Interpreting International Tax Agreements: Alsatia in New Zealand

Abstract

This article discusses the current state of tax treaty interpretation in New Zealand with particular reference to a recent decision which has attracted attention both here in New Zealand and overseas. The case concerned whether a New Zealand resident was entitled to a tax sparing credit under the New Zealand/Chinese double tax treaty. The Lin case was decided in the High Court in Auckland. The Court of Appeal decision, overturned the High Court decision, whilst the application for leave to appeal was dismissed by the Supreme Court on 20 June 2018.

While there are many troubling aspects to the approach taken by the Court of Appeal the approach to tax treaty interpretation is the most concerning and significant. Consequently, this is the primary focus of this article. In the view of the author, the approach taken in the Lin case was one of unduly textual interpretation which was, arguably, contrary to the basic tenants of the Vienna Convention on the Law of Treaties.

The approach taken by the Court of Appeal in the Lin cannot be reconciled to previous examples of New Zealand tax treaty interpretation and it is also out of step with international courts in common law jurisdictions. There are two major problems that arise from this approach. The first is that inconsistency between different states is undesirable. A treaty may be interpreted quite differently by both treaty partners if their courts pursue independent textual interpretation without recourse to any other guidance. Secondly, the OECD Commentary is quite often something that the Commissioner would wish to refer to in illustrating a preferred interpretation or meaning. Ironically, the Commissioner in winning this case may have significantly restricted her ability to argue in a teleological way in future disputes. Given the revenue officials influence over the OECD Commentary and its resultant revenue favoured focus, this is possibly a Pyrrhic victory. The approach to interpretation by the Court of Appeal seems inconsistent with the wider purposive approach generally applied to treaty interpretation and is arguably contrary to the United Kingdom’s Supreme Court decision in Anson.

The implications arising from the Court of Appeal’s decision, and from the Supreme Court’s decision not to hear an appeal, could be seen as New Zealand going out on an international limb, far from an international consensus in the common law world on the interpretation of treaties.

Keywords: interpretation of tax treaties, tax sparing, tax credits, vienna convention on the law of treaties, textual interpretation, purposive interpretation

JEL Classification: K34, K33