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The Meaning and Scope of the Ancillary Principle Under Model Tax Conventions (46 Intertax 8/9, 2018)
Abstract
This article discusses the meaning and scope of the 'ancillary principle' as laid down in various provisions of the OECD, UN and US Model Tax Conventions and the Commentaries thereon, i.e. the principle according to which if, under a mixed contract, an activity is ancillary to another main one, the former transaction is to receive the tax treatment accorded to the latter. Although the ancillary principle is specifically considered in various articles of the Model Tax Conventions and the Commentaries thereon, neither the meaning of the word 'ancillary' nor the scope of such rule is precisely clarified. The term 'ancillary', in fact, takes on different meanings and, thus, has divergent scopes in the relevant provision of each tax treaty. This may eventually cause two states to understand and apply the principle in a given case differently, thus leading to situations of double taxation or non-taxation. Moreover, a far-stretched interpretation of the principle could result in an erosion of the source state's taxing rights in favour of exclusive residence-based taxation. Lastly, despite being influenced by the need to simplify taxpayers' obligations and to facilitate their monitoring by tax authorities, the application of the ancillary principle raises several concerns in terms of potential competitive distortions between domestic and international businesses.
... Ibid.23 Haines, A. (2022). Countries can include Article 12B of UN Tax Convention in treaties. International Tax Review.Beretta, G. (2018). The Meaning and Scope of the Ancillary Principle Under Model Tax Conventions. Intertax. tax treaties focus on all types of income and capital taxes, irrespective of whether they are imposed by the state, provincial, local or other governmental institutions. There are some states where the central government is constrained in entering i ...
Artificial intelligence has become a game-changer in many industries and has been commonly employed in the legal sector to scan regulations and predict outcomes of legal cases. Natural language processing has particularly been a powerful technique to analyze documents and determine the intent and context of the documents, in addition to being able to summarize and compute the similarity of the documents with others. Tax treaties have become a cornerstone of trading and investment engagement between China and many countries across the world. The objective of tax treaties is to reduce double taxation and enhance the attractiveness of bilateral economic cooperation for corporations and individuals. While taxation treaties have become commonplace throughout the world with model conventions aiming to provide guidelines, the timing of the treaty conclusion, in addition to the individuality in terms of the objectives and contents of the tax treaties, may lead to considerable differences between the tax treaties. These differences may represent opportunities to exploit loopholes in order to minimize tax expenditures. Furthermore, cybersecurity regulations may present a critical challenge given the growing digitalization of tax data and information. The paper presents a new AI-driven process for the automatic analysis and comparison of taxation treaties, with a focus on those between African countries, in addition to taking into account Chinese cybersecurity regulations to assess the discrepancies and outline reconciliation opportunities. Furthermore, cybersecurity-related data regulation challenges for the exchange of tax-related information are automatically extracted from the documents.
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