© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
F12. Capital gains (Article 13)
ARTICLE 13: CAPITAL GAINS
Broad purpose
- Reflects the distinction between active and passive income
"[75] The allocation of the right to tax capital gains in the Treaty relies on this articulation of economic allegiance distinguishing between active and passive income. This allocation serves as the broad purpose of art 13. Under art 13(5) of the Treaty, the residence state has the primary right to tax capital gains, as they are passive income. Under art 13(1) to (4), there are exceptions allowing the source state to tax capital gains realized by non-residents. For example, gains derived from the alienation of immovable property, movable property forming part of the business property of a permanent establishment located in the source state, and shares whose value is derived principally from immovable property may be taxed by the source state. The rationale of these exceptions is that the origin of the wealth acquired from sales of immovable property and the like is the source state, which therefore has a greater claim to tax (Malherbe, at pp 58–59). For instance, the sale of immovable property situated in Canada is, in essence, a sale of a 'piece of Canada' — 'the “Canadianness” of the property … is the source of the gains' (Li and Cockfield, at pp 198 and 151).
[76] The business property exemption applies where a capital gain is realized on the sale of shares whose value is derived principally from immovable property in which a business was carried on. As a consequence, the default rule is reinstated, so that the residence state has the primary right to tax the gain. In my opinion, this constitutes a departure from the theory of economic allegiance as articulated in the Treaty and the OECD Model Treaty and shows that the business property exemption has a different purpose. According to the logic of economic allegiance, the source state normally has a greater claim to tax income derived from a business carried on within its territory or from the disposition of immovable property located within its territory, because the source state's economic environment has the closest connection to the origin of wealth. Under art 13(4) and (5), however, the taxing right is allocated to the residence state instead of the source state. This departure can be explained by the fact that economic allegiance is not the sole principle or policy consideration underlying the rules applicable to source-based taxation; the principle of capital import neutrality, the concern to prevent tax base erosion, and the desire to attract foreign investment also underlie these rules (Li and Cockfield, at pp 151–54). Since all these principles and policy considerations cannot be accommodated in every single rule, a balancing exercise is inevitable (see Shell Canada Ltd v R (1999) 2 ITLR 241, [1999] 3 SCR 622, at para 43; Canada Trustco, at para [53]; Sun Indalex Finance LLC v United Steelworkers 2013 SCC 6, [2013] 1 SCR 271, at para [174]). Article 13(4) is also the result of a balancing exercise. The theory of economic allegiance is not the dominating rationale underlying the carve-out provided for in art 13(4). Rather, the main objective is to attract foreign investment, as I explain below." (Alta Energy Luxembourg SARL v. R (2021) 24 ITLR 346, Supreme Court of Canada)
(1) Immovable property gains: source state may tax
"(1) Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State." (Model Article 13)
- Only covers gains on immoveable property situated in the other (non-residence) contracting state
"[22] ... Paragraph 1 of Article 13 deals only with gains which a resident of a Contracting State derives from the alienation of immovable property situated in the other Contracting State. It does not, therefore, apply to gains derived from the alienation of immovable property situated in the Contracting State of which the alienator is a resident in the meaning of Article 4 or situated in a third State; the provisions of paragraph 5 shall apply to such gains..." (OECD Commentary, Article 13)
(2) Moveable property forming part of business property of PE: source state may tax
"(2) Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise), may be taxed in that other State." (Model Article 13)
- Moveable property: all property (including incorporeal property) other than immoveable property
"[24] Paragraph 2 deals with movable property forming part of the business property of a permanent establishment of an enterprise. The term “movable property” means all property other than immovable property which is dealt with in paragraph 1. It includes also incorporeal property, such as goodwill, licences, emissions permits etc. Gains from the alienation of such assets may be taxed in the State in which the permanent establishment is situated, which corresponds to the rules for business profits (Article 7)." (OECD Commentary, Article 13)
- Property forming part of business property of PE: economic ownership allocated to PE
"[27.1] For the purposes of the paragraph, property will form part of the business property of a permanent establishment if the “economic” ownership of the property is allocated to that permanent establishment under the principles developed in the Committee’s report entitled Attribution of Profits to Permanent Establishments1 (see in particular paragraphs 72 to 97 of Part I of the report) for the purposes of the application of paragraph 2 of Article 7." (OECD Commentary, Article 13)
- Article 13(2) also applies to alienation of PE as a whole
"[25] The paragraph makes clear that its rules apply when movable property of a permanent establishment is alienated as well as when the permanent establishment as such (alone or with the whole enterprise) is alienated." (OECD Commentary, Article 13)
- Does not apply to assets not forming part of the business property of PE, even if T has PE in that state
