user.110 Application software can be sub-

divided into standardised software with a wide range of applications and tailor-made

software.111

160 In order to characterise the payments for the software, one must look at the nature of rights

transferred, in particular considering the use and exploitation of the software.112 As most

software needs to be copied onto a hard drive for its use, the right of copy is, thus, essential for

its operation.113 As those rights merely allow to operate the software, such payments would still

be covered under Art.7 DTC-TT.114 Consequently, the mere right of use does not fall within the

ambit of Art.12.115

104 2017 OECD-Commentary,Art.12(para.12-17.4). 105 2017 OECD-Commentary,Art.12(para.12.2). 106 Ault, ET(1993),331; Tumpel in Gassner/Lang/Lechner(1994),163; Kessler, IStR(2000),99; 2017 OECD-

Commentary,Art.12(para.13.1). 107 Heredia, BIT(2005),227 et seq. 108 Van der Laan, Intertax(1991),267. 109 Ibid; 2017 OECD-Commentary,Art.12(para.12.1). 110 Van der Laan, Intertax(1991),267. 111 2017 OECD-Commentary,Art.12(para.12.1). 112 2017 OECD-Commentary,Art.12(para.12.2). 113 Kessel, IStR(2000),102; Valta in Vogel(2017),Art.12(para.167). 114 2017 OECD-Commentary,Art.12(para.14). 115 Van der Laan, Intertax(1991),268; Pinto Nogueria in Lang et al(2013),204; Bal, BIT(2014),518.

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161 On the other hand, if additional rights beyond those necessary for the basic operation of the

software are granted, e.g. the rights of reproduction, distribution, modification or public

displaying, such payments fall under Art.12.116

162 Payments for a tailor-made software are often considered royalties because the client is more

likely to receive an extended copyright for e.g. individualising or modifying the software.117

Wassermeyer even states that the assignment of tailor-made software always falls under the

ambit of Art.12.118


163 The scope of Art.12 DTC-TT is fulfilled since the payments

• are made by a company (Ladar) resident in Terrabrake;

• to a company (Renolo) resident in Tyreland which is the BO, because it undoubtedly

has the full privilege to directly benefit from the income (m.nos.95 et seq.);

• are to be considered as royalty payments.

The payment for the Salamander’s App has to be subsumed under “copyright of literary, artistic

or scientific work” according to Art.12(3) DTC-TT for the following reasons.

164 The Salamander’s App is an application software and its use is limited to the car-boats

produced by Ladar. It is nearly impossible for any other producer of car-boats to use the

software because the app is tailored to Ladar’s systems. The use for other car-boat producers

would entail amendments to the app. Moreover, the fact that the name of the app contains the

name of Ladar’s products (Salamander’s App) leads to the conclusion that the app was

specifically tailored according to Ladar’s wishes. Obviously, not only the functions of the app

(collection of crankshaft data), but also the interface thereof (especially its name and the

integrated customer relations option) are customised to the specific needs of Ladar’s car-boats.

These facts indicate that the app was designed to meet Ladar’s needs.

116 Heredia, ET(2006),37; 2017 OECD-Commentary,Art.12(para.13.1). 117 Bendlinger, VWT(2017),242; Valta in Vogel(2017),Art.12(para.172). 118 Wassermeyer in Wassermeyer(2011),Art.12(para.63).

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165 What is more, Ladar is granted copyrighted rights in addition to the rights necessary for the

basic operation of the software, namely the right to distribute the app. This transfer of IP rights

even has the aim of a commercial exploitation of the program.119 Salamander’s App provides

data to Ladar’s customers regarding technical information, in addition to providing a

community platform and communication channel, which enables Ladar to use the app

commercially. Moreover, the ability to communicate with customers and the creation of a

community fosters a strong emotional connection between the consumers and the brand, thus

enhancing the value of Ladar’s brand. The contract between Ladar and Renolo enables Ladar

to distribute and market the underlying IP of Renolo. Ladar necessarily has rights to Renolo’s

copyrights, otherwise its use and in particular the distribution of the app would constitute an

infringement of copyright. This view is supported by the Australian Federal Court in a case

regarding a software license agreement in the computer industry. The Court held that “the use,

distribution and marketing of programs […] require that the rights granted […] include […]

copyrights [...].”120 The above-mentioned indicators undoubtedly imply that payments for

Salamander’s App are royalty payments.

