Czech Republic: Treaty must be interpreted based primarily on general interpretation rules

Supreme Administrative Court decision

Treaty must be interpreted based primarily on general interpretation rules

The Supreme Administrative Court in December 2023 held (10 Afs 27/2023) that the text of an income tax treaty must be interpreted based primarily on general rules of interpretation, and the commentaries on the OECD Model Tax Convention can only be used in a complementary manner to remove ambiguities.


The taxpayer, a Korean company, argued that its income from a lease of an unmanned aircraft to a Czech company was not subject to tax in the Czech Republic under Article 8 (profits from air and sea transport) of the income tax treaty between the Czech Republic and South Korea, citing the updated commentaries on the OECD Model Tax Convention. The tax authority argued that the treaty's text was clear enough to apply Article 12 (royalties) of the treaty, under which the income would also subject to tax in the Czech Republic.

The court agreed with the tax authority, emphasizing that general interpretation rules must be the primary basis of interpreting a treaty. These rules involve using linguistic, systematic, and teleological methods, and the text of the treaty itself. Complementary means of interpretation, such as the commentaries on the OECD Model Tax Convention, may only be used to resolve ambiguities. Furthermore, when using these commentaries as an interpretive tool, the wording of the commentaries at the time of entering into the treaty must be prioritized. Later commentaries may be applied as long as they do not contradict the original commentaries and merely clarify or elaborate on them.

Read a January 2024 report prepared by the KPMG member firm in the Czech Republic



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