Lectures IETL
Week 1
Lecture on Sources of IETL
In the history there were a lot of problems with taxation beyond borders.
New measures which were globally implemented:
⁃ transparency, EOL and cooperation
⁃ Anti-avoidance measures
⁃ Mandatory disclosure of information
BEPS international collaboration to end tax avoidance.
⁃ Rules on tax base allocation
⁃ Anti-abuse rules
⁃ Procedural forms
⁃ Multilateralism
,ATAD
General anti abuse rules
⁃ CFC: stop profit shifting allocation to low/no tax country
⁃ Switchover rule: to prevent double non-taxation of certain income
⁃ Exit taxation: to prevent companies from avoiding tax when re-locating assets
⁃ Interest limitation rule: to discourage artificial debt arrangements designed to
minimize taxes. 30% EBITDA.
Context: payment deducted twice in two different countries/ deducted in a country but not
taxed in another country.
Neutralizing measures:
⁃ Income or reimbursement -> not taxed -> the recipient = no deduction for the payer
⁃ Payment is deductible -> the payer = income or reimbursement taxes -> the recipient
Lecture on scope of tax treaties (last year)
,Scope of tax treaties
⁃ Personal scope (article 1) (person, residency)
⁃ Territorial scope
⁃ Material scope (article 2)
Personal scope (article 1)
(1) this convention shall apply to persons (!) who are residents (!) of one or both of the
contracting States.
(2) rule for hybrid entities like partnerships
In Latin America there will be corporation tax levied, in Europe it will not be taxed as such.
(3) saving clause
The resident state is not limited by a tax treaty and is obliged to avoid double taxation. (US
tool)
OECD model is the basis for most of the tax treaties. However only the rich countries are
member of the OECD.
Three scopes
1 Domestic law
2 Tax treaties
3 European law
International treaties are considered by the European court of justice as if it is domestic law.
Treaty shopping: when there is no tax treaty between two countries (for example Brazil and
Germany) you can you a subsidiary in another country with which the countries do have a
tax treaty. They could for example use a subsidiary in the Netherlands through which they
let the income flow.
,Persons
Article 3 lid 1 a: individual, company, any other body of persons
Article 3 lid 1 b: company= body corporate or entities treated as body corporate for tax
purposes (subject to corporation tax)
Resident persons
Article 4 lid 1, 1st sentence
⁃ reference to domestic law: “liable to tax”
Spain: you are a resident if you live in Spain for more than 183 days a year.
Germany: you are a resident if you have a permanent home in Germany.
Example: Spanish guy works for a German company, leaves in September to Spain and
receives a golden handshake of 5 million in November. Double non taxation because no
country has the right to tax.
⁃ However: limitation in respect of acceptable criteria (personal attachment
(Domicile, residence, place of management, criterion of similar nature) (nationality is not
sufficient even if it gives rise to full tax liability)
Domicile
Reason why Saudi Arabian people live in London
⁃ In English speaking countries, domicile is linked to the intention of a taxpayer to stay,
live and return to a certain state (could be a statement in a testament that you want to be
buried in a certain state)
⁃ There can only be one domicile
Residence
⁃ In common law countries, residence provides a connecting factor distinct from
domicile, mostly based on physical presence
⁃ Different in civil law countries: physical presence, home, other territorial factors
⁃ Is incorporation covered by article 4 (1)?
Yes
⁃ Domicile may also cover incorporation under domestic law
⁃ Residency may also cover incorporation under domestic law
, ⁃ It is a criterion of similar nature since it results in full tax liability
POEM = place of effective management
NL and Ireland both say that the company is a resident.
No tiebreaker rule!
4(1) does not cover incorporation so the company is not a resident of the NL. If you say that
4(1) does cover incorporation you will say that the company is a resident of the NL and that
the NL can levy withholding tax.
Ireland do want to tax as well.
HR: NL are not allowed to levy withholding tax.
Dual residency
Individuals -> article 4 (2)
Other persons (companies, etc.) -> article 4 (3)
Alimony from NL to Germany: deductible in NL. In principle not taxable in Germany but if it
is taxable in NL it will be taxed in Germany.
Tie-Breaker Individuals (article 4(2))
⁃ Permanent home
⁃ Centre of vital interests (personal and economic relations)
⁃ Habitual abode
⁃ Nationality
⁃ Mutual agreement
Tie-Breaker Corporations (article 4 (3))
Until 2017 the POEM was decisive
Nowadays mutual agreement, considering:
Week 1
Lecture on Sources of IETL
In the history there were a lot of problems with taxation beyond borders.