INTERIM CONCLUSION

166 As has been conclusively shown, the payment regarding Salamander’s App is a royalty

payment falling within the scope of Art.12 DTC-TT. Hence, a 15% WHT may be levied in

Terrabrake.

THE PAYMENT FOR THE USE OF THE SERVER AND THE REPORTS

167 The payments for the Salamander’s App, the monthly reports and using the server are one unit

and, thus, the whole consideration falls under the ambit of Art.12 DTC-TT.

119 Ledesma/González-Cotera, ET(2000),277; AUT:EAS(30.06.2003); Heredia, BIT(2005),230; PT:Supreme

Administrative Court(02.02.2011); Pinto Nogueria in Lang et al(2013),195. 120 AUS:Australian Federal Court(12.04.2011); Cooper in Lang et al(2013),218 et seqq.

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168 In general, mixed contracts consisting of e.g. hardware and software components as well as

services, have to be split up and qualified differently.121 The methods set out above (m.no.123)

are equally applicable to mixed computer software contracts.

169 Pursuant to the facts of the case, a server is provided in order to keep the Salamander’s App

working properly. The purpose of the server is of ancillary character as it is needed merely for

the proper operation of the software. The reason for entering the contract was clearly the

transfer of copyrights to the app. The German Federal Fiscal Court deems the consideration in

mixed software contracts as royalties if the transfer of copyrights is the dominant contractual

element.122 The only exception to this rule is where the consideration for the transfer of the

copyright is less than 10% of the total compensation.123 As in casu the object of the transaction

is the acquisition of rights to use the digital content rather than rights to use the tangible

medium and additionally the consideration for the app constitutes 45% of the total

compensation, the whole payment needs to be classified as a royalty payment. As a result, the

server is an integral part of the software and obtains the same legal treatment as the software.

170 With respect to the monthly reports, it is important to note that a characteristic feature of an

app is the collection and processing of user-generated personal data. Thus, the data generated

by the app is undoubtedly of greater value to Ladar than the reports compiling and evaluating

it. Therefore, these reports are only of an ancillary character, despite being closely linked to

the Salamander’s App. Another very important indicator is both the level and the nature of the

expenditure.124 The majority of contracts regarding services involve a great level of

expenditure and often require the contractor to pay for expenses such as the salaries of the

employees involved. In casu, the contract regarding the Salamander’s App neither includes a

great level of expenditure for the reports nor involves paying salaries for Renolo’s employees.

The reports are already comprised in the lump sum payment for the Salamander’s App and not

priced separately. As a consequence, the monthly reports written by Renolo’s engineers only

constitute an ancillary element. Thus, the treatment that applies to the principal part applies to

the whole amount of the consideration.

121 Valta in Vogel(2017),Art.12(para.173). 122 GER:BFH(19.12.2007); GER:BMF(27.10.2017),8. 123 GER:BFH(28.01.2004). 124 OECD-Report,E-Commerce,2001(para.21).

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SUBSIDIARY ARGUMENT: THE PAYMENTS PERTAINING TO THE

SALAMANDER’S APP ARE TO BE REGARDED SEPARATELY

171 Should the Court consider all three elements of the contract separately, it will be argued that

the payment for the Salamander’s App as well as the payment for the server fall within Art.12

while the payment for the reports falls under the ambit of Art.12A DTC-TT.

The Payment for the Use of the Server Is Covered by Art.12 DTC-TT

172 According to Vogel125 “contracts that include specific servers, storage mediums or other

equipment that can be physically accessed and individually and exclusively controlled by the

customer, typically qualify as a lease of equipment”. Hence, such payments fall within the

meaning of royalties because Art.12(3) DTC-TT includes payments “for the use of, or the right

to use, industrial, commercial, or scientific equipment”. Since the 1992 OECD-MC, income

from the leasing of ICS equipment falls under Art.7 OECD-MC. 126 However, ICS equipment

is still explicitly included in Art.12 UN-MC.

173 Art.12(3) UN-MC applies to situations in which the owner of the equipment leases it to another

party which uses it for its own purposes.127 The UN-Commentary states that it is in the nature

of equipment to be used in the performance of a task.128 However, IP and immovable property

are not covered by the term “equipment”.129 Consequently, tangible assets which can be used

industrially, commercially or scientifically can constitute ICS equipment.130

174 The OECD- and UN-Commentary indicate that a leasing contract maintains its “leasing”-

character even if “the lessor supplies personnel after installation to operate the equipment,

provided that their responsibility is limited solely to the operation or maintenance of the ICS

125 Valta in Vogel(2017),Art.12(para.107). 126 Wassermeyer in Wassermeyer(2011),Art.12(para.84); Jiménez in IBFD(2017),Art.12(para.5.1.6.1). 127 2017 UN-Commentary,Art.12(para.13.1). 128 Ibid. 129 Wassermeyer in Wassermeyer(2011),Art.12(para.84); 2017 UN-Commentary,Art.12(para.13.1). 130 Sauer in Gassner/Lang/Lechner(1994),181 et seq.

