Introduction

In a decision analyzed in this article, the High Court of Australia was required to characterize a foreign company’s income (business profits versus royalty). Interestingly, the relevant tax treaty did not include specific provisions for tax treatment of royalties. Under the Australian tax law, at the time the relevant tax treaty entered into force, a non-resident’s royalty income was not taxable in Australia. Subsequently, however, the Australian tax law was amended to render such income taxable in Australia. Therefore, the Court was required to choose between the ‘static approach’ and the ‘ambulatory approach’ for interpreting the tax treaty. The Court opted for the ambulatory approach....