"[27] Certain States consider that all capital gains arising from sources in their territory should be subject to their taxes according to their domestic laws, if the alienator has a permanent establishment within their territory. Paragraph 2 is not based on such a conception which is sometimes referred to as “the force of attraction of the permanent establishment”. The paragraph merely provides that gains from the alienation of movable property forming part of the business property of a permanent establishment may be taxed in the State where the permanent establishment is situated. The gains from the alienation of all other movable property are taxable only in the State of residence of the alienator as provided in paragraph 5. The foregoing explanations accord with those in the Commentary on Article 7." (OECD Commentary, Article 13)
- Whole enterprise is alienated: split out the gains attributable to the PE
"[25] ...If the whole enterprise is alienated, then the rule applies to such gains which are deemed to result from the alienation of movable property forming part of the business property of the permanent establishment. The rules of Article 7 should then apply mutatis mutandis without express reference thereto." (OECD Commentary, Article 13)
- Alienation of participation in opaque taxable entity: treat equivalently to alienation of shares
"[26]...Where, however, an enterprise performs its activities in the form of an entity or arrangement that a State treats as a separate taxpayer resident of one of the Contracting States, that State should treat the alienation of a participation in such an entity or arrangement in the same way as shares in a company to which paragraphs 4 or 5 of the Article apply. Paragraphs 32.4 to 32.7 of the Commentary on Articles 23 A and 23 B address situations where the domestic laws of the two Contracting States differ in this regard." (OECD Commentary, Article 13)
(3) Ships and aircraft operated in international traffic: residence state only
"(3) Gains that an enterprise of a Contracting State that operates ships or aircraft in international traffic derives from the alienation of such ships or aircraft, or of movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State." (Model Article 13)
(4) Company interests etc. deriving more than 50% value from immoveable property in other State: other state may tax
"(4) Gains derived by a resident of a Contracting State from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting State if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from immovable property, as defined in Article 6, situated in that other State." (Model Article 13)
- Allows taxation of whole gain, not just part attributable to immoveable property
"[28.4] Paragraph 4 allows the taxation of the entire gain attributable to the shares or comparable interests to which it applies even where part of the value of these shares or comparable interests is derived from property other than immovable property located in the source State..." (OECD Commentary, Article 13)
- 50% value test normally applies to gross assets (ignore liabilities)
"[28.4] ...The determination of whether shares or comparable interests derive, at any time during the 365 days preceding the alienation, more than 50 per cent of their value directly or indirectly from immovable property situated in a Contracting State will normally be done by comparing the value of such immovable property to the value of all the property owned by the company, entity or arrangement without taking into account debts or other liabilities (whether or not secured by mortgages on the relevant immovable property)." (OECD Commentary, Article 13)
- Purpose of 365 day test: prevent dilution shortly before sale
"[28.5] ... In 2017, the reference to “comparable interests” was added for that purpose. At the same time, the paragraph was amended in order to cover situations where the shares or comparable interests derive their value primarily from immovable property at any time during the 365 days preceding the alienation as opposed to at the time of the alienation only. This change was made in order to address situations where assets are contributed to an entity shortly before the sale of the shares or other comparable interests in that entity in order to dilute the proportion of the value of these shares or interests that is derived from immovable property situated in a Contracting State." (OECD Commentary, Article 13)
- Query whether to exclude immoveable property sold in the relevant period
"[28.9] ... In that case, some States consider that the value of the immovable property that has been alienated should not be taken into account when applying paragraph 4 to the shares that are alienated as a result of the death of X. These States may agree bilaterally to replace paragraph 4 by a provision drafted along the following lines..." (OECD Commentary, Article 13)
(5) Other gains from alienation of property: resident state only
"(5) Gains from the alienation of any property, other than that referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a resident." (Model Article 13)
- T not resident at time of alienation, but taxed on the gain on basis of having been resident at another time: tie breaker applies
"[40] For the reasons I have explained, Article 13(4) must, I think, be construed as effective to deal with any liability to taxation for capital gains which either Contracting State may impose regardless of the basis of that charge under the domestic legislation in question. It seems to me unlikely that the draftsman of the Model Convention intended that capital gains which are to be taxable only on the basis of residence should depend exclusively on residence at the date of disposal and so exclude the rights of a Contracting State to tax gains by reference to residence within the same tax year. The definition of "resident of a Contracting State" in Article 4(1) re-inforces this view by making "liability to taxation" by reason of residence the criterion for the taxation of capital gains under Article 13(4). This, I think, must denote what the Special Commissioners described as chargeability and not simply physical residence. That view is, I think, consistent with the purpose of Article 13(4) and avoids descending into whether the UK or Mauritian requirements for residence are satisfied. The definition assumes that they are and allocates the right to tax on the basis that there is liability.
