The OECD Commentarie : on what legal basis and to what extent are they relevant to tax treaty interpretation?

• Jurisdiction: South Africa
• Author: Kevin Burt
• DOI: 10.10520/EJC-7e0374648
• Published date: 01 June 2017
• Date: 01 June 2017
• Record Number: btclq_v8_n2_a3
• Pages: 5-28
• Published By: Siber Ink

5

© SIBER INK

The OECD Commentaries:

ON WHAT LEGAL BASIS AND TO WHAT

EXTENT ARE THEY RELEVANT TO TAX TREATY

INTERPRETATION?

KEVIN BURT*

ABSTRACT

Those who advise in the field of international tax law ought to be better

acquainted with articles 31 and 32 of the Vienna Convention on the Law

of Treaties. Surprisingly, these articles have been referred to in only one tax

treaty case in South Africa (Krok and Another v C: SARS). In the first half of

the article, the author discusses the adoption of the Vienna Convention and

the principles embodied in articles 31 and 32 of the Vienna Convention, and

the role they can play in the interpretation of a tax treaty. He also discusses

the legal status of articles 31 and 32 in South Africa. The conclusion of the

author is that both articles are, in terms of s232 of the Constitution, ‘law

in the Republic’ and, as such, they are applicable to the interpretation of

tax treaties concluded by South Africa, even though South Africa is not a

party to the Vienna Convention. In the second half of the article, two ques-

tions are discussed. The first is: to what extent are the OECD Commentaries

relevant for the interpretation of tax treaties that conform to the OECD Model

Tax Convention? The second is: which version of the OECD Commentaries is

relevant in the interpretative process? In the light of articles31 and 32 of the

Vienna Convention there may be as many as five possible legal bases for citing

from the OECD Commentaries as support for the interpretation of a term of

a tax treaty. Of these possible legal bases, the author is of the view that two

of them are arguably equally compelling. As regards the second question,

the author concludes that the principle of contemporaneity is not absolute.

Therefore, the static approach to the use of the OECD Commentaries is

merely the starting point in the process of interpretation of a tax treaty. Later

OECD Commentaries adopted after the conclusion of the tax treaty may be

used in the interpretative process, but only where there is clear evidence that

the parties’ common understanding was that the treaty term in question is to

be interpreted dynamically.

Introduction

Why, one might ask, is it now more than arguably at any time before,

important for lawyers who advise in the field of international tax law1

1

* Kevin Burt is an advocate who practises in the area of tax law. He is a member of

The Island Group of Advocates in Sandown, Johannesburg.

The issues discussed in this article are, I should say, equally applicable to account-

ants who advise in the international tax field.

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Business Tax & Company Law Quarterly

© SIBER INK

to be better acquainted with Articles 31 and 322 of the Vienna Conven-

tion on the Law of Treaties (‘Vienna Convention’)?3 Before I explain why

I believe so, it is, I believe, worthwhile first to consider the occasions on

which mention has been made of articles 31 and 32 in tax treaty cases in

South Africa.

A search of the South African Tax Cases series only revealed one South

African case4 in which any reference is made to articles 31 and 32. The case

is Krok and Another v C: SARS.5

The Krok case was an appeal against an order of the High Court

confirming a provisional preservation order made against Mr Krok,6 who

had been a long-time resident of South Africa before he emigrated from

South Africa to Australia. He had been assessed to tax in Australia and in

order to secure assets for purposes of satisfying his Australian tax debt,

the order had been obtained by the Commissioner for the South African

Revenue Service at the instance of the Australian Tax Office. On appeal

before the Supreme Court of Appeal (‘SCA’) the only argument made on

behalf of Mr Krok was that, on a proper interpretation of article 13(2)(a)

(ii) of the Protocol signed on 31 March 2008, article 25A7 (inserted into the

DTA by article 11 of the Protocol) of the tax treaty between Australia and

South Africa (‘DTA’) could be invoked only if the Australian tax debt arose

on or after 1 July 2009. This question placed in issue the temporal scope

of article 25A. In the event, the SCA decided the question against Mr Krok

and dismissed his appeal.

The SCA held that there was no basis to interpret article 25A subject to

article 13(2)(a)(ii). Regarding the approach to interpretation of the DTA, it

held that regard must be had to the principles of international law appli-

cable to the interpretation of treaties.

It is noteworthy that the judgment of the Income Tax Special Court

(now the Tax Court) in SIR vDowning,8 often cited by lawyers, commen-

tators and courts in South Africa as the main authority for the use of

2

Article 33, which deals with the interpretation of treaties authenticated in two or

more languages, is not discussed in this article.

3

References herein to articles are to articles of the Vienna Convention or of the

2014 OECD Model Tax Convention with respect to Taxes on Income and on

Capital, unless the context indicates otherwise.

4

Articles 31 and 32 were cited in another case reported in the series. Revenue and

Customs Commissioners v Ben Nevis (Holdings) Ltd is, however, an English case. It

is reported at 75 SATC 49 (High Court (Chancery Division)) and at 76 SATC 243

(Court of Appeal (England and Wales)).

5

78 SATC 1.

6

In terms of ss163and 185 of the Tax Administration Act 28 of 2011.

7

Article 25A provides for the two contracting States to assist each other in the col-

lection of taxes and the obtaining of preservation orders for purposes of securing

assets for purposes of satisfying tax debts.

8

Natal Income Tax Special Court (Case No. 6737 dated 27 October 1972) (Unreported).