69

equipment under the direction, responsibility and control of the lessee”.131 Pursuant to the

OECD, the crucial factors that indicate “leasing” are, inter alia, the following:132

a) the customer is in physical possession of the property,

b) the customer controls the property,

c) the customer has a significant economic or possessory interest in the property.

Howbeit the OECD also states that the list is non-exclusive and some factors may not be

relevant in certain cases.133

175 However, a UN-Report states that the requirement of physical possession of the equipment

for “using the equipment” is not necessary because the ability to control the equipment is often

sufficient.134 Thus, this means that even if the payer is not the one physically operating the

equipment, such payments are royalties under Art.12 UN-MC as long as the payer uses the

capacity of the equipment in some way (e.g. cloud computing with servers controlled by another

company).135 Also Chinese Courts took this approach.136

176 Renolo provides one server dedicated for Ladar. A server is tangible computer equipment

(hardware). It is used for the performance of the software, namely by supplying storage for the

data regarding the car-boats and, thus, providing a seamless circuit for the use of the software.

Therefore, the server can be considered as ICS equipment. Ladar can operate the software

remotely via the server. The server space can be utilised from anywhere and no physical access

or control is required. What is more, it is clear that Ladar has the exclusive right to use all the

facilities of that server. Hence, in essence, the consideration is for granting the right to use the

server.

177 Consequently, the payments made by Ladar to Renolo are for the use of the server and

therefore are royalty payments. Hence, these payments fall within the ambit of Art.12 DTC-

TT.

131 2017 OECD-Commentary,Art.5(para.36). 132 OECD-Report,E-Commerce,2001,Annex 2(para.28). 133 Ibid. 134 UN-Report,2016,Annex I(paras.23-38); Jiménez in IBFD(2017),Art.12(para.5.1.6.2.3). 135 Jiménez in IBFD(2017),Art.12(para.5.1.6.2.3). 136 CN:Higher People’s Court of Beijing(20.12.2002).

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Art.12A DTC-TT Applies to the Contractual Element Regarding the Monthly Reports

178 The monthly reports elaborated by Renolo’s employees are TS and, thus, fall under the ambit

of Art.12A DTC-TT due to the following reasons.

179 Pursuant to the facts of the case, the service provided by Renolo is to create reports out of the

data generated through the app. TS have to include the application of specialised knowledge,

skill or expertise by the service provider on behalf of the client.137 Providing descriptive

technical reports elaborated by engineers involves the exercise of special skill or knowledge.

Renolo’s engineers are experts and add significant value in terms of content. They have

specialised IT know-how, which they apply on behalf of Ladar. Hence, Renolo uses its

employees’ skills to generate the reports.138

180 Under the given facts, it is clear that the monthly reports provided by Renolo fall under

Art.12A DTC-TT, if they were to be regarded separately.

INTERIM CONCLUSION

181 The payments for the Salamander’s App (including the monthly reports) and for the use of

the server must be considered inseparable and, therefore, are uniformly regarded as royalty

payments pursuant to Art.12 DTC-TT. Should the Court regard the elements of the contract

separately, the payment regarding the use of the server falls within the ambit of Art.12(3) DTC-

TT, whereas the monthly reports are covered by Art.12A DTC-TT. In either constellation, a

15% WHT may be levied by Terrabrake.

137 2017 UN-Commentary,Art.12A(para.62). 138 Van der Bruggen, APTB(2001),51.

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THE PAYMENT TO MR. FIXER

182 The service provided by Mr. Fixer falls under the purview of Art.12A DTC-TT. The payment

does not fall under Art.12A(3)(a) DTC-TT. What is more, Art.12A(7) DTC-TT is not

applicable, and, thus, the payment is still covered by Art.12A DTC-TT. Should the Court not

follow our argument on the inapplicability of Art.12A(7) DTC-TT, we will demonstrate that

Art.21(3) DTC-TT applies and Terrabrake may levy a WHT on the payment.

