INTERNATIONAL TAXATION AJ 2025-2026
PRACTICAL INFORMATION
Practical remarks
- Teaching team
o Prof. dr. Filip Debelva
o In which ways can students ask questions?
§ In person
§ By e-mail
• (assistant)
• (management assistant)
- Cours as part of a learning track
o Aims of the course
o Part of the learning track in the program
§ How do we build on (or what precedes) this knowledge?
§ Relevance of the course in the program?
§ Contribution to professional profile/future self of the student?
- Table of contents of this course
o PART 1: Introduction and general concepts
o PART 2: OECD Model Tax Convention
§ Case Studies Part 1
§ Case Studies Part 2
§ Case Studies Part 3 (Online sample test)
o PART 3: Special Topics
§ Global Minimum Taxation of Multinationals
§ Tax planning and the prevention of abuse
§ Case studies Part 4 (Capstone Case Studies)
- Previous knowledge
o “Students are expected to have completed a basic course of taxation in their
national tax system”
- Course format
o Working format
§ Lectures
o Best approach to be successful
§ Study method
§ Exercises (sample questions)
o On campus education
§ Blended learning: preparation of lectures
1
, § No recordings except for students working their way through university /
“ombuds” cases
§ Slides available on Toledo/Ultra before the lecture starts
- Study material
o Which materials?
§ Slides
§ Binder available at campus shop
• OECD Model Tax Convention on Income & Capital 2017 +
Commentary
• OECD Transfer Pricing Guidelines for MNE’s and TA’s (in part)
• Vienna Convention on the Law of Treaties 1969 (in part)
• EU tax legislation (in part)
§ Additional material
• Cases available on Toledo
o Tips and best practices
o Build-up of the Toledo/Ultra course material
- Evaluation
o During the exam period
§ Types of questions: cases (2-3)
§ Exam material allowed: binder (and only the binder – not the slides)
• Allowed: highlighting / underlining / cross-references to other
articles
o Examples: see article 10; à Article 5, etc.
• Not allowed: adding extra information in writing
o Difficulty?
§ Case law on Toledo is the inspiration for the exam questions
o Exam duration: 2,5 hours
o On campus
- Exam feedback
o Exam feedback session
§ General feedback session with possibility to ask questions
§ Practical organization: will be posted on Toledo/Ultra
o Feedback on the course always welcome
2
,PART I. INTRODUCTION
INTRODUCTION AND GENERAL CONCEPTS
§1. DEFINITION AND SOURCES
International taxation refers to “all rules that determine where and how, in a cross-border
context, specific income of a taxpayer may be taxed and how this tax must be assessed and
recovered.”
- This implies that there is no “international tax legislation”, but rather situations where a
tax rule has an impact on a cross-border situation (e.g. tax authorities that think they have
a certain claim on a case)
- à We are looking at the competition between states to tax a certain income, and not
what the local relevant rules could be!
No separate set of rules, but various sources of law:
- 1) National tax laws (PM)
- 2) (mostly unwritten) general principles of international tax law
o Customary international law refers to a body of rules that applies to each state by
default even though the rules are not written down
- 3) EU law
o Do note that EU law also is very important for international taxation. EU tax law is
a funny concept, because if you look at the concept of the EU and you look for “EU
taxes”, you will find no real European Tax (with the exception of the taxes they levy
on the income of their personnel). That is the consequence of the fundamental
freedoms in the TFEU. The EU has harmonized some taxes (juncto the non-
discrimination principle in art. 18 TFEU) and rules on state aid. There also is a
whole set of EU directives which directly influence taxation. Next to these
directives, there are a lot of soft laws (e.g. TP, BEPS, Taxation of Electronic
Commerce…)
- 4) Bilateral treaties (based on Model Conventions) à Prevent double taxation
o The core instruments of international taxation
o They regulate residence, permanent establishments, allocation of taxing rights,
relief of double taxation…
- 5) International guidelines (in particular OECD material) à E.g. division within UN that
deals with taxation. Mostly non-binding soft law, but still very important and heavily
relied upon by courts
3
,à Illustrates the hierarchy and interaction between international tax law, EU law and domestic
tax law:
- Bilateral tax treaties sit at the centre and normally prevail over domestic tax legislation
- The MLI and Pillar 1 & 2 instruments modify or supplement existing treaties.
