March 6, 2025
International Law - Double Taxation Treaties
The Conventions for the avoidance of double taxation, which are well known to lawyers dealing with international law and cross-border investments, are - in simple language - international bilateral conventions by which States mainly regulate the avoidance of double taxation of income and capital from the same source either for individuals or companies of the Contracting States.
Looking at the issue from the Greek point of view, these conventions, when signed, require ratification by law, but once ratified, they prevail over any national legislation. This is because there is a relevant constitutional provision in the Greek Constitution, that of Article 28 (1), which applies to all international conventions signed and ratified by Greece.
In practice this means that if Greek law regulates an issue in a different way from the international convention, in this case - the Convention for the Avoidance of Double Taxation, then it’s the provision of the convention that will prevail and which will ultimately be applied and not any national provision.
Greece maintains a wide network of international treaties for the avoidance of double taxation with many states, agreements which constitute an effective legal tool for encouraging international investments to other countries and vice versa. Their provisions play also the role of facilitating the activities of individuals and companies in both Contracting States by setting clear mutual rules.
It is also well known to legal experts that a large part of the texts of these Conventions are based on OECD models specifically provided for these Conventions.
Provisions defining the legal - tax status must be considered as important , such as, for example, if an individual is considered to be a resident of the one Contracting State or of the other Contracting State, or , where the place of establishment of a company is , in the one Contracting State or the other .The Convention intervenes by defining the criteria that are used to determine the place of establishment or residence accordingly.
The importance of these arrangements is obvious , by virtue of the international convention provisions the tax residence of an individual or the establishment of a company is defined and following that the natural or legal person automatically becomes , firstly , subject to the tax authority of the one Contracting State or, in the opposite case , of the other Contracting State .
If, for example, the international treaty X , signed between the States X 1 and X 2 , defines an individual as tax resident in Greece – State X1 , then his worldwide income , therefore the income earned from his activities in the other State too (the State X2 - counter party of the treaty) will be taxed in Greece .
Some important criteria for determining the tax residence may be depending on the case , for example, the permanent home, the habitual abode, the centre of vital interests, the personal and/ or economic ties and his social relations in the case of an individual .
A second issue which becomes important and on which the international convention operates effectively is - by way of example - the credit of any tax paid by the person, identified as resident in a Contracting State, to the other Contracting State.
This is the case, for example, when the other Contracting State of which the individual ( or the company) is not resident -but in which is conducting activities in some form- imposes tax on that person despite the fact that he is not its resident .
The problem here is that the other State, i.e. the State of which the individual or company is resident for tax purposes, is also likely to tax the resident for the same reason.
In this respect, the international convention for the avoidance of double taxation works in favor of solving the problem , for example, by using the procedure of crediting the tax already paid in the State of activity by the State in which the taxpayer is tax resident, this in order to avoid double payment of tax for the same reason.
Extensive special arrangements are usually provided for dividends, interest, royalties, capital gains, independent or dependent services, special provisions for entertainers and sportspersons, etc.
It is also interesting, from the point of view of everyday practice, that - apart from the legal definition of tax residence , the rules on tax credit and many other issues- special forms and practical steps are provided by virtue of specific national regulations which facilitate the operation of the convention in question, the proof of the relevant issues with considerably fewer bureaucratic procedures, such as, for example, the omission of the need to ratify international documents by using the Apostille stamp the one provided in the Treaty of Hague, etc.
A very interesting legal issue is the case of the absence of such a convention because of total lack of existence or because of its expiry, a situation that raises the crucial question of what is the regime governing the same issues, the one that normally would be regulated by the convention with supra-legislative force , if existed and/or if it was in force.
In that case , in the absence of a convention in force , in order to resolve similar issues, the legal analysis will necessarily refer to the relevant provisions of the national states , such as, for example, in Greece, the Greek tax law - indicatively , the Income Tax Code and in particular the literal expression of the provisions, the interpretation given from time to time by the tax authorities themselves and/or by the legislative bodies for the resolution of similar disputes and finally by the Greek courts and especially the rulings of the Council of State. In a similar analysis the OECD models’ commentaries should not be neglected because they offer an authentic instrument of legal interpretation.
It is of real legal interest to analyze (in case of lack of double taxation treaty) depending on the other state whether , in the absence of a convention in force , what the implementation of national provisions would be and if , finally , would converge with the solutions that would have been reached under an existing convention, assuming one that would follow the OECD Model Tax Convention.
This text is a relatively simplified as far as possible for the sake of a non-specialized, non-legal reader , a very brief introduction to some selected issues concerning the complex issue of the international law- of international treaties for the avoidance of double taxation, therefore, under no circumstances should it be considered as legal or any other type of advice.
