Dividend articles in double tax treaties
Produced in partnership with David Klass of Hunton Andrews Kurth
Dividend articles in double tax treaties

The following Tax guidance note Produced in partnership with David Klass of Hunton Andrews Kurth provides comprehensive and up to date legal information covering:

  • Dividend articles in double tax treaties
  • Beneficial ownership
  • Meaning of dividend
  • Model convention tax treatment of dividend payments
  • Variations on the model convention
  • Practical application of the dividend article

Article 10 of the OECD model convention is concerned with the taxation of dividends paid cross border. In particular it deals with the allocation of taxing rights between:

  1. the state of residence of the person receiving payment, which will be referred to as the recipient state, and

  2. the state of residence of the person making the payment, which will be referred to as the source state

This Practice Note considers:

  1. the meaning of dividend in a double tax treaty or convention (DTT) context

  2. the model convention approach to the taxation of dividends

  3. variations on this approach in DTTs, and

  4. the practical contexts in which an assessment of the dividend article may arise

Other types of passive income, which are dealt with in similar ways by DTTs, are explained in Practice Notes:

  1. Interest articles in double tax treaties

  2. Royalties articles in double tax treaties

Beneficial ownership

Some of the benefits of all three passive income articles are restricted to persons who are ‘beneficial owners’ of the relevant income, eg the reduced rate of source state tax on dividends is only applicable where the beneficial owner is a resident of the other contracting state.

As a result, understanding the meaning of ‘beneficial owner’ is a key element in applying these provisions. By way of broad summary, the beneficial ownership requirement targets the situation where,