- EU law restricts domestic tax rules through the fundamental freedoms, state aid, and
directives
- Domestic law must comply with both international and EU obligations
- è The whole system forms a multi-layered hierarchy, where domestic tax rules operate
only within boundaries set by treaties and EU law
The core of the sources of international tax law are bilateral treaties. There are two main types
of model treaties being (i) OECD and (ii) UN (both in addition to many national model tax treaties
which follow these model treaties like a template). Our main focus will be the OECD Model Tax
Convention of 2017 + the commentaries thereon. These tax treaties try to eliminate double
taxation, but do not always solve all problems. In practice, states can deviate from these model
conventions however that is extremely uncommon. Keep in mind, that there are also (iii)
investment treaties. They are another category of treaties which contain rules that protect
investments in other states (we call them ‘BITS’) and other safeguards against measures of the
governments. Important case law / big profile cases are Yukos v. Russia and Lone Star v. Korea
States' Power to Tax
Fiscal sovereignty of the states:
- Derived from their sovereignty = the right for a state to regulate its affairs through its
governmental institutions. Every state has the right to enact (tax) laws on its territority!
o ~ Hobbes (Leviathan - state of nature – permanent war between all citizens –
states protect us and in order to protect us, we must fund the state with taxes): idea
of sovereignty
- Why does the government need taxes?
o The citizens give a part of their assets to the state so that the state can protect the
remainder of the assets of the citizens (taxes are clearly an infringement on private
possessions). The state uses that money to protect you, but of course also uses it
for other purposes like redistribution, education…
à However, this power is not unlimited! To have taxing power they require a nexus / connection
/ genuine link…
4
,Territoriality: requirement of personal (taxpayer) or “objective” (income) link with the territory
or both. Closely linked to fiscal sovereignty: there has to be a link between the person you are
going to tax and your territory
- E.g. Belgian tax laws have to affect persons that have a link with the Belgian territory. Every
state determines who and which income they are going to tax
- SO: fiscal sovereignty is not unlimited: requires a nexus or connection
o States can tax based on a “genuine link” = customary international law
§ See also The Case of the S.S. Lotus (Fr. v. Turk.), 1927 P.C.I.J. (ser. A) No.
10 (Sept. 7)
§ However, heavily debated, especially: how “genuine” this link has to be?
- Taxation is not permissible without any connection between the taxpayer/transaction
and the state’s territory
o Territoriality is determined by national tax law:
§ USA: nationality principle
• Tax rights on all persons that have that state’s nationality
• Not widely used
§ Belgium: residence principle
• Tax rights on taxpayers that reside in that state (tax residency –
rijksinwoner)
• Most states apply this principle
§ Hong-Kong: territoriality principle: only income that is sourced on HK
territory - also for resident taxpayers – is taxed in HK
• Tax rights on income that is sourced on that state’s territory
• So even if you’re a tax resident of HK, only income derived from HK
territory will be taxed, meaning that there is no tax on word-wide
profits; therefore a lot of local hub companies1 are located in HK
which leads to HK missing out on a lot of tax income
§ è Falling under different principles can lead to double taxation!
Countries tax people that fall under their tax legislation scope based on the
income they obtain within the country itself, while people falling under the
abovementioned principles (being residents or nationals) are taxed on
their worldwide income
1
Companies that invest in a lot of countries, knowing that any profits obtained from these investments won’t be taxed in HK since HK
applies the territoriality principle. Other countries that apply this are Singapore and Eritrea.
5
,The case of S.S. Lotus happened on the high seas. In 1927 there was a French ship sailing the
high-seas and in the middle of nowhere, they collided with a Turkish vessel. That was unfortunate
since several people died, but also since that accident gave rise to a lot of doctrine including the
nexus doctrine. The French ship took some of the Turkish crewmembers back to Turkey, and
Turkey decided to sue the French crewmembers for manslaughter. France said that Turkey did
not have any jurisdiction since the accident did not happen on Turkish territory but rather on the
high seas. The case went to the CJ. They rendered a judgement which brought the lotus principles
to life. The CJ said that jurisdiction is territorial (every state has jurisdiction relative to their
territory), and as long as you are in the territory of the state, the state is at entire liberty to do
whatever they want (Professor think the Court of Justice is completely wrong – e.g. you are a
Belgian citizen that went to Spain for a weekend, and the moment you land you get visited by the
STA that obliges you to pay immediate taxes on all your income because you set foot on Spanish
territory – that example shows that it is not correct)
Influence of EU law
- Relevant provisions in TFEU
o General non-discrimination principle (Art. 18)
o Fundamental freedoms: free movement within internal market (art. 26 §2): goods
(art. 28 et seq.), persons (art. 21) employment (art. 45 et seq.), establishment (Art.
49 et seq.), services (art. 56 et seq.), capital (art. 63 et seq.)