ART.12A DTC-TT APPLIES

183 The payment to Mr. Fixer is FTS pursuant to Art.12A DTC-TT, since the payment

• arises in Terrabrake because the payor (Ladar) is a resident therein;

• is paid to Mr. Fixer, resident in Tyreland who is the BO because he has the full privilege

to directly benefit from the income;

• is to be regarded as FTS.

184 It can be concluded that Mr. Fixer provides services of a technical and/or consultancy nature.

He uses specialised knowledge, skill or expertise with respect to his profession. He has been an

engineer for many years and is trained in the construction of crankshafts and provides

suggestions to improve the construction of the crankshaft. For the reasons above, the services

that are provided by Mr. Fixer regarding the incident are of a technical and/or a consultancy

nature.

185 The payments are made “in consideration for any service of a MTC nature”. As is stated in the

definition of FTS in Art.12A(3) DTC-TT, the payments have to be “in consideration” for the

services rendered by Mr. Fixer. The purpose of the payment made by Ladar is to reimburse Mr.

Fixer’s costs incurred for the travel to Terrabrake to perform his services. Moreover, it cannot

be assumed that Ladar would have remunerated the costs for any other reason. Hence, the

payment made by Ladar is “in consideration” for the services generated.

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186 Regarding the qualification of “reimbursements” as “fees”, it has to be stated that the term

“reimbursement” is dealt with in the UN-Commentary139. The UN-Commentary states that

“unless reimbursements are explicitly excluded from the definition of “fees for technical

services”, paragraph 2 would permit the State in which the fees arise to impose withholding

tax on the reimbursement …”.140 Therefore, in absence of an explicit declaration that the States

exclude reimbursements from the scope of FTS, the CS are permitted to take reimbursements

into consideration.141 Under the current DTC-TT, there is no such explicit exclusion to

Art.12A(3). Accordingly, reimbursements fall under the definition of FTS in Art.12A(3) DTC-

TT.

187 It has to be noted that Mr. Fixer not only receives a reimbursement of travel costs, but in

addition is reimbursed for various forms of entertainment. Hence, those expenses are in no

way related to the work performed and therefore clearly represent private spending. A

reimbursement of private spending can be compared to monetary considerations. This implies

that the payments are not mere reimbursements, but are consideration for the services rendered.

ART.12A(3)(A) DTC-TT DOES NOT APPLY

188 Pursuant to Art.12A(3)(a) DTC-TT “the term ‘fees for technical services’ … means any

payment in consideration for any service …, unless the payment is made to any employee of the

person making the payment”. As soon as an employment relationship between the payer and

the person performing the services can be constituted Art.12A DTC-TT is not applicable.142

189 The DTC-TT and the OECD-MC contain no definition of “employment” – but it clearly has to

be distinguished from “independent personal services” and “business profits”.143 Therefore, an

autonomous interpretation, instead of referring to domestic law, has to be carried out since the

context requires otherwise (m.nos.62 et seq.).

139 2017 UN-Commentary,Art.12A(para.74 et seqq). 140 2017 UN-Commentary,Art.12A(para.76). 141 Ibid. 142 2017 UN-Commentary,Art.12A(para.69). 143 De Broe in Vogel(2017),Art.15(para.84 et seqq.).

73

190 The term “employment” can be defined as services rendered by an employee for an employer

by making available his ability to work and submitting himself to the authority and direction of

the employer for the purposes of performing the services.144 Therefore, the degree of economic

and personal independence with respect to the accomplishment of the employee’s task is

essential.145 Accordingly, if a relationship involves the subordination of the employee to the

employer, this is clearly a dependent relationship and, thus, points towards employment.146

191 Mr. Fixer is an engineer working for 20 years for Renolo as an employee (m.no.26). He was

sent to Ladar’s production plant for one week. Obviously, the only employment relationship

that exists is the one between Mr. Fixer and Renolo. An employment relationship with Ladar

cannot be assumed as there is no economic and personal dependence of Mr. Fixer on Ladar.

192 Under the facts of the case, it is evident that Art.12A(3)(a) DTC-TT does not apply, since the

payment effected by Ladar is not made “to any employee”.

THE PAYMENT TO MR. FIXER IS NOT COVERED BY ART.12A(7)

DTC-TT

193 What is more, Art.12A(7) DTC-TT does not apply since there is no special relationship between

Ladar and Mr. Fixer.

