Approaches in Interpretation of Treaty - Static vs Ambulatory - International Taxation - Income Tax

Approaches in Interpretation of Treaty - Static vs Ambulatory Meaning of the term (not defined in the treaty) as per the domestic law- Static Approach Meaning at the time the treaty was signed. Ambulatory Approach Meaning at the time of application of treaty provision. When a treaty refers to the provision of the domestic laws of a contracting state for assigning meaning to a particular term, and subsequently the domestic law is changed, then the question arises for assigning meaning to that term: Whether the treaty intended to assign the meaning which was prevailing in the domestic law of the contracting state at the date of signing the treaty (a static interpretation) or the meaning on the date of application of the treaty (an ambulatory interpretation)? Delhi High Court in the case of Shin Satellite Public Co. Ltd. 2016 (2) TMI 415 Delhi HC has held that No amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend in operation to the terms of an international treaty. An ambulatory interpretation is now explicitly called for by the OECD model convention commentary 2017 when the context does not require otherwise. However, an ambulatory approach cannot be applied where there is radical amendment in the domestic law that changes substance of the term. Ambulatory Approach subject to contextual Interpretation - Article 3(2) of the OECD Model Convention provides that meaning of the term not defined in the treaty shall be interpreted in accordance with the provisions of the tax laws of the Contracting State that may be applying the Convention. However, this provision is subject to one caveat and that is if the context requires interpreting the term otherwise , then, the meaning should be assigned accordingly. Therefore, the reference to the domestic tax law is not automatic if the term is not defined under the treaty. The term is to be first interpreted in light of the context provided under the treaty and if the context does not provide the meaning, then the domestic tax law meaning may be resorted to.