...
[43] I therefore accept…that the provisions of Article 13(4) are not to be read as incorporating a reference to the date of disposal but (for the reasons already given) I am not persuaded by his submission that one can construe Article 4(1) as meaning no more than tax resident and so avoid any application of the tie-breaker provisions in Article 4(3). The definition of "resident" in Article 4(1) is critical to the meaning of Article 13(4) and Article 4, once applied by the wording of Article 13(4), has to operate in its entirety. The definition of "resident" in Article 4(1) is expressly subject to Article 4(3) which therefore applies whenever the alienator is liable to taxation in both Contracting States in respect of the gain. Article 4(3), as I have explained, is focused on liability for tax regardless of the period of residence under national law which creates that liability. Looked at in this way it becomes meaningless and impermissible to draw a distinction between consecutive and concurrent periods of "residence". The DTA is concerned only with the possibility of a double tax charge on the same gain and not with the period of residence which gives rise to it. If that situation occurs then Article 4(3) operates to resolve the matter as part of Article 13(4) which incorporates it." (HMRC v. Smallwood [2010] EWCA Civ 778)
"[169(9)]...The point is that article 13(4) would not operate to achieve that intended purpose if it does not, in combination with article 4, (a) recognise that both States can potentially tax the gain due to the residence of the relevant person under domestic law, regardless of the specific domestic law requirements for the period of residence, and (b) operate to provide a mechanism for resolving which State can tax the gain under article 4(3) even though the two periods of residence which render a person potentially liable to tax are not concurrent but consecutive and/or do not coincide with the time the disposal takes place.
...
[170] In effect Patten LJ's view was that article 13(4), in combination with article 4, operates to allocate taxing rights to a single State where the taxpayer would otherwise be within the scope of a charge to tax on a disposal of "residual property" due to being "liable to tax" in both States by reason of residence for domestic tax law purposes, regardless of the precise stipulations under domestic law as to when the person must be resident in order to be so liable. Hence, in his view, it is not relevant that under the UK rules a person is liable to CGT on a gain arising on residual property due to residence in a period which does not coincide with the date of the disposal or with the period when the trustees were resident in Mauritius for Mauritius tax law purposes.
...
[176]...However, as in relation to the Mauritius treaty, it would undermine the clear purpose of article 4, as imported into article 14(4), were it not to capture as a "resident of a Contracting State" a person who is within the scope of a tax charge on the gain in that Contracting State due to being resident in that State regardless of precisely how that charge is imposed/when the residence occurs." (Murphy v. HMRC [2025] UKFTT 1503 (TC), Judge Morgan)
EFFECT WHERE SOURCE STATE "MAY" TAX
- Residence state has to eliminate double taxation under Article 23 by exemption or credit
See F3. Double tax treaties
Applies to Article 13(1), (2), (4).
SCOPE
Taxes covered
- Applies to all kinds of taxes levied by a contracting state on capital gains
"[3.1] The Article does not specify to what kind of tax it applies. It is understood that the Article must apply to all kinds of taxes levied by a Contracting State on capital gains..." (OECD Commentary, Article 13)
Income v. gains
- Applies to long term and speculative gains (irrespective of domestic classification)
Article 13 is not limited to "capital" gains: any gains from alienation of property
"[11] The Article does not distinguish as to the origin of the capital gain. Therefore all capital gains, those accruing over a long term, parallel to a steady improvement in economic conditions, as well as those accruing in a very short period (speculative gains) are covered. Also capital gains which are due to depreciation of the national currency are covered. It is, of course, left to each State to decide whether or not such gains should be taxed." (OECD Commentary, Article 13)
- Left to domestic law to decide whether and how capital gains should be taxed
"[3] The Article does not deal with the above-mentioned questions. It is left to the domestic law of each Contracting State to decide whether capital gains should be taxed and, if they are taxable, how they are to be taxed. The Article can in no way be construed as giving a State the right to tax capital gains if such right is not provided for in its domestic law." (OECD Commentary, Article 13)
- Income v. gain on immoveable property determined in accordance with domestic law (if relevant)
"[50] The two departures from the MTC referred to above are the inclusion of a reference to profits from the alienation of property in Article 6(3), and an addition to Article 6(4) referring to income from immovable property used for the performance of professional services.
[51] The former departure is of some relevance to this case. It reflects a reservation recorded in the Commentary on the part of Canada, in which Canada has reserved the right to include a reference to income from the alienation of immovable property in Article 6(3). I note that the inclusion of a reference to profits from alienation makes it clear that profits from the disposal of immovable property that are in the nature of income profits rather than capital gains – most obviously trading profits – can be taxed in the State in which the property is situated. In contrast, capital gains made on the disposal of immovable property would fall within Article 13(1). As to what constitutes capital gains rather than income profits, the effect of Article 3(2) of the Treaty is that that question is determined by reference to the tax laws of the relevant Contracting State (here the UK), because the term is not defined in the Treaty." (Royal Bank of Canada v. HMRC [2023] EWCA Civ 695, Falk, Asplin, Nugee LJJ)
- But see: if treaty renders sum eligible for taxation as gain, cannot be taxed as income
"[100] This leads conveniently to the second of the two points raised in the Respondents' Notice, which is that the Payments are taxable in RBC's hands pursuant to Article 13(4)(b) and (5)(a), as gains from the alienation of UK oil-related interests or shares deriving their value therefrom.
[101] I disagree. Unlike the position of Sulpetro, Article 13 provides no basis to tax RBC on the Payments. First, the Payments could not sensibly be regarded as giving rise to capital gains in RBC's hands, an issue determined in accordance with UK tax principles pursuant to Article 3(2) of the Treaty: see [51] above. They are simply receipts of RBC's banking trade." (Royal Bank of Canada v. HMRC [2023] EWCA Civ 695, Falk, Asplin, Nugee LJJ - this may be specific to the UK/Canada treaty - see above)
"[140] At this point it is convenient to deal with an additional argument of Mr Bremner QC that the Revenue could still tax the Payments as income, even if they only became eligible for taxation in the UK as a gain within the meaning of Article 13. We reject this argument. It seems wrong that a sum of money which becomes eligible for taxation within the UK as a gain within the meaning of Article 13 can then be taxed in the UK in whatever way the Revenue wishes, regardless of the status of the relevant sum of money. Such an analysis seems to extend too far the flexibility given to the contracting parties, when it comes to the taxation of sums which are rendered eligible for taxation in one contracting state by a particular Article of the Treaty." (Royal Bank of Canada v. HMRC [2022] UKUT 45 (TCC), Edwin Johnson J and Judge Rupert Jones)
But see the OECD guidance on Article 13.
RELATIONSHIP TO OTHER ARTICLES
Article 7 (business profits)
- No distinction between capital gains and commercial profits is made, so no need for special provision re Article 7
"[4] ... The right to tax a gain from the alienation of a business asset must be given to the same State without regard to the question whether such gain is a capital gain or a business profit. Accordingly, no distinction between capital gains and commercial profits is made nor is it necessary to have special provisions as to whether the Article on capital gains or Article 7 on the taxation of business profits should apply. It is however left to the domestic law of the taxing State to decide whether a tax on capital gains or on ordinary income must be levied. The Convention does not prejudge this question..." (OECD Commentary, Article 13)
- Deemed gains on transfer to/from PE: Article 7
"[10] In some States the transfer of an asset from a permanent establishment situated in the territory of such State to a permanent establishment or the head office of the same enterprise situated in another State is assimilated to an alienation of property. The Article does not prevent these States from taxing profits or gains deemed to arise in connection with such a transfer, provided, however, that such taxation is in accordance with Article 7." (OECD Commentary, Article 13)
Article 10 (dividends)
- Distribution in a liquidation may be taxed as a dividend
"[31] If shares are alienated by a shareholder in connection with the liquidation of the issuing company or the redemption of shares or reduction of paid-up capital of that company, the difference between the proceeds obtained by the shareholder and the par value of the shares may be treated in the State of which the company is a resident as a distribution of accumulated profits and not as a capital gain. The Article does not prevent the State of residence of the company from taxing such distributions at the rates provided for in Article 10: such taxation is permitted because such difference is covered by the definition of the term “dividends” contained in paragraph 3 of Article 10 and interpreted in paragraph 28 of the Commentary relating thereto, to the extent that the domestic law of that State treats that difference as income from shares. As explained in paragraphs 32.1 to 32.7 of the Commentary on Articles 23 A and 23 B, where the State of the issuing company treats the difference as a dividend, the State of residence of the shareholder is required to provide relief of double taxation even though such a difference constitutes a capital gain under its own domestic law." (OECD Commentary, Article 13)
Article 11 (interest)
- Redemption of debenture at gain: may be taxed as interest
"[31] ... The same interpretation may apply if bonds or debentures are redeemed by the debtor at a price which is higher than the par value or the value at which the bonds or debentures have been issued; in such a case, the difference may represent interest and, therefore, be subjected to a limited tax in the State of source of the interest in accordance with Article 11 (see also paragraphs 20 and 21 of the Commentary on Article 11). (OECD Commentary, Article 13)
Article 15 (employment income)
- Benefit that is consideration for services taxable under Article 15/16
"32. There is a need to distinguish the capital gain that may be derived from the alienation of shares acquired upon the exercise of a stock-option granted to an employee or member of a board of directors from the benefit derived from the stock-option that is covered by Article 15 or 16. The principles on which that distinction is based are discussed in paragraphs 12.2 to 12.5 of the Commentary on Article 15 and paragraph 3 of the Commentary on Article 16. (OECD Commentary, Article 13)
- Employment state has taxing rights up to the later of: (i) option being exercised and (ii) end of period of employment required to earn the benefit
"[12.2] ... This Article, and not Article 13, will apply to any benefit derived from the option itself until it has been exercised, sold or otherwise alienated (e.g. upon cancellation or acquisition by the employer or issuer). Once the option is exercised or alienated, however, the employment benefit has been realised and any subsequent gain on the acquired shares (i.e. the value of the shares that accrues after exercise) will be derived by the employee in his capacity of investor-shareholder and will be covered by Article 13. Indeed, it is at the time of exercise that the option, which is what the employee obtained from his employment, disappears and the recipient obtains the status of shareholder (and usually invests money in order to do so)." (OECD Commentary, Article 15)
Employment article continues to apply if shares acquired are not irrevocably vested
"[12.2] ...Where, however, the option that has been exercised entitles the employee to acquire shares that will not irrevocably vest until the end of a period of required employment, it will be appropriate to apply this Article to the increase in value, if any, until the end of the required period of employment that is subsequent to the exercise of the option." (OECD Commentary, Article 15)
- Employment state may tax as income or capital gains
"[12.4] ... As a result, whilst the Article will be interpreted to allow the State of source to tax the benefits accruing up to the time when the option has been exercised, sold or otherwise alienated, it will be left to that State to decide how to tax such benefits, e.g. as either employment income or capital gain. If the State of source decides, for example, to impose a capital gains tax on the option when the employee ceases to be a resident of that country, that tax will be allowed under the Article..." (OECD Commentary, Article 15)
- Residence state may tax gain within Article 13 as employment income
"[12.4] ... The same will be true in the State of residence. For example, while that State will have sole taxation right on the increase of value of the share obtained after exercise since this will be considered to fall under Article 13 of the Convention, it may well decide to tax such increase as employment income rather than as a capital gain under its domestic law." (OECD Commentary, Article 15)
Article 21 (other income)
- Sale for income stream: unresolved whether Article 13 or Article 21
"[18] Moreover the question arises which Article should apply when there is paid for property sold an annuity during the lifetime of the alienator and not a fixed price. Are such annuity payments, as far as they exceed costs, to be dealt with as a gain from the alienation of the property or as “income not dealt with” according to Article 21? Both opinions may be supported by arguments of equivalent weight, and it seems difficult to give one rule on the matter. In addition such problems are rare in practice, so it therefore seems unnecessary to establish a rule for insertion in the Convention. It may be left to Contracting States who may be involved in such a question to adopt a solution in the mutual agreement procedure provided for by Article 25." (OECD Commentary, Article 13)
ALIENATION OF PROPERTY
- Includes sale, exchange, partial alienation, expropriation, passing on death
"[5] The Article does not give a detailed definition of capital gains. This is not necessary for the reasons mentioned above. The words “alienation of property” are used to cover in particular capital gains resulting from the sale or exchange of property and also from a partial alienation, the expropriation, the transfer to a company in exchange for stock, the sale of a right, the gift and even the passing of property on death." (OECD Commentary, Article 13)
- Includes liquidation and redemption of debentures
"[31] If shares are alienated by a shareholder in connection with the liquidation of the issuing company or the redemption of shares or reduction of paid-up capital of that company, the difference between the proceeds obtained by the shareholder and the par value of the shares may be treated in the State of which the company is a resident as a distribution of accumulated profits and not as a capital gain. The Article does not prevent the State of residence of the company from taxing such distributions at the rates provided for in Article 10: such taxation is permitted because such difference is covered by the definition of the term “dividends” contained in paragraph 3 of Article 10 and interpreted in paragraph 28 of the Commentary relating thereto, to the extent that the domestic law of that State treats that difference as income from shares. As explained in paragraphs 32.1 to 32.7 of the Commentary on Articles 23 A and 23 B, where the State of the issuing company treats the difference as a dividend, the State of residence of the shareholder is required to provide relief of double taxation even though such a difference constitutes a capital gain under its own domestic law. The same interpretation may apply if bonds or debentures are redeemed by the debtor at a price which is higher than the par value or the value at which the bonds or debentures have been issued; in such a case, the difference may represent interest and, therefore, be subjected to a limited tax in the State of source of the interest in accordance with Article 11 (see also paragraphs 20 and 21 of the Commentary on Article 11)." (OECD Commentary, Article 13)
- Exercise of a right (e.g. option)
Exercise of rights is included as alienation by logical inference from the commentary on Article 15, which would not otherwise need to clarify the delineation
"[12.2] ... This Article, and not Article 13, will apply to any benefit derived from the option itself until it has been exercised, sold or otherwise alienated (e.g. upon cancellation or acquisition by the employer or issuer). Once the option is exercised or alienated, however, the employment benefit has been realised and any subsequent gain on the acquired shares (i.e. the value of the shares that accrues after exercise) will be derived by the employee in his capacity of investor-shareholder and will be covered by Article 13. Indeed, it is at the time of exercise that the option, which is what the employee obtained from his employment, disappears and the recipient obtains the status of shareholder (and usually invests money in order to do so)." (OECD Commentary, Article 15)
- Same principles should apply to taxes on capital appreciation and revaluation, but query which article applies
"[9] Where capital appreciation and revaluation of business assets are taxed, the same principle should, as a rule, apply as in the case of the alienation of such assets. It has not been found necessary to mention such cases expressly in the Article or to lay down special rules. The provisions of the Article as well as those of Articles 6, 7 and 21, seem to be sufficient. As a rule, the right to tax is conferred by the above-mentioned provisions on the State of which the alienator is a resident, except that in the cases of immovable property or of movable property forming part of the business property of a permanent establishment, the prior right to tax belongs to the State where such property is situated." (OECD Commentary, Article 13)
- Does not apply to prizes or lotteries (including prizes attaching to bonds)
"[19] The Article is not intended to apply to prizes in a lottery or to premiums and prizes attaching to bonds or debentures." (OECD Commentary, Article 13)
CALCULATION OF GAIN
- Article does not specify how to calculate the gain - left to domestic law
"[12] The Article does not specify how to compute a capital gain, this being left to the domestic law applicable. As a rule, capital gains are calculated by deducting the cost from the selling price. To arrive at cost all expenses incidental to the purchase and all expenditure for improvements are added to the purchase price. In some cases the cost after deduction of the depreciation allowances already given is taken into account. Some tax laws prescribe another base instead of cost, e.g. the value previously reported by the alienator of the asset for capital tax purposes." (OECD Commentary, Article 13)