194 Art.12A(7) DTC-TT applies when two conditions are fulfilled. The first is a special

relationship between the payer and the BO or between both of them and some other

person. The second is that the payment is excessive compared to a situation where such a

relationship does not exist. 147 If those conditions are fulfilled, Art.12A(7) DTC-TT applies to

the excessive part. Therefore, any excess over the “arm’s-length-payment” is taxed “according

to the laws of each Contracting State, due regard being had to the other provisions of this

144 Pezzato in Hohenwarter/Metzler(2009),55 et seqq. 145 Ibid. 146 Ibid. 147 2017 UN-Commentary,Art.12(para.128); Jiménez in IBFD(2017),Art.12A(para.3.2.2.3.2. et seq.).

74

Convention”. Furthermore, the exact nature of the excessive part needs to be ascertained in

order to recharacterise the payment to place it under another category of income.148

195 The concept of “special relationship” is based on the concept of “affiliated companies” in

Art.9 DTC-TT. Therefore, the UN-Commentary cites examples such as “legal persons” or

“individuals” who directly or indirectly control the payer.149 Often such relationships are

established by a participation in the capital, control or management of a company.150 However,

according to opinions in literature the concept of “special relationship” has a broader meaning

and even important commercial relationships fall within its ambit.151

196 When examining the relationship between the payer (Ladar) and the BO (Mr. Fixer), it first has

to be pointed out that he does not participate in the capital, control or management of Ladar and

does not control the payer. Therefore, such a special relationship mentioned in Art.12A(7)

DTC-TT does not exist between Ladar and Mr. Fixer.

197 According to Art.12A(7) DTC-TT, a further scenario needs to be examined, namely cases

where three parties are involved.

198 Pursuant to the facts of the case, Mr. Fixer is sent to Ladar. In this triangular case, it has to be

examined whether a special relationship between Ladar and Renolo, as well as between Renolo

and Mr. Fixer, exists. Ladar and Renolo are not associated companies. Although Ladar and

Renolo entered into a general agreement of five years, this does not form a commercial

relationship which is so important as to constitute a “special relationship” as both companies

are still able to operate their business independently.

199 The agreement between Ladar and Renolo is a standard that would be concluded between

independent business parties. If this constituted a “special relationship”, any and all contracts

would amount to special relationships, which clearly cannot be the intention of Art.12A(7)

DTC-TT.

148 Mitterlehner, SWI(2017),186; 2017 UN-Commentary,Art.12A(para.131). 149 2017 UN-Commentary,Art.12A(para.129). 150 De Broe(2008),538. 151 Ibid; Jiménez in IBFD(2017),Art.12A(para.3.2.2.3.2.).

75

INTERIM CONCLUSION

200 To conclude, the payment falls under the ambit of Art.12A DTC-TT. Art.12A(3)(a) DTC-TT

does not apply because the payment is not made to an employee of the payer. However, should

the Court hold that all conditions under Art.12A(7) DTC-TT are fulfilled, it will be shown that

Art.21(3) DTC-TT is the only provision applicable on the excessive part of the payment.

SUBSIDIARY ARGUMENT: ART.21(3) DTC-TT APPLIES

201 If the court considers that the reimbursement payment falls under Art.12A(7) DTC-TT and,

therefore, the excessive part of the payment has to be recharacterised, no other provision than

Art.21(3) DTC-TT applies.

202 Art.21 DTC-TT is an “umbrella provision” providing a distributive rule for items of income

not dealt with in the foregoing articles.152 As there is no provision apart from Art.12A DTC-TT

that deals specifically with the type of income Mr. Fixer receives, the reimbursement payment

conceivably constitutes “other income”. Neither the UN/OECD-MC nor the Commentaries

thereon provide an explicit classification on reimbursement payments.

203 The UN-Commentary offers no definition for the term “arising” in Art.21 DTC-TT. Pursuant

to Ward/Avery Jones/Ellis the term needs to be interpreted in the light of Art.10, 11 and 12

OECD-MC and UN-MC respectively.153 Taking into account these arguments based on the

context of the DTC-TT, the term “arising” in Art.21 DTC-TT has to be interpreted in the light

of Art.12A(5) DTC-TT. According to this provision the payment arises in the Residence State

of the payer (Ladar). As a consequence, Terrabrake is entitled to tax this payment.

