Article 23: Methods for Elimination of Double Taxation
United Nations Model Double Taxation Convention between Developed and Developing Countries (2017 Update)
Article 23 A
Exemption Method
Where a resident of a Contracting State derives income or owns capital which may be taxed in the other Contracting State, in accordance with the provisions of this Convention (except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State or because the capital is also capital owned by a resident of that State), the first-mentioned State shall, subject to the provisions of paragraphs 2 and 3, exempt such income or capital from tax.
Where a resident of a Contracting State derives items of income which, in accordance with the provisions of Articles 10, 11 12, and 12A may be taxed in the other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in that other State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such items of income which may be taxed in that other State.
Where in accordance with any provision of this Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.
The provisions of paragraph 1 shall not apply to income derived or capital owned by a resident of a Contracting State where the other Contracting State applies the provisions of this Convention to exempt such income or capital from tax or applies the provisions of paragraph 2 of Article 10, 11, 12 or 12A to such income; in the latter case, the first-mentioned State shall allow the deduction of tax provided for by paragraph 2.
Article 23 B
Credit Method
Where a resident of a Contracting State derives income or owns capital which may be taxed in the other Contracting State, in accordance with the provisions of this Convention (except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State or because the capital is also capital owned by a resident of that State), the first-mentioned State shall allow:
(a) as a deduction from the tax on the income of that resident an amount equal to the income tax paid in that other State;
(b) as a deduction from the tax on the capital of that resident, an amount equal to the capital tax paid in that other State.
Such deduction in either case shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or the capital which may be taxed in that other State.
Where, in accordance with any provision of this Convention, income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital
OECD Model Tax Convention on Income and on Capital (2017 Update)
Article 23 A
Exemption Method
Where a resident of a Contracting State derives income or owns capital which may be taxed in the other Contracting State in accordance with the provisions of this Convention (except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State or because the capital is also capital owned by a resident of that State), the first-mentioned State shall, subject to the provisions of paragraphs 2 and 3, exempt such income or capital from tax.
Where a resident of a Contracting State derives items of income which may be taxed in the other Contracting State in accordance with the provisions of Articles 10 and 11 (except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State), the first-mentioned State shall allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in that other State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such items of income derived from that other State.
Where in accordance with any provision of the Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.
The provisions of paragraph 1 shall not apply to income derived or capital owned by a resident of a Contracting State where the other Contracting State applies the provisions of this Convention to exempt such income or capital from tax or applies the provisions of paragraph 2 of Article 10 or 11 to such income.
Article 23 B
Credit Method
- Where a resident of a Contracting State derives income or owns capital which may be taxed in the other Contracting State in accordance with the provisions of this Convention (except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State or because the capital is also capital owned by a resident of that State), the first-mentioned State shall allow:
a) as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in that other State;
b) as a deduction from the tax on the capital of that resident, an amount equal to the capital tax paid in that other State.
Such deduction in either case shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or the capital which may be taxed in that other State.
2 Where in accordance with any provision of the Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.
Article 23 Bibliography
Baker, Philip. “UK: Weiser v Revenue and Customs Commissioners” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2013 (Vienna: Linde, 2014) 351 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2013>
Baker, Philip. “United Kingdom: George Anson v HMRC” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2015 (Vienna: Linde, 2016) 15 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2015>
Berglund, Martin. “Sweden: The Foreign Tax Credit and Disparities” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law Around the Globe 2014 (Amsterdam: International Bureau of Fiscal Documentation, 2014) 287 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2014>
Brauner, Yariv. “USA: The Procter & Gamble Company and Subsidiaries v. United States”in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012)447 <https://www.lindeverlag.at/buch/tax-treaty-case-law-around-the-globe-2011-4419>
Brian J. Arnold, "The Relationship Between Tax Treaties and the Income Tax Act: Cherry Picking" (1995) Canadian Tax Journal 43:4 869.
