Citation: Nupur Jalan, Dichotomy on the Applicability of Articles 9(1) and 24(4) of the Model Convention to the Thin Capitalization Rules, 51 Tax Mgmt. Int’l J. No. 6 (June 3, 2022)
There has been much debate on the extent to which Articles 9(1) and 24(4) of the tax-treaty may interact with the domestic thin capitalization rules. The debate gives rise to several questions, such as: Does Article 9(1) offer protection to thin capitalization? What is the degree of potential overlap between Articles 9(1) and 24(4) in the application of domestic thin capitalization rules? Are domestic thin capitalization rules discriminatory, and should this be covered by Article 24(4) of the tax treaty? Answers to these questions may vary on a case-to-case basis depending on the way rules are drafted in the domestic tax laws of various countries and the wordings of respective tax treaties.
Considering the above background, this column discusses the ongoing debate in part I and then briefly discusses Articles 9(1) and 24(4) in part II. In part III, the piece delves into the interplay of these articles with the domestic thin capitalization rules. Part IV and V further analyzes domestic thin capitalization of some countries and checks their compatibility with Articles 9(1) and 24(4) of the tax treaties to identify the illustrative list of factors and indicators that may make these articles applicable in relation to these rules. Furthermore, the public consultation document on the proposed changes to the Commentaries in the OECD Model Tax Convention for Article 9 and related changes to other articles has also been considered, and certain comments to the public consultation document have also been integrated.
The views in all sections are personal views of the author.