Presentation at the Brazilian Institute of Tax Law, Sao Paulo, on March 26th 2021 upon invitation by Professor Joao Francisco Bianco.

1. Non Discrimination Principle
and the OECD Model
Marco Greggi
IBDT, March 26th 2021

2. Introducing the Issue
• Non discrimination principle as one of the Pillars of the European
Logic;
• Equals should be treated equally and unequals unequally (Aristotle,
Nicomachean Ethics, Book V, Distributive Justice, IV Century b.C.);
• Non discrimination is intrinsically coherent;
• A priori concept;
• The Aristotelian foundations of logic inspired the development of the
Theory of Law that later shaped the modern law.
2

3. The Betrayal of
the Aristotelic Principle ?
• In domestic constitution:
• Non discrimination (equality, as well) is a pre-condition for the law to be
applied;
• The Italian case: articles 2 and 3 of the Constitution: principle of equality and
prohibition of discrimination;
• In international taxation (OECD Model convention):
• Non discrimination is subject to the general principle of reciprocity (I do not
discriminate if you do not discriminate) (see UN Commentary p. 516);
• A sort of consideration is considered in this context.
3

4. The Many Faces
of Non Discrimination
• The European Union Law: the Treaty on the Functioning of European
Union (art. 18);
• Within the scope of application of the Treaties, and without prejudice to any
special provisions contained therein, any discrimination on grounds of
nationality shall be prohibited;
• The Universal declaration on Human rights (UDHR, 1948), articles 1, 2
and 7;
• International Covenant on Civil and political rights (1966), art. 26;
• European Convention on Human Rights (ECHT, 1950), art. 14.
4

5. Is there a Pattern ?
1. All these sources are not specifically related to taxation: broad
scope;
2. All the sources are multilateral Treaties (or International
agreements);
• Possible finding: non discrimination is promoted and upheld at best in
multilateral contexts.
5

6. The OECD Scenario
• Non discrimination in the OECD vision is introduced in a bilateral
context (the two states of the Treaty);
• It becomes part of negotiable set of values;
• Consequences:
1. Lose of centrality;
2. Introduced to protect the rights of individuals / entities belonging to either
of the two;
3. Application of some sort of reciprocity (see supra).
6

7. … yet some Variations occur
• (Italian) Supreme Court (n. 5768, May 8th 2000):
• Non-discrimination is to be considered a over-arching principle of the
tax system, and it must be applied irrespective of a specific mention
in the Double taxation convention of the case …
• … and not regarding to the fact that the Treaty of the case diverges
from the OECD model.
7

8. Article 24: an Outline
• Included amongst the Special Provisions to the Model Treaty;
• Sometimes not mirrored in the Convention of the Case (Italian cases:
New Zealand, Australia);
• The Structure of the Provision:
1. General clause;
2. Five specific provisions regulating the impact of the Principle in special
circumstances.
8

9. The Grundnorm
(Fundamental Rule)
• Nationals of a Contracting State shall not be subjected in the other
Contracting State to any taxation or any requirement connected
therewith, which is other or more burdensome than the taxation and
connected requirements to which nationals of that other State in the
same circumstances, in particular with respect to residence, are or
may be subjected;
1. Primacy of nationality in assessing non discrimination;
2. Relevance of residence as to run the comparison.
9

10. A unique provision
in the Model
• Its inception in Tax Treaties predates the OECD work on taxation
(evidence: XIX Century);
• This determines:
1. Its application irrespective of the Residence test (art. 1 OERCD Model);
2. Its application beyond the specific Taxes covered by the Treaty (much
broader scope).
10

11. Running the comparison test
• Legal and natural persons must be in the same conditions under the
law and in factual terms;
• Legal structure should be the same (comparable) …
• … and economic activity too;
• Resident and non resident entities are not in the same situation,
unless very specific circumstances:
1. In the EU, as to the application of withholding tax at source, limitation to
interest deduction, etc …
2. In the long run: compatibility of BEPS Action 4 with non discrimination
principle as drafted in the OECD Model ?
11

12. The Content of the Provision
• Non discriminatory treatment entails:
• Tax base and compliance should be aligned to the ones for locals (i.e. citizens
of the state);
• What about entities ?
• Nationality of entities should be considered according to the law of
incorporation / law regulating them (conclusion might be different depending
on the domestic law of the case);
• In my domestic case: incorporation theory;
• Possible conflict of qualifications ?
12

13. Permanent Establishment Case
• Article 24, § 3 OECD Model Convention:
• Resident entity and non residents’ permanent establishment are
considered to be in a similar situation;
• Both business activities are effectively placed within the same State;
• No more burdensome taxation of a permanent establishment of a non
resident entity.
• Challenges ahead: “permanent establishment” is a figure whose
borders are blurred:
• Digital PE ? Personal PE ? …
13

14. Counter-limits to Non
Discrimination ?
• Article 24, § 3 OECD Model:
• Public entities that are part of the state and national interest
including :
1. Defence;
2. Protection of the national economy;
3. Non-profit activities for the public benefit, peculiar of the state;
4. Other pertinent limitations.
14

15. Cases of Discrimination
• Broad array of situations where discrimination might occur:
1. Depreciation of asses;
2. Tax relevant reserves;
3. Capital gains taxation;
4. Loss carry forward;
5. Transfer pricing regulations;
6. Tax subsidies and incentives on case by case basis.
15

16. The Case for Foreign
Participation
• Article 24, § 5 of the OECD Model convention:
• Prohibition of discrimination of an enterprise resident in one state
that is owned by entities in the other state;
• No different taxation from the one charged on domestic entities
controlled by domestic taxpayers;
• Limits to non discrimination: the provision of the case shields the resident
entity, not the non resident shareholders that might be targeted with
different tax measures.
16

17. Case 1 the BNP Paribas –
DCIT (Indian tax authority)
17
BNP Local
bank
BNP’s PE
Mumbai Tax Court: 28 February 2013 - ITA Nos. 8693/Mum/1995 and 507/Mum/2000

18. Case
• More burdensome tax regime applied to PE as compared to local
bank, justification:
• No clear refence in the DTCs as to the possibility to extend on discrimination
to permanent establishment;
• Local bank forced by domestic legislation to grand basic services in rural
areas, with possible cost increase as to the annual budget;
• Lack of comparability ?
• Compensative strategy as to tax purposes ?
18

19. Case 2 - Catherine Victoria Addy
v. Commissioner of Taxation
19
Employer
Federal Court of Australia: 30 October 2019 - QUD 108 of 2018

20. Conclusion
• Individual formally resident in another state and having their abode in
the other state are entitled to the same tax benefit in comparison to
the local one;
• The people working in Australia with working visas on temporary
basis are to be treated as local Australian for income tax purposes
(thus they can enjoy the same exemptions).
20

21. marco.greggi@unife.it
21