handbook-tb

Taxation of non-residents’ capital gainstreaty practice of many countries — and not just developing ones. 72This is not surprising, insofar as the previous paragraphs of Article 13do not capture all the important elements of the capital gains tax basefor the source country (see the discussion at the beginning of section 2above), and insofar as ceding such residual taxing rights would createdisparate treatment between income and gain from the same asset.However, the way in which residual taxing power can be preservedunder Article 13 remains a problematic issue. The Commentaryon Article 13 of the United Nations Model Convention proposes thelanguage: “Gains from the alienation of any property other thanthose gains mentioned in paragraphs 1, 2, 3 and 4 may be taxed inthe Contracting State in which they arise according to the law of thatState.” The question can be raised as to what constitutes a gain “mentioned”in a previous paragraph. For example, consider the gain fromthe alienation of shares that fall below the ownership threshold setby the contracting State in a provision similar to Article 13 (5) of theUnited Nations Model Convention. Article 13 (5) states only that thegain realized on the alienation of shares above the threshold is taxablein the source State. Is gain realized on the alienation of shares belowthe threshold thereby “mentioned”? If the position is taken that it isnot, then the residual taxing power paragraph essentially erases theline drawn in Article 13 (5): it is almost as though Article 13 (5) isdeleted in its entirety. 73 Interpreted in this way, the approach to draftingin Article 13 would strike many readers as unusual (and unnatural),and even source-country tax authorities may have refrained from72A recent study of Article 13 offers as examples of tax treaties that permitthe source State to tax gains from the alienation of property that is nototherwise covered by Article 13, those concluded by Australia (1989 to 2003),Argentina, Brazil, China (the tax treaties with Australia, Canada, the CzechRepublic, Germany, Hungary, India, Japan, Malaysia, the Netherlands, NewZealand, Nigeria and Thailand), India (the tax treaties with Canada and theUnited States) and Turkey (the tax treaties with Canada, Italy, Singapore andSpain). Jinyan Li and Francesco Avella, “Article 13: Capital Gains,” GlobalTax Treaty Commentaries (Amsterdam: IBFD, 2014), section 3.1.6.2, “Othercases dealt with by domestic law.”73A similar question can be raised about the 50 per cent-of-assets thresholdfor real property holding entities in Article 13 (4).141