Interpretation of double tax agreements: static or dynamic?

The main discussion in the case revolves around the withholding tax rate applicable to the royalty payments made by a Spanish entity to its Swiss parent company, and where the US top parent company is the owner of the IP rights. Both the tax authorities and the Spanish National court understood that the DTA Switzerland-Spain was not applicable to the case, and therefore the royalties’ payments were subject to a  general withholding tax rate.

One of the main arguments given by the Supreme Court is that, while other articles of the DTA Spain-Switzerland such as article 10 (interest) or article 11 (dividends) were amended in 2006 to include a reference to beneficial ownership following the new versions of the OECD Model Convention, the original text of article 12 remained intact.

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