Cross Border Tax Avoidance : Applying the 2003 OECD Commentary to Pre-2003 Treaties

On January 28, 2003 changes were made to the Commentary on Article 1 which deals with the improper use of double tax conventions. Most countries, generally speaking, seem to accept that the general anti-avoidance rules will operate and can be reconciled with the provisions of their double tax treaties, when these treaties have been entered into after the changes which were made to the Commentary in 2003. This article looks at the issue of whether treaties concluded prior to 2003 should be read differently to those concluded after 2003 with respect to the application of general anti-avoidance rules to cross-border transactions. In order to answer this issue the following fundamental questions of international tax need to be addressed: 1. Can later Commentaries affect the interpretation of preceding treaties, and if so, in what circumstances? 2. Is the Commentary binding in a legal way or simply designed to assist the interpretation of a treaty? 3. Lastly, and more specifically, is the Commentary introduced in 2003 an example of a "clarifying change" (one that clarifies the existing Commentary, rather than substantially amending)? If it is the former then the Commentary may remain relevant in determining the nature of that important relationship between a domestic general anti-avoidance rule and its application to a double tax treaty entered into prior to 2003.The conclusions reached in this article are that the Commentary is not legally binding although courts around the world recognise they are very important as an interpretive tool. Further, these courts have accepted that later Commentaries (Commentaries amended and promulgated after the conclusion of the treaty) can be of some assistance in the interpretation of a treaty provided they clarify or amplify the previous Commentary. After analysing the changes in the Commentary in 2003 the conclusion reached is that these changes were a clarifying change rather than a fundamental change suggesting that 2003 Commentary can be read and applied to treaties entered into prior to 2003