Squire Patton Boggs’ Jeff VanderWolk, addresses Reuven Avi-Yonah statement that, “A tax treaty does not generally limit taxation by a country of its own residents, and that is true whether or not it has an explicit saving clause like the one found in all United States tax treaties (article 1(4): “this Convention shall not affect the taxation by a Contracting State of its residents”).
VanderWolk has trouble accepting this blanket statement, in light of the prohibition in most, if not all, tax treaties on taxing business profits of a resident of the other contracting state unless the nonresident carries on business in the country through a permanent establishment and the profits are attributable to that PE. It seems highly unlikely that treaty negotiators would accept the idea that a contracting state is free to tax business profits of a resident of the other contracting state who has no PE in the country by simply imposing the tax on a resident of the taxing country, as the UTPR would do.
*This article was first published in Tax Notes on January 9, 2023.
