3.2.1.2 The objectives of the OECD IHTMTC

The primary objective of the 1982 OECD IHTMTC is undoubtedly to allocate taxing rights between the Contracting States1 for the avoidance of double taxation of cross-border inheritances and donations2 that takes place due to the parallel and uncoordinated application of the OECD member countries’ inheritance and gift tax systems.3 Such an allocation takes place through three distributive rules, Articles 5 to 7 of the OECD IHTMTC, as discussed in the previous section.

Furthermore, I observe that a few sections of the model deal with cases of double non-taxation arising from the application of an inheritance and gift tax treaty or the domestic law classifications. For example, I note that the Commentary on Article 7 of the OECD IHTMTC allows the other Contracting State to levy taxes on property that is not covered by Articles 5 and 6 under certain conditions for the avoidance of factual double non-taxation. More specifically, under paragraph 31 of the Commentary on Article 7 of the OECD IHTMTC, “[s]ome States, when giving up a taxation right in favour of another State under the Convention, may sometimes want to have the assurance that the tax which should then be levied in the other State can be collected there […].” It goes without saying that the other Contracting State usually gives up its taxation right concerning property that is not covered by Articles 5 and 6 of the tax treaty.

In that regard, those who drafted the OECD IHTMTC noted that the Contracting State of the fiscal domicile would often need to be assisted by the other Contracting State in the collection of the tax on assets that are located in the other Contracting State. For this reason, the states were advised to conclude a convention for mutual assistance in the collection of taxes or a specific Article providing for such assistance for the taxes covered by the convention. Nevertheless, under paragraph 33, “[s]ome States, which for some reason could not conclude between themselves such a mutual assistance convention or Article, have adopted in their conventions another solution. This solution involves the addition to Article 7 of a second paragraph, which provides that the State in which the deceased or donor was not domiciled may impose its domestic tax to the extent that tax has not been paid in the State of domicile. This provision applies notwithstanding the provisions of paragraph 1 of Article 7, but does not apply where no tax was paid in the State of domicile as a result of a specific exemption, deduction, credit or allowance there. Member countries wishing to include such a provision are free to do so in their bilateral negotiations.”

Furthermore, I observe that when discussing the conflicts of qualification due to differences in domestic law classifications, the Commentary on Article 7 of the OECD IHTMTC refers to situations where double non-taxation can arise. This is the case, for instance, of the interests in partnerships (paragraph 20 of the Commentary on Article 7 of the OECD IHTMTC). The same is true concerning the special features of the domestic laws of certain member countries as discussed in paragraph 28 and 29 of the Commentary on Article 7 of the OECD IHTMTC.

Finally, under paragraph 23 of the Commentary on Article 9B of the OECD IHTMTC, “[i]f the domestic law of the State of situs does not entitle it to make full use of the right to tax reserved to it by the Convention, then in order to avoid double non-taxation, Contracting States may find it reasonable in certain circumstances to make an exception to the obligation on the State of domicile to give exemption. In such cases it is left to States, in their bilateral negotiations, to agree upon the necessary modifications to the Article.”

In addition, the model includes a nationality non-discrimination provision (Article 10 of the OECD IHTMTC) and two provisions that facilitate the administration of the cross-border inheritances and donations by the tax authorities of each Contracting State.4 As a result, it could be argued that the model also aims at addressing certain cases of discrimination of cross-border inheritances and donations5 and certain administrative difficulties of cross-border inheritances and donations6 (perhaps as secondary purposes supportive to the main purpose of avoiding double taxation).7