§ E.g. German insurance companies operating in France were more heavily
taxed than French companies operating in France à CJEU (1986) decided
that tax rules also fall under the fundamental freedoms
• Impact of case law of the CJEU on tax law is enormous!
o Prohibition on (fiscal) state aid (art. 107-108)
§ States may not give fiscal aid to companies in a selective way!
• What about certain sectors? E.g.: all corporations pay 25% tax on
their profits. Assume we adopt a rule that says banks only have to
pay 15% à CJEU: this is state aid and forbidden!
- Increasing impact of European Court of Justice case law (also in the field of tax treaties)
o à Illustration: CJEU 28.01.1986 “Avoir Fiscal”
- Income Tax Directives: unanimity is required in the entire EU to adopt tax legislation à
Not much EU tax legislation is around! Very difficult in the area of income taxation,
because states have to give up certain taxing rights…
o Directive on Mutual assistance between tax authorities (1977) replaced by new
Directive (DAC) adopted 15 Feb 2011 + (many recent amendments to allow (i)
automatic exchange of bank info on investment income (ii) rulings), (iii) critical
information on multinationals; (iv) disclosure obligations of tax consultants on
planning structures etc…
o Parent-Subsidiary Directive (1990, recast 2011 with later amendments)
o Merger Directive (1990 recast 2009 with later amendments)
o Savings Directive (2003 with later amendments, now repealed)
6
, o Interest & Royalty Directive (2003)
o Anti Tax Avoidance Directive I and II (“ATAD”, 2016/2017)
o Tax Dispute Resolution Mechanisms Directive (2017 + Arbitration Convention)
o Global Minimum Taxation of Multinationals (2022)
è Impact of Tax Directives on Tax Treaties
à No unanimity between 2003 and 2016. The financial crisis was enhanced by aggressive
tax planning by multinational corporations
à 2016: Anti-Tax Avoidance Directive I
o Unanimity was easily reached because it was in the interest of the national
governments!
International guidelines / recommendations (soft law)
= Very important sources of legislation for national legislators!
- OECD Guidelines: a few examples (infra):
o Reports on Taxation of Electronic Commerce (2000 and following)
o Transfer Pricing Guidelines (1995-1999-2010-2017-2022)
o Report on Harmful Tax Competition (1998)
o Report on Attribution of profits to permanent establishments (2008)
o Base Erosion & Profit Shifting (“BEPS”) of October 2015: 15 Reports (infra)
- EU Commission: a few examples
o Code of conduct against harmful tax competition (1997) (reform)
o Recommendation on Fair & Efficient corporate tax system (2015)
Bilateral treaties
- This course focuses on (bilateral) tax treaties:
o 2 main types of model treaties: OECD and UN (infra)
§ (In addition, many national Model tax treaties: the U.S. Model, the Dutch
Model, the Belgian Model, etc.)
§ OECD: most powerful economic countries
• OECD treaties are in favour of developed countries
§ UN on the other hand focusses on less developed countries!
o Main focus: OECD Model Tax Convention 2017 + Commentary (in binder)
- Impact of investment treaties
o Database of treaties in force (bilateral investment treaties ‘BITS’ and treaties
with investment provisions ‘TIPS’) and model agreements
§ = Agreements in which states promise to protect foreign investors
§ They are not designed for tax purposes, but they can affect tax disputes
when a tax measure harms an investor
o Contain safeguards for investors:
7
, § National treatment: no less favourable treatment than domestic
investors
§ Most favoured nation treatment (MFN): treatment at least as favourable
as the best treatment given to any other foreign investor
§ Fair and equitable treatment (FET): protection of legitimate expectations,
legal certainty, due process
§ Protection against expropriation: includes indirect expropriation, which
may cover abusive or confiscatory taxation.
o Several tax cases, notably Yukos v. Russia (2014 Permanent Court of Arbitration
under Energy Charter Treaty) and Lone Star v. Korea (2022 BIT Belgium-
Luxembourg-Korea)
§ Yukos v. Russia
• Investors claimed that Russia used tax assessments and
enforcement as a pretext to destroy Yukos and seize its assets
• Tribunal (under the Energy Charter Treaty) held that Russia acted
in bad faith à Violation of investment protection rules
• Shows that aggressive tax measures can constitute expropriation
under investment law
§ Lone Star v. Korea
• Concerns the Belgium–Luxembourg BIT with Korea
• Lone Star, a foreign investor, argued that Korean tax measures
(including capital gains taxation) violated the BIT
• Example of how BITs can be used to challenge tax assessments
when they allegedly unfairly target foreign investors
à Investment treaties can become a legal tool to challenge tax measures internationally
§2. BASIC PROBLEMS OF INTERNATIONAL TAX LAW
1) POWER (OR JURISDICTION) TO TAX DERIVED FROM SOVEREIGNTY
= basis for taxation (!)
