Jurisdiction Over Interest on Public Debt Securities

the Role of Financial Institutions Located Outside the Source State

Abstract

This study aims to address the issue of the potential change in exclusive taxation by the Source State in cases of interest arising from public debt securities. This situation arises when a custodian Financial Institution, residing in a State different from that of the interest-paying source, acts as an intermediary and remitter of such interest. Initially, the study discusses the legal nature of interest and the corresponding liability to tax under Article 11 of the OECD Model Tax Convention on Income and on Capital. It then conducts an exhaustive analysis of case law issued by the Administrative Council of Tax Appeals, assessing the possible tax implications resulting from the intervention of an intermediary Financial Institution remitting interest on government bonds. Particular attention is given to whether such circumstances the exclusive liability to tax vested in the Source State with respect to interest income. Ultimately, the article contends that the participation of a custodian Financial Institution resident in a different State from that of the payer does not alter the Source State’s exclusive liability to tax interest arising from public debt securities.