Case: Thiel v Commissioner of Taxation (Cth) [1990] HCA 37 ; (1990) 171 CLR 338
Outcome: cited
the provisions of the UK Agreement and the Netherlands Agreement form part of the domestic law of Australia (see [17] and [27] above), the character of those Agreements as treaties between Australia and another country attracts the approach to construction applied to international treaties. In Thiel v Commissioner of Taxation (Cth) [1990] HCA 37 ; (1990) 171 CLR 338 at 356 ( Thiel ), McHugh J, citing Shipping Corporation of India Ltd v Gamlen Chemical Co (A/Asia) Pty Ltd [1980] HCA 51 ; (1980) 147 CLR 142 at 159, said that the Swiss Agreement (in Schedule 15 to the Agreements Act and given the force of law in Australia by s 11E of that Act) was to be interpreted in accordance with the rules that are recognised by international lawyers and that are found in the Vienna Convention on the Law of Treaties (Opened for signature 23 May 1969. [1974] ATS 2. Entered into force 27 January 1980.) (Vienna Convention). The Full Federal Court in McDermott Industries (Aust) Pty Ltd v Commissioner of Taxation [2005] FCAFC 67 ; (2005) 142 FCR 134 at 143 (Hill, Sundberg and Stone JJ) summarised the principles applicable to the construction of DTAs in this way: Double tax treaties are bilateral treaties entered into between two states. As such they are to be interpreted in accordance with the requirements of the Vienna Convention on the Law of Treaties (23 May 1969, entered into force on 22 January 1974) (the Convention) and in particular Art 31 of the Convention. The application of the Convention has been discussed by McHugh J in Applicant A v Minister for Immigration and Ethnic Affairs [1997] HCA 4 ; (1997) 190 CLR 225 and in Thiel v Commissioner of Taxation (Cth) [1990] HCA 37 ; (1990) 171 CLR 338 , the latter case being concerned with the interpretation of the double taxation agreement between Australia and Switzerland. The leading authority in this Court on interpretation of double taxation agreements is [ Commissioner of Taxation v Lamesa Holdings BV (1997) 77 FCR 597]. It is unnecessary here, to set out again what is there said. The following principles can be said to be applicable: Regard should be had to the "four corners of the actual text". The text must be given primacy in the interpretation process. The ordinary meaning of the words used are presumed to be "the authentic representation of the parties' intentions": Applicant A . The courts must, however, in addition to having regard to the text, have regard as well to the context, object and purpose of the treaty provisions. The approach to interpretation involves a holistic approach. International agreements should be interpreted "liberally". Treaties often fail to demonstrate the precision of domestic legislation and should thus not be applied with "taut logical precision". Authority for resort to extraneous materials of the kinds referred to may be found in Thiel at 344 (per Mason CJ, Brennan &amp; Gaudron JJ), 349 (per Dawson J), 357 (per McHugh J); Unisys Corporation Inc v Federal Commissioner of Taxation 2002 ATC 5146 at [44]; and Commissioner of Taxation v Lamesa Holdings BV (1997) 77 FCR 597 ( Lamesa ) at 604. In relation to the Commissioner's second argument, I do not think that either the expression "carries on trade or business" in Art 5(1) or the expression "the conduct of a trade or business" in Art 5(7) is to be read so as to require continuing or repeated business activities so as to stamp the word "profits" or "income" in those articles respectively with a revenue character: cf Thiel at 343-345 per Mason CJ, Brennan and Gaudron JJ; 347-352 per Dawson J; 355-361 per McHugh J. The Commissioner's third argument does not persuade me. Paragraph 4 of Art 5 may raise a question as to the interaction of the deductibility provided for in that paragraph, the measurement of net capital gains under the Pt IIIA r&eacute;gime and the general deductibility provisions of the ITAA 1936 and the ITAA 1997, but any complexity involved does not, to my mind, show an intention to confine the operation of Art 5 of the UK Agreement in the manner contended by the Commissioner. The Commissioner's fourth argument is likewise unpersuasive. The circumstance that the three exclusions happen to be items of income according to ordinary concepts does not mean that "income" as used earlier in that paragraph refers only to income according to ordinary concepts.