The basic problems in international law all start with the concept of sovereignty. You have a state
that imposes taxes upon its residents which leads to conflict. The core of that conflict is derived
from the fact that there exist several types of nexuses. Nexus is a principle of customary
international law, but we leave it to each state to decide what a genuine link is and how it must be
interpreted
- Subjective (personal) nexus: link based on the taxpayer's link to the state
o Individuals: physical presence, domicile (residence), but also citizenship
(nationality), official registration (in population registers) or immigration status
o Legal entities: place of incorporation, place of effective management
§ (e.g.: we tax you because you are domiciled in our state, because you are
resident in our state or because you have our nationality / are incorporated
8
, in our state – however most states look at the real seat (werkelijke
zetelleer) being the place of effective management)
- Objective (territorial) nexus: based on the transaction or activity
o So: objective connection of income with a state’s territory à source rules
§ Source rules: if a French resident buys shares in a Belgian company, he
has to pay taxes on his dividends even though he is not a Belgian resident.
The fact that the payer of the dividends is Belgian is a sufficient source rule
o Examples: part of the transaction occurs within the state, or the transaction
object is connected to the state
- PM: Functional jurisdiction (continental shelf)
o That is basically a territory that is submerged under the shallow water in front of
the coast of your state. That is very important for taxes (not in Belgium, but in UK
and Norway) because on those shores you can actually earn a lot of money since
those areas contain a lot of expensive minerals like hydrocarbons, oil, gas… and
states want to make sure that they can catch companies which retrieve those
minerals from the continental shelf. So, those states use the functional
jurisdiction to be able to tax those companies
è As stated above, the interplay of these two nexuses lead to double taxation!
2) LIMITED AND UNLIMITED TAX LIABILITY
- Unlimited: worldwide income (‘full tax liability’) = universality principle
o Subjective nexus
§ Nationality à USA nationals have to pay tax on all of their income,
regardless of whether it was earned in the USA or in another country
- Limited: part of income link to territory (or functional link) = territoriality principle
o Objective nexus
- Customary international law (?) à The fact that limited taxing rights are coupled with the
second nexus, is customary international law…
3) DOUBLE (NON) TAXATION
- Multiple applications of sovereignty in cross-border setting + different types of tax liability
result in international double (non) taxation
- International Double Taxation: what?
o ≠ domestic: different layers of taxation within one State (e.g. within federal state)
o = concurring taxing rights exercised by two (or more) states
9
, A taxpayer is subject to full tax liability in two or more states (worldwide income) based on
a close personal connection or the concurrence of two different criteria for a personal
connection, or the different interpretation of the same
Example: A Spanish individual has a house in Spain with a lot of friends etc. That person is
climbing up the corporate ladder and is promoted to a European position that requires
him to work from France. He bought a house in France and has joined a French tennis
club. This person belongs to two countries at the same time, since he could be seen as a
Spanish and a French (tax)resident. So, both France and Spain apply the residency
criteria, but both see the person as their own resident. This example is perfectly
transferable to a corporate context where you have a Spanish company with 10 board
members from whom 5 are located in Spain and the others are living in France. It is difficult
to clearly state from where the company is effectively managed, so both countries want
to tax the corporation on an unlimited basis
Example: a Belgian tax resident is subject to Belgian tax laws that tax her worldwide profits
(full tax liability), however since she is a shareholder of a Dutch corporation and receives
dividends from this corporation, there could exist double taxation. In Belgium the
dividends will be taxed as income. However, the Netherlands will state that they can also
tax the dividends since the Netherlands are the source state (the state from where the
income arose) (limited tax liability)
à Kinds of double taxation
- Economic double taxation vs. juridical (legal) double taxation
o Economic: two taxpayers – two states – same tax – same object – same taxable
year (Comm. art. 23 §2)
§ So: the same income is being taxed multiple times in the hands of
different people
§ Examples:
• Dividend distributions* & Transfer pricing adjustments (infra)
o BE resident invests in Siemens shares (German company).
Siemens makes profit of 100 and pays German corporate
tax of 20%. 80 is left and Siemens decides to pay it so BE
resident as a dividend. Resident has to pay 30% on this
dividend à Same profit is taxed in the hand of 2 different
persons
o Juridical: one taxpayer – two states – same tax – same object – same taxable year
(Comm. art. 23 §1)
§ So: the same person is being taxed multiple times
§ Examples/causes:
• Concurrence of personal sovereignty and territorial sovereignty
(residence vs. source) (supra – Shell)
• Concurrence of two different criteria of personal sovereignty
(residence vs. nationality)
10
PRACTICAL INFORMATION
Practical remarks
- Teaching team
o Prof. dr. Filip Debelva
o In which ways can students ask questions?