INTERIM CONCLUSION

204 To sum up, the reimbursement payment falls under Art.12A DTC-TT. Should the Court hold

that the payment is excessive, thus, falling under Art.12A(7) DTC-TT, a recharacterisation of

the excessive part results in the application of Art.21(3) DTC-TT. Terrabrake may tax the

152 Lang(2013),124; Wassermeyer/Kaeser in Wassermeyer(2013),Art.21(para.17). 153 Ward/Avery Jones/Ellis, BTR(1990),358 et seq.

76

amount that corresponds to the “arm’s-length-principle” under Art.12A and the excessive

amount under Art.21(3) and, thus, in both cases, retains its taxing rights – ultimately over the

full amount of the payment.

77

THE BIT-TT IS NOT APPLICABLE

TAXES “CARVED-OUT” FROM THE SCOPE OF THE BIT-TT

205 In the case at hand, Art.21 of the BIT-TT contains a carve-out clause, stating that “Except as

provided in this Article, nothing in Section A shall impose obligations with respect to taxation

matters.”154 Hence, any possible double taxation in Terrabrake and Tyreland does not fall

within the scope of the protective provisions of the BIT-TT.

DOUBLE TAXATION DOES NOT CONSTITUTE EXPROPRIATION

206 Still, the applicant might invoke the protective provision against expropriation in Art 6 BIT-JT,

which does not carve out taxation matters. However, double taxation resulting from the refusal

of treaty benefits does not constitute expropriation.

207 Taxation is normally not deemed expropriation, since otherwise the BIT would render this core

function of a state impossible,155 since every tax has some degree of an expropriatory impact.156

208 As a basic principle in this context, the LCIA stated that “only if a tax law is extraordinary,

punitive in amount or arbitrary in its incidence would issues of indirect expropriation be

raised”.157 Therefore, only extreme cases of taxation are within the protective scope of a

BIT.158

209 When applying the aforementioned requirements for – indirect – expropriation to the case at

hand, none of them are fulfilled:

• the possible double taxation is not extraordinary, especially when considering that

Tyreland is obliged by virtue of Art.23B DTC-TT to credit any taxes paid in Terrabrake;

154 2012 US Model BIT Art.21(1). 155 Simonis, Intertax(2014),241. 156 Waelde/Kolo, Intertax(2007),441. 157 UK:LCIA(03.02.2006). 158 Waelde/Kolo, Intertax(2007),424.

78

• the double taxation is not punitive in its amount as levying a 15%-20% WHT on the

gross amount is within the bounds of internationally recognised tax policies159 and

• double taxation is not even arbitrary in its incidence considering that “taxation

measures aimed at preventing the avoidance or evasion of taxes should not generally be

considered to be expropriatory”.160

210 Therefore, no expropriation is occurring and, thus, Art.6 BIT-TT cannot be applied. Renolo’s

ability to conduct its business is not inhibited in any way. The fact that Renolo has losses is not

a result of taxation in Terrabrake, but is a normal occurrence when companies undertake

enormous R&D expenses. The claim that Renolo faces “overtaxation” by virtue of the gross

taxation of the royalty payments and FTS does not deprive the investments of their profitability.

The losses are unrelated to the taxation in Terrabrake and, in this industry, arguably only

temporary. Renolo invests in IP and, naturally, faces losses since the production of know-how

entails high costs in the initial years. One indicator for the inevitable future profitability of

Renolo is the substantial revenue received from Ladar for the crankshaft.

211 Finally, investors must always take into consideration that a change in the law of the host state

may occur and that particularly fiscal legislation regularly changes. Such amendments of law

are part of the regular investment risk.161 In any case, the facts do not state any changes in the

laws in Terrabrake. In fact, all parties in this case were fully aware of the taxation laws and

nevertheless launched their business ventures and service agreements.

212 To conclude, tax matters are not covered by investor protection provisions of the BIT-TT.

Moreover, double taxation does not constitute an indirect expropriation.

159 e.g.Desai, APTB(1999),42 - Indian WHT rates varying between 10%-20%; Haccius(2004),477 et seq. - Irish WHT

rates varying between 3%-10%; Li(2016),251 et seq. – Chinese WHT rates varying between 5%-25%; Daurer/Jann,

IFA Cahiers(2018),17 - Austrian WHT rates varying between 3%-15%; Formenti/Trouw, IFA Cahiers(2018),17 -

Brasilian WHT rates varying between 10%-25%; Machfudz, IFA Cahiers(2018),12 – Indonesian WHT rates varying

between 5%-15%. 160 Waelde/Kolo, Intertax(2007),442. 161 Simonis, Intertax(2014),249.