Brooks, Kim. “Tax Sparing: A Needed Incentive for Foreign Investment in Low-Income Countries or an Unnecessary Revenue Sacrifice?” (2009) 34:2 Queens LJ 505, online: <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1434069>
Brown, Patricia A & Jason T Young. “USA: Savary v. Commissioner of Internal Revenue: The Source of Double Taxation” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012)433 <https://www.lindeverlag.at/buch/tax-treaty-case-law-around-the-globe-2011-4419>
David A. Ward, "Canada's Tax Treaties" (1995) Canadian Tax Journal 43:5 1719. https://www.ctf.ca/ctfweb/Documents/PDF/1995ctj/1995CTJ5_27_Ward.pdf
De Broe, Luc. “Belgium: Limitation of Foreign Tax Credit Does Not Infringe Article 23 of the Former Belgium-US Treaty” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law Around the Globe 2014 (Amsterdam: International Bureau of Fiscal Documentation, 2014) 277 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2014>
Helminen, Marjaana. “Finland: Is the Estonian Corporate Tax Covered by Article 2 and Creditable under Article 23?” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2015 (Vienna: Linde, 2016) 25 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2015>
Helminen, Marjaana. “Finland: The Effect of Losses on the Foreign Tax Credit” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law around the Globe 2012 (Vienna: Linde, 2013)255 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2012>
Lamper, Steffen. “Germany: The Compenstion of Losses Incurred in a PE within the EU” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012) 413 <https://www.lindeverlag.at/buch/tax-treaty-case-law-around-the-globe-2011-4419>
Lang, Michael. “Austria: Exemption Method and Progression” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012) 383, online
Peeters, Bernard & Thomas Hermie. “Belgium: Foreign Tax Credit Rules in the Case of Differing IncomeCharacterization” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012) 391.
Sadowsky, Marilyne. “France: Lump Sum Tax Credit: An Exemption of Income or a Tax Credit Technique?” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law around the Globe 2012 (Vienna: Linde, 2013)265 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2012>
Schuster, Roman & Aurelian Opre. “Romania: Credit Relief for Withholding Tax on Payments of Interest Carried by Promissory Notes” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012)425 <https://www.lindeverlag.at/buch/tax-treaty-case-law-around-the-globe-2011-4419>
Sengputa, DP. “India: Credit for Taxes ‘Paid’ as Opposed to ‘Payable’ – The Case of Vijay Electricals Ltd” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2015 (Vienna: Linde, 2016) 347 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2015>
Smit, Daniël S. “Netherlands: Interest Income and the Impact of an Exchange Loss on the Calculation of a Tax Credit” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law around the Globe 2012 (Vienna: Linde, 2013)275 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2012>
Traversa, Edoardo & Gaëtan Zeyen. “Belgium: Constitutionality of Interest Credit in Belgium-Australia DTC” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2015 (Vienna: Linde, 2016) 293 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2015>
Traversa, Edoardo & Gaëtan Zeyen. “Belgium: Territorial Allocation of Business Expenses and Exemption with Progression” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2013 (Vienna: Linde, 2014) 357 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2013>
Article 23 Cases
4145356 Canada Ltd v The Queen, 2011 TCC 220.
Bank of Nova Scotia v The Queen, [1980] CTC 57 (FCTD).
Bayfine UK Products Bayfine UK v Revenue & Customs, [2008] UKSPC SPC00719.
Bujnowski v Canada, 2006 FCA 32, aff’g 2005 TCC 90.
Bundesfinanzhof [Federal Tax Court],3 February 2010, I R 23/09, HFR 50, 702, No 7 (Germany).
Bundesfinanzhof [Federal Tax Court], 9 June 2010, I R 107/09, IStR 19, 666, No 17 (Germany).
Bundesfinanzhof [Federal Tax Court],9 June 2010, I R 100/09, IStR 19, 671, No 17 (Germany).
Canada-Israel Development Ltd v MNR, [1985] 2 CTC 2460 (TCC).