§ In person
§ By e-mail
• (assistant)
• (management assistant)
- Cours as part of a learning track
o Aims of the course
o Part of the learning track in the program
§ How do we build on (or what precedes) this knowledge?
§ Relevance of the course in the program?
§ Contribution to professional profile/future self of the student?
- Table of contents of this course
o PART 1: Introduction and general concepts
o PART 2: OECD Model Tax Convention
§ Case Studies Part 1
§ Case Studies Part 2
§ Case Studies Part 3 (Online sample test)
o PART 3: Special Topics
§ Global Minimum Taxation of Multinationals
§ Tax planning and the prevention of abuse
§ Case studies Part 4 (Capstone Case Studies)
- Previous knowledge
o “Students are expected to have completed a basic course of taxation in their
national tax system”
- Course format
o Working format
§ Lectures
o Best approach to be successful
§ Study method
§ Exercises (sample questions)
o On campus education
§ Blended learning: preparation of lectures
1
, § No recordings except for students working their way through university /
“ombuds” cases
§ Slides available on Toledo/Ultra before the lecture starts
- Study material
o Which materials?
§ Slides
§ Binder available at campus shop
• OECD Model Tax Convention on Income & Capital 2017 +
Commentary
• OECD Transfer Pricing Guidelines for MNE’s and TA’s (in part)
• Vienna Convention on the Law of Treaties 1969 (in part)
• EU tax legislation (in part)
§ Additional material
• Cases available on Toledo
o Tips and best practices
o Build-up of the Toledo/Ultra course material
- Evaluation
o During the exam period
§ Types of questions: cases (2-3)
§ Exam material allowed: binder (and only the binder – not the slides)
• Allowed: highlighting / underlining / cross-references to other
articles
o Examples: see article 10; à Article 5, etc.
• Not allowed: adding extra information in writing
o Difficulty?
§ Case law on Toledo is the inspiration for the exam questions
o Exam duration: 2,5 hours
o On campus
- Exam feedback
o Exam feedback session
§ General feedback session with possibility to ask questions
§ Practical organization: will be posted on Toledo/Ultra
o Feedback on the course always welcome
2
,PART I. INTRODUCTION
INTRODUCTION AND GENERAL CONCEPTS
§1. DEFINITION AND SOURCES
International taxation refers to “all rules that determine where and how, in a cross-border
context, specific income of a taxpayer may be taxed and how this tax must be assessed and
recovered.”
- This implies that there is no “international tax legislation”, but rather situations where a
tax rule has an impact on a cross-border situation (e.g. tax authorities that think they have
a certain claim on a case)
- à We are looking at the competition between states to tax a certain income, and not
what the local relevant rules could be!
No separate set of rules, but various sources of law:
- 1) National tax laws (PM)
- 2) (mostly unwritten) general principles of international tax law
o Customary international law refers to a body of rules that applies to each state by
default even though the rules are not written down
- 3) EU law
o Do note that EU law also is very important for international taxation. EU tax law is
a funny concept, because if you look at the concept of the EU and you look for “EU
taxes”, you will find no real European Tax (with the exception of the taxes they levy
on the income of their personnel). That is the consequence of the fundamental
freedoms in the TFEU. The EU has harmonized some taxes (juncto the non-
discrimination principle in art. 18 TFEU) and rules on state aid. There also is a
whole set of EU directives which directly influence taxation. Next to these
directives, there are a lot of soft laws (e.g. TP, BEPS, Taxation of Electronic
Commerce…)
- 4) Bilateral treaties (based on Model Conventions) à Prevent double taxation
o The core instruments of international taxation
o They regulate residence, permanent establishments, allocation of taxing rights,
relief of double taxation…
- 5) International guidelines (in particular OECD material) à E.g. division within UN that
deals with taxation. Mostly non-binding soft law, but still very important and heavily
relied upon by courts
3
,à Illustrates the hierarchy and interaction between international tax law, EU law and domestic
tax law:
- Bilateral tax treaties sit at the centre and normally prevail over domestic tax legislation
- The MLI and Pillar 1 & 2 instruments modify or supplement existing treaties.
