Tax Treaty Case Law around the Globe 2019

S. 187Source Rules in Tax Treaties and Domestic Law: Satyam Case

C. John Taylor/Richard J. Vann

S. 1881. Introduction

It has long been and, until very recently has continued to be Australian tax treaty practice to include a source rule in tax treaties that income derived by a resident of the other state which may be taxed under the treaty in Australia “shall for the purposes of the law of Australia relating to its tax be deemed to arise from sources in Australia” or wording to similar effect. However, what the result and function of these treaty source rules is and their relationship to Australian domestic law has been debated.

One view has been that source rules merely function to ensure the effective operation of treaty and domestic law rules designed to prevent international juridical double taxation. Under this view tax treaties should not and cannot give rise to S. 189higher taxation than that which arises under domestic law in the absence of a tax treaty. An opposing view has been that, when expressed to apply for the purposes of the tax law of Australia, tax treaty source rules can – and are intended to – mean that particular categories of income have an Australian source which they would not hav...