The relevance of the OECD and UN Model Conventions and their Commentaries for the interpretation of Indian tax treaties

India is a common law country. In matters relating to interpretation, whether involving domestic law or treaties, courts are the final arbiters. There is no system of revenue ruling in India. No detailed guidelines are issued by the Central Board of Direct Taxes (CBDT), the apex body in charge of the administration of direct taxes. Occasionally, it issues public circulars for the guidance of the officers. These are binding on the administration but not on the taxpayer or the courts. Generally speaking, it is the case law that guides the administration of direct taxes including the treaties.

Until 1980, there was no United Nations Model Double Taxation Convention between Developed and Developing Countries (UN Model). Indian treaties for periods before this time are closer to the OECD Model Tax Convention on Income and on Capital (OECD Model). Subsequent treaties have been strongly influenced by the UN Model, with greater emphasis on source taxation. Treaties with other developing countries also have different nuances.

The courts in India have been taking recourse to the OECD Model Commentary for a long time. The UN Model Commentary, having come late, has been of less use. However, the tax officers often refer to it. Both the taxpayers and the tax administrators routinely make reference to the Commentaries to suit their convenience. As the UN Commentary has adopted the OECD Commentary for the most part, there are very few cases where the UN Commentary has been preferred over the OECD Commentary. There is also no guidance from the tax administration as to whether either of the Models should be given priority.