Interpretation of Treaties – Monist or Dualistic View

There are two views on the Interpretation of Tax Treaties. Different countries may follow either of these rules for interpretation of tax treaties. The classification of interpretation into these rules depends on the following factors : –

• Whether DTAA overrides domestic law ?
• Whether International Law and National Law are part of the same system of Law ?

Let us now discuss the two views on interpretation of tax treaties : –

MONIST VIEW  (followed by India as well)

Under this view on interpretation, International Law and National Law are considered as part of the same system of Law, and DTAA overrides domestic law.

Some of the countries which follow  Monist View are    Argentina, It/aly, India, Netherlands, Belgium, Brazil.

DUALISTIC VIEW

Under this view on interpretation, International Law and National Law are separate systems, and DTAA becomes part of the National Legal system by specific incorporation / legislation. In case of Dualistic View, DTAAs may be made subject to provisions of the National Law.

Some of the countries which follow Dualist view are Australia, Austria, Norway, Sri Lanka, Germany, UK. Recently , Federal Court of Australia, in the case of Tech Mahindra , has held that payments received by an Indian company,  from its Australian  clients   will be taxed in Australia as   ‘royalty’  on the premise that such income can be taxed under the Treaty, even though such payments cannot be taxed under local Australian laws.

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