Compaq Computer Corporation and Subsidiaries v Commissioner of Internal Revenue, 28 December 2001, 277 F3d 778 (United States).
Conseil d’État [Supreme Administrative Court], 29 June 2011, No 320263 (France).
Constitutional Court, 29 January 2014, No 14/2014 (Belgium).
Cour de Cassation [Supreme Court], 16 February 2012, No F.10.0115.N/1) (Belgium).
Cour de Cassaion [Supreme Court], 15 March 2013, No 34/2013 (Belgium).
Craiova Court of Appeals, No 12/26.01.2010 (Romania)
Croft v MNR, [1985] 1 CTC 2096 (TCC).
Entergy Corporation & Affiliated Subsidiaries v Commissioner of Internal Revenue, 9 September 2010, TC Memo 2010-197 (United States).
FlSmidth Ltd v The Queen, 2013 FCA 160.
Garcia v The Queen, 2007 TCC 548.
George Anson v Commissioners for Her Majesty’s Revenue and Customs, [2015] UKSC 44, [2015] STC 1777.
Glen L Taylor v Her Majesty the Queen, 20 July 2000, 2000 treaty 6451 (Canada).
Herbert A Filler v Commissioner of Internal Revenue, 27 May 1980, 74 TC 406 (United States).
Hoge Raad der Nederlanden [Supreme Court of the Netherlands], 17 June 2011, BNB 2012/23 (Netherlands).
Högsta förvaltningsdomstolen [Supreme Administrative Court], 7 May 2013, No 6581-12 (Sweden).
Interprovincial Pipeline Line Co v MNR, [1959] SCR 763.
Interprovincial Pipeline Line Co v MNR, [1968] SCR 498.
Korkein Hallinto-Oikeus [Supreme Administrative Court of Finland],No 2011/1325 (45) (Finland).
Korkein Hallinto-Oiekus [Supreme Administrative Court of Finland], No 2014/2946 (147) (Finland).
LeTourneau Christina Jeannine v Commissioner of Internal Revenue, 21 February 2012, TC Memo 2012-45 (United States).
Lisa Hamilton Savary v Commissioner of Internal Revenue, 6 October 2010, TC Summary Opinion 2010-150 (United States).
Meyer v The Queen, 2004 TCC 199.
Nadeau vThe Queen, 2004 TCC 433.
Peter M Haver v Commissioner of Internal Revenue, 05-1269, 11 April 2006, 444 F3d 656 (United States).
Phillips Petroleum Co and Affiliated Subsidiaries v Commissioner of Internal Revenue, 9 March 1995, 104 TC 256 (United States).
PPL Corporation and Subsidiaries v Commissioner of Internal Revenue, 20 May 2013, 2013-1USTC (CCH) 50335 (United States).
R v Canadian Pacific Ltd, [1976] CTC 221 (FCTD).
Sanchez v The Queen, 2000 DTC 2151 (TCC).
Savary v Commissioner of Internal Revenue, (US Tax Ct 2010).
Snap-On Tools Inc v United States, 13 August 1992, 26 Fed Cl 1045 (United States).
Société Générale Valeurs Mobilières Inc v The Queen, 2016 TCC 131.
Sportsman v Inland Revenue Commissioners, 23 September 1998, Simon’s Tax Cases, 1998, 289 (United Kingdom).
Supreme Administrative Court, 29 July 2010, No 2010/15/0021 (Austria).
Supreme Court, 22 January 2010, No F.08.0100.F (Belgium).
The Procter Gamble Company and Subsidiaries v United States, 733 F Supp (2d) 857 (SD Ohio 2010).
Vijay Electricals Ltd v Addl Commissioner of Income Tax, [2014]-TII-147-ITAT-HYD-INTL (India).
Weiser v The Commissioners for Her Majesty’s Revenue and Customs, [2012] UKFTT 501, (2012) 15 ITLR 157 (TC).
Yankulov v The Queen, 2008 TCC 657.
Yates v The Queen,[2001] 3 CTC 2565 (TCC)
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