- EU law restricts domestic tax rules through the fundamental freedoms, state aid, and
directives
- Domestic law must comply with both international and EU obligations
- è The whole system forms a multi-layered hierarchy, where domestic tax rules operate
only within boundaries set by treaties and EU law
The core of the sources of international tax law are bilateral treaties. There are two main types
of model treaties being (i) OECD and (ii) UN (both in addition to many national model tax treaties
which follow these model treaties like a template). Our main focus will be the OECD Model Tax
Convention of 2017 + the commentaries thereon. These tax treaties try to eliminate double
taxation, but do not always solve all problems. In practice, states can deviate from these model
conventions however that is extremely uncommon. Keep in mind, that there are also (iii)
investment treaties. They are another category of treaties which contain rules that protect
investments in other states (we call them ‘BITS’) and other safeguards against measures of the
governments. Important case law / big profile cases are Yukos v. Russia and Lone Star v. Korea
States' Power to Tax
Fiscal sovereignty of the states:
- Derived from their sovereignty = the right for a state to regulate its affairs through its
governmental institutions. Every state has the right to enact (tax) laws on its territority!
o ~ Hobbes (Leviathan - state of nature – permanent war between all citizens –
states protect us and in order to protect us, we must fund the state with taxes): idea
of sovereignty
- Why does the government need taxes?
o The citizens give a part of their assets to the state so that the state can protect the
remainder of the assets of the citizens (taxes are clearly an infringement on private
possessions). The state uses that money to protect you, but of course also uses it
for other purposes like redistribution, education…
à However, this power is not unlimited! To have taxing power they require a nexus / connection
/ genuine link…
4
,Territoriality: requirement of personal (taxpayer) or “objective” (income) link with the territory
or both. Closely linked to fiscal sovereignty: there has to be a link between the person you are
going to tax and your territory
- E.g. Belgian tax laws have to affect persons that have a link with the Belgian territory. Every
state determines who and which income they are going to tax
- SO: fiscal sovereignty is not unlimited: requires a nexus or connection
o States can tax based on a “genuine link” = customary international law
§ See also The Case of the S.S. Lotus (Fr. v. Turk.), 1927 P.C.I.J. (ser. A) No.
10 (Sept. 7)
§ However, heavily debated, especially: how “genuine” this link has to be?
- Taxation is not permissible without any connection between the taxpayer/transaction
and the state’s territory
o Territoriality is determined by national tax law:
§ USA: nationality principle
• Tax rights on all persons that have that state’s nationality
• Not widely used
§ Belgium: residence principle
• Tax rights on taxpayers that reside in that state (tax residency –
rijksinwoner)
• Most states apply this principle
§ Hong-Kong: territoriality principle: only income that is sourced on HK
territory - also for resident taxpayers – is taxed in HK
• Tax rights on income that is sourced on that state’s territory
• So even if you’re a tax resident of HK, only income derived from HK
territory will be taxed, meaning that there is no tax on word-wide
profits; therefore a lot of local hub companies1 are located in HK
which leads to HK missing out on a lot of tax income
§ è Falling under different principles can lead to double taxation!
Countries tax people that fall under their tax legislation scope based on the
income they obtain within the country itself, while people falling under the
abovementioned principles (being residents or nationals) are taxed on
their worldwide income
1
Companies that invest in a lot of countries, knowing that any profits obtained from these investments won’t be taxed in HK since HK
applies the territoriality principle. Other countries that apply this are Singapore and Eritrea.
5
,The case of S.S. Lotus happened on the high seas. In 1927 there was a French ship sailing the
high-seas and in the middle of nowhere, they collided with a Turkish vessel. That was unfortunate
since several people died, but also since that accident gave rise to a lot of doctrine including the
nexus doctrine. The French ship took some of the Turkish crewmembers back to Turkey, and
Turkey decided to sue the French crewmembers for manslaughter. France said that Turkey did
not have any jurisdiction since the accident did not happen on Turkish territory but rather on the
high seas. The case went to the CJ. They rendered a judgement which brought the lotus principles
to life. The CJ said that jurisdiction is territorial (every state has jurisdiction relative to their
territory), and as long as you are in the territory of the state, the state is at entire liberty to do
whatever they want (Professor think the Court of Justice is completely wrong – e.g. you are a
Belgian citizen that went to Spain for a weekend, and the moment you land you get visited by the
STA that obliges you to pay immediate taxes on all your income because you set foot on Spanish
territory – that example shows that it is not correct)
Influence of EU law
- Relevant provisions in TFEU
o General non-discrimination principle (Art. 18)
o Fundamental freedoms: free movement within internal market (art. 26 §2): goods
(art. 28 et seq.), persons (art. 21) employment (art. 45 et seq.), establishment (Art.
49 et seq.), services (art. 56 et seq.), capital (art. 63 et seq.)