New measures which were globally implemented:
⁃ transparency, EOL and cooperation
⁃ Anti-avoidance measures
⁃ Mandatory disclosure of information
BEPS international collaboration to end tax avoidance.
⁃ Rules on tax base allocation
⁃ Anti-abuse rules
⁃ Procedural forms
⁃ Multilateralism
,ATAD
General anti abuse rules
⁃ CFC: stop profit shifting allocation to low/no tax country
⁃ Switchover rule: to prevent double non-taxation of certain income
⁃ Exit taxation: to prevent companies from avoiding tax when re-locating assets
⁃ Interest limitation rule: to discourage artificial debt arrangements designed to
minimize taxes. 30% EBITDA.
Context: payment deducted twice in two different countries/ deducted in a country but not
taxed in another country.
Neutralizing measures:
⁃ Income or reimbursement -> not taxed -> the recipient = no deduction for the payer
⁃ Payment is deductible -> the payer = income or reimbursement taxes -> the recipient
Lecture on scope of tax treaties (last year)
,Scope of tax treaties
⁃ Personal scope (article 1) (person, residency)
⁃ Territorial scope
⁃ Material scope (article 2)
Personal scope (article 1)
(1) this convention shall apply to persons (!) who are residents (!) of one or both of the
contracting States.
(2) rule for hybrid entities like partnerships
In Latin America there will be corporation tax levied, in Europe it will not be taxed as such.
(3) saving clause
The resident state is not limited by a tax treaty and is obliged to avoid double taxation. (US
tool)
OECD model is the basis for most of the tax treaties. However only the rich countries are
member of the OECD.
Three scopes
1 Domestic law
2 Tax treaties
3 European law
International treaties are considered by the European court of justice as if it is domestic law.
Treaty shopping: when there is no tax treaty between two countries (for example Brazil and
Germany) you can you a subsidiary in another country with which the countries do have a
tax treaty. They could for example use a subsidiary in the Netherlands through which they
let the income flow.
,Persons
Article 3 lid 1 a: individual, company, any other body of persons
Article 3 lid 1 b: company= body corporate or entities treated as body corporate for tax
purposes (subject to corporation tax)
Resident persons
Article 4 lid 1, 1st sentence
⁃ reference to domestic law: “liable to tax”
Spain: you are a resident if you live in Spain for more than 183 days a year.
Germany: you are a resident if you have a permanent home in Germany.
Example: Spanish guy works for a German company, leaves in September to Spain and
receives a golden handshake of 5 million in November. Double non taxation because no
country has the right to tax.
⁃ However: limitation in respect of acceptable criteria (personal attachment
(Domicile, residence, place of management, criterion of similar nature) (nationality is not
sufficient even if it gives rise to full tax liability)
Domicile
Reason why Saudi Arabian people live in London
⁃ In English speaking countries, domicile is linked to the intention of a taxpayer to stay,
live and return to a certain state (could be a statement in a testament that you want to be
buried in a certain state)
⁃ There can only be one domicile
Residence
⁃ In common law countries, residence provides a connecting factor distinct from
domicile, mostly based on physical presence
⁃ Different in civil law countries: physical presence, home, other territorial factors
⁃ Is incorporation covered by article 4 (1)?
Yes
⁃ Domicile may also cover incorporation under domestic law
⁃ Residency may also cover incorporation under domestic law
, ⁃ It is a criterion of similar nature since it results in full tax liability
POEM = place of effective management
NL and Ireland both say that the company is a resident.
No tiebreaker rule!
4(1) does not cover incorporation so the company is not a resident of the NL. If you say that
4(1) does cover incorporation you will say that the company is a resident of the NL and that
the NL can levy withholding tax.
Ireland do want to tax as well.
HR: NL are not allowed to levy withholding tax.
Dual residency
Individuals -> article 4 (2)
Other persons (companies, etc.) -> article 4 (3)
Alimony from NL to Germany: deductible in NL. In principle not taxable in Germany but if it
is taxable in NL it will be taxed in Germany.
Tie-Breaker Individuals (article 4(2))
⁃ Permanent home
⁃ Centre of vital interests (personal and economic relations)
⁃ Habitual abode
⁃ Nationality
⁃ Mutual agreement
Tie-Breaker Corporations (article 4 (3))
Until 2017 the POEM was decisive
Nowadays mutual agreement, considering:
