Income characterization: ‘rights in respect of property’ versus ‘transfer of rights in property’

In case of transactions concerning intellectual property, characterization of income plays crucial role for determination of the source State implications. For instance, should the income be characterized as business profits (in which case Art. 7 of the tax treaties should apply) or royalties (Art. 12 should apply) or capital gains (Art. 13 should apply)? In that context, it is important to distinguish the income in respect of ‘rights in respect of property’ from the income in respect of ‘transfer of rights in property’. For that purpose, it is fruitful to take into account certain important judicial precedents from Canada and India.

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