§ E.g. German insurance companies operating in France were more heavily
taxed than French companies operating in France à CJEU (1986) decided
that tax rules also fall under the fundamental freedoms
• Impact of case law of the CJEU on tax law is enormous!
o Prohibition on (fiscal) state aid (art. 107-108)
§ States may not give fiscal aid to companies in a selective way!
• What about certain sectors? E.g.: all corporations pay 25% tax on
their profits. Assume we adopt a rule that says banks only have to
pay 15% à CJEU: this is state aid and forbidden!
- Increasing impact of European Court of Justice case law (also in the field of tax treaties)
o à Illustration: CJEU 28.01.1986 “Avoir Fiscal”
- Income Tax Directives: unanimity is required in the entire EU to adopt tax legislation à
Not much EU tax legislation is around! Very difficult in the area of income taxation,
because states have to give up certain taxing rights…
o Directive on Mutual assistance between tax authorities (1977) replaced by new
Directive (DAC) adopted 15 Feb 2011 + (many recent amendments to allow (i)
automatic exchange of bank info on investment income (ii) rulings), (iii) critical
information on multinationals; (iv) disclosure obligations of tax consultants on
planning structures etc…
o Parent-Subsidiary Directive (1990, recast 2011 with later amendments)
o Merger Directive (1990 recast 2009 with later amendments)
o Savings Directive (2003 with later amendments, now repealed)
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, o Interest & Royalty Directive (2003)
o Anti Tax Avoidance Directive I and II (“ATAD”, 2016/2017)
o Tax Dispute Resolution Mechanisms Directive (2017 + Arbitration Convention)
o Global Minimum Taxation of Multinationals (2022)
è Impact of Tax Directives on Tax Treaties
à No unanimity between 2003 and 2016. The financial crisis was enhanced by aggressive
tax planning by multinational corporations
à 2016: Anti-Tax Avoidance Directive I
o Unanimity was easily reached because it was in the interest of the national
governments!
International guidelines / recommendations (soft law)
= Very important sources of legislation for national legislators!
- OECD Guidelines: a few examples (infra):
o Reports on Taxation of Electronic Commerce (2000 and following)
o Transfer Pricing Guidelines (1995-1999-2010-2017-2022)
o Report on Harmful Tax Competition (1998)
o Report on Attribution of profits to permanent establishments (2008)
o Base Erosion & Profit Shifting (“BEPS”) of October 2015: 15 Reports (infra)
- EU Commission: a few examples
o Code of conduct against harmful tax competition (1997) (reform)
o Recommendation on Fair & Efficient corporate tax system (2015)
Bilateral treaties
- This course focuses on (bilateral) tax treaties:
o 2 main types of model treaties: OECD and UN (infra)
§ (In addition, many national Model tax treaties: the U.S. Model, the Dutch
Model, the Belgian Model, etc.)
§ OECD: most powerful economic countries
• OECD treaties are in favour of developed countries
§ UN on the other hand focusses on less developed countries!
o Main focus: OECD Model Tax Convention 2017 + Commentary (in binder)
- Impact of investment treaties
o Database of treaties in force (bilateral investment treaties ‘BITS’ and treaties
with investment provisions ‘TIPS’) and model agreements
§ = Agreements in which states promise to protect foreign investors
§ They are not designed for tax purposes, but they can affect tax disputes
when a tax measure harms an investor
o Contain safeguards for investors:
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, § National treatment: no less favourable treatment than domestic
investors
§ Most favoured nation treatment (MFN): treatment at least as favourable
as the best treatment given to any other foreign investor
§ Fair and equitable treatment (FET): protection of legitimate expectations,
legal certainty, due process
§ Protection against expropriation: includes indirect expropriation, which
may cover abusive or confiscatory taxation.
o Several tax cases, notably Yukos v. Russia (2014 Permanent Court of Arbitration
under Energy Charter Treaty) and Lone Star v. Korea (2022 BIT Belgium-
Luxembourg-Korea)
§ Yukos v. Russia
• Investors claimed that Russia used tax assessments and
enforcement as a pretext to destroy Yukos and seize its assets
• Tribunal (under the Energy Charter Treaty) held that Russia acted
in bad faith à Violation of investment protection rules
• Shows that aggressive tax measures can constitute expropriation
under investment law
§ Lone Star v. Korea
• Concerns the Belgium–Luxembourg BIT with Korea
• Lone Star, a foreign investor, argued that Korean tax measures
(including capital gains taxation) violated the BIT
• Example of how BITs can be used to challenge tax assessments
when they allegedly unfairly target foreign investors
à Investment treaties can become a legal tool to challenge tax measures internationally
§2. BASIC PROBLEMS OF INTERNATIONAL TAX LAW
1) POWER (OR JURISDICTION) TO TAX DERIVED FROM SOVEREIGNTY
= basis for taxation (!)
