Introduction
Non-discrimination is a fundamental principle in tax treaties that ensures fairness and equal treatment for taxpayers across international borders. By eliminating discriminatory tax practices, tax treaties contribute to a more favourable investment climate and encourage cross-border economic activities.
Article 24 (2) of the OECD Model provides for the provision of non-discrimination of stateless persons. The legal status of stateless individuals, presents numerous complexities, including taxation issues. To address these, the international community established the 1954 Convention relating to the Status of Stateless Persons. This Convention is key to defining[1] and understanding the rules that apply to a stateless person.
The Convention under Article 29(1) mandates non-discrimination against stateless persons, including in taxation.[2] Essentially, it ensures that stateless persons are not subjected to higher fiscal burdens than nationals. Article 24(2) of the OECD Model extends these benefits to stateless residents of contracting states. This provision, however, is one of the least examined. The current article tries to trace the interpretational issues of this provision.
Stateless Persons and Their Taxation Rights
The term “Stateless Person” in Article 24(2) of the OECD holds the same meaning as defined in Article 1(1) of the 1954 UN Convention. According to this definition, a “stateless person” is an individual who is not considered a national by any State under the operation of its law. The restrictions contained in Article 1(2) of the 1954 UN Convention pertain to treaty entitlements under that Convention and do not affect the definition of “Stateless Person.” Consequently, these restrictions are irrelevant to the interpretation of Article 24(2) OECD and its commentary. Since the rule is based on the 1954 UN Convention, which exclusively refers to individuals, the scope of Article 24(2) OECD is similarly limited to individuals.[3]
Stateless persons face numerous taxation challenges that often go unheard due to their lack of recognized nationality.[4] Since they may not meet residency requirements, this limits their ability to invoke treaty benefits.[5] Moreover, such individuals may also face inconsistent tax treatment across different jurisdictions, leading to potential double taxation or denial of tax benefits available to citizens. Ensuring the non-discrimination of individuals is thus essential for establishing a fair and equitable taxation system.
Interpretation Issues of Article 24(2)
Article 24(2) of the OECD Model Convention extends the non-discrimination provision of Article 24(1) to stateless persons residing in one of the Contracting States. This means that neither of the Contracting States may impose taxes on stateless persons that are more burdensome than those imposed on its own nationals. The Commentary on Article 24 provides a deeper understanding of Paragraph 2, elucidating its historical significance and evolution. It states that Article 24(2) aligns with the protection of stateless persons under international law, primarily provided by the 1954 UN Convention.[6]
Article 29[7] mandates that Contracting States must not impose duties, charges, or taxes on stateless persons that are different or higher than those levied on their nationals in similar situations, ensuring that stateless persons are not subjected to higher fiscal burdens.
The OEEC[8] was inspired by this Convention when drafting its first report in 1957, leading the OECD to include a non-discrimination clause for stateless persons in Article 24(3) of the 1963 Model Tax Convention.[9] This inclusion was necessary as not all OECD member countries were signatories to the UN Convention, and the personal scope of the UN Convention was limited by Article 1(2).[10] The 2007 Public Discussion Draft even questioned whether Article 24(2) should be retained in the OECD Model.[11]
The Model provides a glimpse into the development of this Provision. In 1957, when Working Party No. 4 of the OEEC Fiscal Committee drafted its initial report, it referenced Article 29(1)[12] and proposed the inclusion of a non-discrimination provision for stateless persons.[13] This proposal has since evolved into the current Article 24(2) of the OECD Model Convention, which retains some similarities to Article 29(1) of the 1954 Convention.[14]
Article 24(2) of the OECD Model stipulates that treatment must not be “other or more burdensome” than national treatment, while the 1954 Convention refers to treatment that is “other or higher.”[15]
The OECD Commentary on Article 24 uses the 1954 Convention’s definition of “stateless persons” but does not exclude the three categories in Article 1(2) of the 1954 Convention.[16] Consequently, the non-discrimination provision for stateless persons is broader under the OECD Model than under the 1954 Convention. Moreover, the scope of application of Article 24(2) of the OECD Model is limited to individuals.[17] Consequently, stateless companies[18] are not protected.[19]
In the 1963 version of the OECD Model, the provision for stateless persons did not require residency in either contracting state. This was resolved through the 1977 Model.[20] At present, the OECD Model mandates residency in one or both contracting states to invoke the non-discrimination provision of a tax treaty.