79

VI OVERALL CONCLUSION

213 To sum up, Ladar is a resident of CI by virtue of Terrabrakian domestic law. Consequently, the

DTC-TT does not apply, because the residence criterion for the personal scope is not fulfilled.

Furthermore, Ladar as WHA is obliged by domestic law to levy a WHT of 20% since no

exception from this obligation is provided under domestic law.

214 Even assuming that the DTC-TT applies, the application of the DTC-TT entails a source taxing

right of at least 15% on all payments.

215 Firstly, the payments for crankshafts fall under the ambit of Art.12 DTC-TT. Art.13 DTC-TT

is not applicable.

216 Secondly, the payments for the database and for the training are royalty payments under Art.12

DTC-TT. The trainings are of an ancillary character. Should the Court decide that the payments

for the training are not ancillary, those payments fall under Art.12A DTC-TT.

217 Thirdly, the payments for the app are in principle regarded as royalties pursuant to Art.12 DTC-

TT. However, RenoloApps is the BO, resident of CI. Renolo is used as a conduit to gain treaty

benefits. Therefore, Terrabrake may tax the royalties according to its domestic law. Even if the

court holds that Renolo is the BO, all payments regarding the Salamander’s App fall uniformly

within Art.12 DTC-TT. If the court assumes the payments should be separated, the server

payments for the server constitute royalties under Art.12 DTC-TT, while the reports fall under

Art.12A DTC-TT.

218 Lastly, the reimbursement of the costs for Mr. Fixer’s services falls under Art.12A DTC-TT.

Should the court consider Art.12A(7) DTC-TT to be applicable, the excessive part of the

payment is other income pursuant to Art.21(3) DTC-TT.

219 The BIT-TT does not affect the DTC-TT since tax issues do not fall within the BIT’s scope.

Additionally, double taxation is not expropriation.

80

VII REQUEST

220 Firstly, the court is requested to rule that the residence of Ladar is CI.

221 Secondly, the court is requested to rule that Ladar’s payments to Renolo are subject to domestic

WHT.

222 Finally, if the court holds that Ladar is resident in Terrabrake and therefore the DTC-TT applies,

then the court is requested to rule that all of Ladar’s payments to Renolo are subject to WHT

pursuant to the DTC-TT.

81

Lad

ar

Ren

olo

Ap

ps

BO D

Ter

rab

rak

e

CIT

: 30%

WH

T 2

0%

: div

iden

ds

inte

rest

s, r

oyal

ties

, F

TS

Res

iden

ce:

PO

EM

Tyre

lan

d

CIT

: 20%

Res

iden

ce:

PO

EM

No c

arry

forw

ard o

f ta

x c

redit

der

ived

ab

road

Cro

cod

ile

Isla

nd

s

CIT

: 5%

No W

HT

No t

axat

ion

of

tech

nic

al s

ervic

es

Res

iden

ce:

inco

rpo

rate

d i

n C

I, P

OE

M

Ren

olo

AG A

Shar

ehold

er o

f L

adar

(40

%)

Shar

ehold

er o

f L

adar

(60

%)

Mr.

Pep

ponen

Ser

ver

DTC

-TT

VIII ANNEXES

TABLE 1 – OVERVIEW OF THE FACTS

100

%

$

$

$

82

TABLE 2 – POEM OF LADAR

60

%

Lad

ar

Ter

rab

rak

e

Cro

cod

ile

Isla

nd

s

Gen

eral

Ass

embly

(Lad

ar)

Shar

ehold

er a

nd F

ound

er o

f

Lad

ar

Mr.

Pep

pon

en

Shar

ehold

er o

f L

adar

Mrs

. H

am

ilto

n

Lad

ar B

oard

of

Dir

ecto

rs

40

%

83

TABLE 3 – CRANKSHAFT AND “BYC”-DATABASE

Terrabrake Tyreland

Ladar Renolo

Know-How

on Crankshaft

$ 7 % of net

selling price

2021: $300,000

Third Party

Commission of third party

allowed (Authorisation by

Renolo)

Ladar Renolo

BYC

Tyreland Terrabrake

Access

to the BYC

Database

$50,000 p.a.

