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Residence in Tax Treaties

On Thursday 1 December 2016 at 13.45 hrs, Francisco Sepulveda Ramirez will defend his doctoral thesis ‘Residence in Tax Treaties' at the Academy Building of Leiden University. Supervisor is Professor F.A. Engelen.

Tax treaties apply to persons who are residents. This term sets out, for better or worse, the personal scope of a treaty and thus the subject entitled to claim its benefits. The term, at times too broad and at times too narrow, is the key to understanding many issues in the field of tax treaty interpretation.

Granting access to tax treaties on the basis of the term ‘resident’

The benefits of tax treaties are generally available to persons who may be qualified as ‘residents’. The meaning of the term is therefore fundamental when seeking to interpret and apply a tax treaty. In fact, absent any other rules on tax treaty entitlement (i.e. LOB, GAAR), it is this expression which sets out the personal scope of tax treaties, and perhaps more importantly, the situations in which the recognition of benefits contained within become relevant.

Confusing interpretation of the term ‘resident’

The interpretation of the term ‘resident’, however, is highly controversial. Quite often the definition seems to be too narrow, and the treaty entitlement of tax-exempt pension funds, charities or transparent entities becomes debatable. On the other hand, the excessive broadness of the definition results in the characterisation of conduit companies and other seemingly abusive structures as ‘residents’ for tax treaty purposes. The elucidation of the meaning of the term ‘resident’ is therefore essential for the purposes of the discussion on Base Erosion and Profit Shifting (BEPS), where the appropriateness of tax treaty benefits is being addressed.

The research

Taking account of more than 60 years of tax treaty history and case law, the PhD research has sought to cast light on the interpretation of tax treaties by attributing its meaning to the term ‘resident’ in good faith, according to the rules of the Vienna Convention on the Law of Treaties. Moreover, it has sought to analyse and discuss the manner in which the definition of residence contributes to the determination of the (confusing) object and purpose of tax treaties, and to what extent this definition informs the meaning of abuse from a tax treaty perspective.

The analysis of the many layers of the term ´resident´ has resulted in a comprehensive study of the different aspects of the definition, which is crucial for tax treaty interpretation purposes. Further, the profound attention paid to the history of the Model contributes to the understanding of some of the issues surrounding the rule, and to the policy considerations the drafters of the OECD Model Convention sought to embed therein. Perhaps the main contribution of the research lies in the detailed discussion of the policy considerations behind the determination of the subject entitled to tax treaties, at times in which base erosion and profit shifting strategies have resulted in tax treaty claims been labelled as inappropriate, and the recognition of treaty benefits as unintended.

Francisco obtained his law degree at Universidad de Talca, Chile, and his Masters in Taxation at the Faculty of Economics of the same university. After graduating from the Advanced LLM in International Tax Law at the International Tax Center Leiden, he started his PhD in International Tax Law at the Law Faculty of Leiden University. He is a visiting lecturer at the International Tax Center Leiden. He has taught International Taxation, Tax Planning, and Stock Market Taxation at the Masters in Taxation, and at the MBA of the Faculty of Economics, Universidad de Talca, Chile. He has extensive experience working as a legal and tax advisor. His areas of interest are mostly connected with cross-border operations, interpretation and application of tax treaties, anti-abuse rules and tax litigation.

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