The basic problems in international law all start with the concept of sovereignty. You have a state
that imposes taxes upon its residents which leads to conflict. The core of that conflict is derived
from the fact that there exist several types of nexuses. Nexus is a principle of customary
international law, but we leave it to each state to decide what a genuine link is and how it must be
interpreted
- Subjective (personal) nexus: link based on the taxpayer's link to the state
o Individuals: physical presence, domicile (residence), but also citizenship
(nationality), official registration (in population registers) or immigration status
o Legal entities: place of incorporation, place of effective management
§ (e.g.: we tax you because you are domiciled in our state, because you are
resident in our state or because you have our nationality / are incorporated
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, in our state – however most states look at the real seat (werkelijke
zetelleer) being the place of effective management)
- Objective (territorial) nexus: based on the transaction or activity
o So: objective connection of income with a state’s territory à source rules
§ Source rules: if a French resident buys shares in a Belgian company, he
has to pay taxes on his dividends even though he is not a Belgian resident.
The fact that the payer of the dividends is Belgian is a sufficient source rule
o Examples: part of the transaction occurs within the state, or the transaction
object is connected to the state
- PM: Functional jurisdiction (continental shelf)
o That is basically a territory that is submerged under the shallow water in front of
the coast of your state. That is very important for taxes (not in Belgium, but in UK
and Norway) because on those shores you can actually earn a lot of money since
those areas contain a lot of expensive minerals like hydrocarbons, oil, gas… and
states want to make sure that they can catch companies which retrieve those
minerals from the continental shelf. So, those states use the functional
jurisdiction to be able to tax those companies
è As stated above, the interplay of these two nexuses lead to double taxation!
2) LIMITED AND UNLIMITED TAX LIABILITY
- Unlimited: worldwide income (‘full tax liability’) = universality principle
o Subjective nexus
§ Nationality à USA nationals have to pay tax on all of their income,
regardless of whether it was earned in the USA or in another country
- Limited: part of income link to territory (or functional link) = territoriality principle
o Objective nexus
- Customary international law (?) à The fact that limited taxing rights are coupled with the
second nexus, is customary international law…
3) DOUBLE (NON) TAXATION
- Multiple applications of sovereignty in cross-border setting + different types of tax liability
result in international double (non) taxation
- International Double Taxation: what?
o ≠ domestic: different layers of taxation within one State (e.g. within federal state)
o = concurring taxing rights exercised by two (or more) states
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, A taxpayer is subject to full tax liability in two or more states (worldwide income) based on
a close personal connection or the concurrence of two different criteria for a personal
connection, or the different interpretation of the same
Example: A Spanish individual has a house in Spain with a lot of friends etc. That person is
climbing up the corporate ladder and is promoted to a European position that requires
him to work from France. He bought a house in France and has joined a French tennis
club. This person belongs to two countries at the same time, since he could be seen as a
Spanish and a French (tax)resident. So, both France and Spain apply the residency
criteria, but both see the person as their own resident. This example is perfectly
transferable to a corporate context where you have a Spanish company with 10 board
members from whom 5 are located in Spain and the others are living in France. It is difficult
to clearly state from where the company is effectively managed, so both countries want
to tax the corporation on an unlimited basis
Example: a Belgian tax resident is subject to Belgian tax laws that tax her worldwide profits
(full tax liability), however since she is a shareholder of a Dutch corporation and receives
dividends from this corporation, there could exist double taxation. In Belgium the
dividends will be taxed as income. However, the Netherlands will state that they can also
tax the dividends since the Netherlands are the source state (the state from where the
income arose) (limited tax liability)
à Kinds of double taxation
- Economic double taxation vs. juridical (legal) double taxation
o Economic: two taxpayers – two states – same tax – same object – same taxable
year (Comm. art. 23 §2)
§ So: the same income is being taxed multiple times in the hands of
different people
§ Examples:
• Dividend distributions* & Transfer pricing adjustments (infra)
o BE resident invests in Siemens shares (German company).
Siemens makes profit of 100 and pays German corporate
tax of 20%. 80 is left and Siemens decides to pay it so BE
resident as a dividend. Resident has to pay 30% on this
dividend à Same profit is taxed in the hand of 2 different
persons
o Juridical: one taxpayer – two states – same tax – same object – same taxable year
(Comm. art. 23 §1)
§ So: the same person is being taxed multiple times
§ Examples/causes:
• Concurrence of personal sovereignty and territorial sovereignty
(residence vs. source) (supra – Shell)
• Concurrence of two different criteria of personal sovereignty
(residence vs. nationality)
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