2021: $50,000 $

$

Official Certificate

of Experts in Motors

Training of

Ladar’s

Employees

2021: $50,000

84

TABLE 4 – SALAMANDER’S APP AND MR. FIXER

Terrabrake Tyreland

Ladar Renolo

Third Party

Ladar Renolo

Tyreland Terrabrake

$

Provision of

an expert

2021: $10,000

Crocodile Island

RenoloApps

Server

Distribution

rights of

Salamander’s

App

Use of Server

$ 2021: $50,000

+ $12,000

($1,000 monthly)

Mr. Fixer

Renolo’s

employee

Transmission

of problems

regarding the

crankshaft Elaboration

of reports

Transfer of

90 % of the

payment by

Ladar

85

TABLE 5 – DESCRIPTION OF COMPUTER SOFTWARE

Source: Van der Laan, Intertax(1991),267.

SE

RV

ICE

AP

PL

ICA

TIO

N S

OF

TW

AR

E

HA

RD

WA

RE

- -

- -

- -

- -

- -

- -

SY

ST

EM

S S

OF

TW

AR

E

Form

of

tran

sfer

?

What

is

bei

ng t

ransf

erre

d?

Form

of

pay

men

t?

86

IX TABLE OF ABBREVIATIONS

Art(s). ............................... article(s)

APTB ............................... Asia-Pacific Tax Bulletin

ATF .................................. Australian Tax Forum

ATO ................................. Australian Tax Office

AUT ................................. Austria

AUS .................................. Australia

BEPS ................................ Base Erosion Profit Shifting

BFH .................................. Bundesfinanzhof

BIT ................................... Bulletin for International Taxation

BIT-TT ............................. Bilateral Investment Treaty/-ies – Terrabrake/Tyreland

BMF ................................. Bundesministerium für Finanzen

BO .................................... Beneficial Owner

BOD ................................. Board of Directors

BOS .................................. Beneficial Ownership

BTR .................................. British Tax Review

BYC ................................. Building Your Car (database)

CA .................................... Canada

CH .................................... Switzerland

CI ...................................... Crocodile Island

CN .................................... China

CS ..................................... Contracting State

DK .................................... Denmark

DTC(s) ............................. Double Taxation Convention(s)

DTC-TT ........................... Double Taxation Convention – Terrabrake/Tyreland

EAS .................................. Express Antwort Service

ed(s). ................................ editor(s)

e.g. .................................... for example

ES ..................................... Spain

ET ..................................... European Taxation

et al ................................... et alia

87

et seq./et seqq. .................. and that which follows/and those which follow

FCOA ............................... Federal Court of Appeal (Canada)

(F)TS ................................ (Fees for) Technical services

GAAR .............................. General Anti-Avoidance Rule

GER .................................. Germany

GesRZ .............................. Zeitschrift für Gesellschafts- und Unternehmensrecht

GmbH ............................... Gesellschaft mit beschränkter Haftung

HL .................................... House of Lords

IBFD................................. International Bureau of Fiscal Documentation

Ibid ................................... in the same place

ICS ................................... industrial, commercial or scientific

icw .................................... in connection with

IFA ................................... International Fiscal Association

IStR .................................. Internationales Steuerrecht

ITPJ .................................. International Transfer Pricing Journal

IWB .................................. Internationales Steuer- und Wirtschaftsrecht

K(M)D .............................. Key (Management) Decisions

LCIA ................................ London Court of International Arbitration (UK)

m.no(s). ............................ marginal number(s)

MTC ................................. managerial, technical or consultancy

NL .................................... The Netherlands

OECD ............................... Organisation for Economic Co-operation and Development

ÖStZ ................................. Österreichische Steuerzeitung

Para(s). ............................. Paragraph(s)

POEM............................... Place of Effective Management

PS ..................................... Principal Shareholder

PT ..................................... Portugal

R&D ................................. Research and Development

SARS ................................ South African Revenue Service

SWI ................................. Steuer und Wirtschaft International

TAF .................................. Tribunal administratif fédéral (Switzerland)

88

TEAC ............................... Tribunal Económico Administrativo Central (Central Economic-

Administrative Court)

UFS .................................. Unabhängiger Finanzsenat

UK .................................... United Kingdom

UN .................................... United Nations

US..................................... United States

VCLT ............................... Vienna Convention on the Law of Treaties

VwGH .............................. Verwaltungsgerichtshof (Austrian Supreme Administrative Court)

VWT................................. Vereinigung Österreichischer Wirtschaftstreuhänder

WHT................................. Withholding Tax

ZA .................................... South Africa

89

90

Documents

Memorandum of the Defendant · Hohenwarter/Metzler (eds.), Taxation of Employment Income in International Tax Law (2009). Lang, Introduction to the Law of Double Taxation Conventions