The 1977 OECD Model’s restriction to resident stateless persons may conflict with Article 29(1) of the 1954 Convention, which does not impose such a limitation.[21] The 1954 Convention requires non-discriminatory tax treatment for stateless persons regardless of residency, while the tax treaty only protects those residing in a contracting state. This raises the question of whether a state can limit its obligations in a bilateral treaty after committing to them in a multilateral treaty.
In the absence of a specific treaty clause on conflicts, reliance must be made on general principles of treaty interpretation. The intentions of the states that created the second treaty have to be analysed.[22] The OECD Commentary indicates that the 1977 OECD Model aimed to narrow the scope of the stateless person provision.[23]
When conflicting treaties do not include a conflict clause, and treaty interpretation is also not conclusive then Articles 30(3) and (4) of the Vienna Convention should be applied.[24] This includes:
1. If all parties involved in the earlier treaty are also in the later treaty, and the earlier treaty is still active, the earlier treaty will only apply if its provisions can work with those of the later treaty. [25]
2. If not all parties to the earlier treaty are parties to the later treaty:
a. For states that are part of both treaties, the newer treaty rules apply.[26]
b. For a state that is in both treaties and a state that is only in one, the treaty involving both states will determine their rights and obligations.[27]
Thus, applying these rules, if both tax treaty partners are also part of the 1954 Convention, the newer tax treaty takes priority. Therefore, if the tax treaty is signed after both states join the 1954 Convention, the state imposing discriminatory taxes does not have to follow the stricter non-discrimination rules of the 1954 Convention. Thus, the newer tax treaty is the one that prevails.
When only one tax treaty partner has acceded to the 1954 Convention, three scenarios arise:
1. Non -Party Discriminating State[28]
2. Post-Treaty Accession.[29]
3. Asymmetrical Accession.[30]
Although the priority system of Article 30 of the Vienna Convention may seem logical, it doesn’t effectively address the current issue of the 1954 Convention.[31] Therefore, the universal obligations under the 1954 Convention prevent states from sidestepping these commitments via bilateral tax treaties. Stateless persons can invoke the 1954 provisions if they reside outside the treaty partners or rely on article 24(2) of a tax treaty if they reside in one of those countries.[32]
Additionally, the Commentary provides an alternative to article 24(2),[33] suggesting that some states may find it too liberal. This alternative allows the residence state to exempt itself from prohibiting discrimination against stateless persons, granting protection only in the other state.[34] While intended to extend national treatment to stateless individuals receiving UN assistance, this provision has limited applicability, with some countries, including India,[35] Japan, and the USA, opting not to include it.
India’s Position on Non-Discrimination of Stateless Persons
The provision of stateless person is very tricky and often includes too many legal issues, thus many countries have opposed the inclusion of the provision. Many of India’s tax treaties doesn’t include a provision relating to stateless persons.
India has, along with Albania, Bulgaria, Malaysia, the Philippines, Russia, Serbia, Singapore and Vietnam, reserved the right not to insert Article 24 (2) in their conventions. It is interesting to note that India’s tax treaties with Latvia and Romania include a provision relating to stateless persons. Although, there is no controversy regarding the provisions that have reached the courts in India.
Conclusion
Article 24(2) is an essential provision for ensuring the non-discrimination of stateless persons. However, it requires further analysis by policymakers, as it contains interpretational issues. For instance, Article 24(2) does not address discrimination against nationals from other Contracting States or third countries. The obligation of equal treatment includes treaty benefits based on nationality, extending these advantages to stateless persons.[36]
While the 1954 UN Convention provides benefits to all stateless persons, the OECD MTC’s non-discrimination provision applies only to residents of the Contracting States. This creates a conflict for states that are signatories to both conventions regarding non-resident stateless persons. This issue should be resolved by interpreting the later convention and, if necessary, applying Article 30(3) and (4) of the Vienna Convention,[37] which prioritizes the later treaty.[38]
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