Key definitions and concepts relating to double tax treaties
Produced in partnership with David Klass of Hunton Andrews Kurth
Key definitions and concepts relating to 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:

  • Key definitions and concepts relating to double tax treaties
  • Resident of a contracting state
  • Double taxation
  • Permanent establishments
  • Transfer pricing

This Practice Note explains some of the key definitions and concepts a tax lawyer will come across when dealing with a double tax treaty or double tax convention (DTT), in particular the concepts of:

  1. residence

  2. double taxation

  3. permanent establishments, and

  4. transfer pricing

Resident of a contracting state

The concept of being ‘resident in a contracting state’ is important because DTTs only apply to persons that are resident of at least one of the contracting states (see Article 1 of the model conventions) and it is used in a number of DTT articles to allocate taxing rights between member states, eg in dividend articles which may state that a dividend paid by a resident of one contracting state to a resident of the other contracting state is taxable only in the second contracting state.

As a result, when advising a taxpayer about their rights under a DTT it is vital to determine where that taxpayer is resident for the purposes of the DTT (which may be different to where that taxpayer is treated as resident under domestic law).

The term ‘resident of a contracting state’ is defined in almost all DTTs, and the definition is usually based on one of the following models:

  1. article 4(1) of the OECD model tax convention (OECD MTC) provides that a person is a resident of a contracting