Introduction
1 Key Concepts
Residence stage = home state (capital exporting, creditor)
Source state = host stage (capital importing, debtor)
2 Right to tax
2 questions
1) Can state tax?: state = jurisdiction -> state = nexus (connection)
2) How much can state tax?: inc allocation
2 possibilities
- Territorial taxation
o = only tax income in that state
o Obj/physical nexus: place of activity, payment, assets…
o Benefits principle + territoriality principe
- Worldwide taxation
o = tax resident’s wordwide income (domestic + foreign)
o Subj/personal nexus
Individual: nationality, residence
Company: place of incorporation/establishment, management,
head office…
o Ability tot pay principe + universality principe
3 Passive & active income
Pass/investment inc = div, i, royalties, rent
-> tax at residence
Act/business inc
-> tax at source
4 Legal sources
Primary sources
- Domestic/supranat/internat law
- Case law
- Tax treaties, MLI…
Soft law
- OECD/UN treaty models + comm
- TP guidelines
- Policy documents (eg. BEPS)
No def in treaty -> dom law (/ agreement between states)
Jurisd
- Exclusive
o “shall be taxable only”
o = only residence/source state can tax
- Shared
o “may be taxed”
1
, o = both states can tax (°DT)
MLI (multilateral instrument)
= change specific tax treaty provisions
5 Policy goals
= equity (fairness) + efficiency + administrability
Efficiency in cross border context
- Cap import neutrality (CIN): eg. same WHT for local investors & investors
aborad
- Cap export neutrality (CEN): eg. investing local = investing abroad
- Nat neutrality (NN)
- Cap ownership neutrality (CON)
- Nat ownership neutrality (NON)
- Global portfolio neutrality (GPN)
6 Double taxation
Possible conflicts
- Residence-residence: multiple sates claim to be residence state
-> rule = art. 4
- Source-source: multiple sates claim to be source state
- Residence-source: 1 state taxes on basis of residence & other state taxes
on basis of source
Juridical & economic DT
- Jur: inc belongs to same taxpayer
- Eco: inc belongs to different taxpayers
7 DT relief
2 mechanisms (art. 23)
- Exemption method
o = exemption for foreign inc
o +: look for country with low tax rate
- Credit method
o = include foreign inc in tax base BUT tax credit for paid foreign tax
o -: if 0 tax in 1st country -> pay all the tax in 2nd country
- (Deduction = deduct foreign taxes as cost)
2
, 8 Subject to tax rule
Sidro doctrine (Cass): meaning of “taxed” inc (subject to tax in other country?)
- Nt per se echt bel betaald
- Voldoende als onderworpen aan bel systeem in land (ook als bv. vrijgesteld
daar)
Eg.
- UAE ≠ inc tax regime -> subject to tax rule ≠ met
- NL = exemption -> OK (not taxed in BE)
(Kritiek: RS uit 1970 ivm interpr nat R gebruiken voor interpr DBV)
9 Double non-taxation
= mismatch (country look at it differently)
Hybrid mismatch
- Hybrid entity: fiscally transparent (non-taxable)<-> non-transparant
(taxable)
- Hybrid instr: investment <-> loan
- => Deduction + non-inclusion
Residence
- Dual residence
-> double deduction
- No residence: stateless taxpayer
-> no worldwide taxation
10 Scope of application of tax treaties
Ratione personae
- Persons (individual, company, other body)
- Residents of 1/both states
3
1 Key Concepts
Residence stage = home state (capital exporting, creditor)
Source state = host stage (capital importing, debtor)
2 Right to tax
2 questions
1) Can state tax?: state = jurisdiction -> state = nexus (connection)
2) How much can state tax?: inc allocation
2 possibilities
- Territorial taxation
o = only tax income in that state
o Obj/physical nexus: place of activity, payment, assets…
o Benefits principle + territoriality principe
- Worldwide taxation
o = tax resident’s wordwide income (domestic + foreign)
o Subj/personal nexus
Individual: nationality, residence
Company: place of incorporation/establishment, management,
head office…
o Ability tot pay principe + universality principe
3 Passive & active income
Pass/investment inc = div, i, royalties, rent
-> tax at residence
Act/business inc
-> tax at source
4 Legal sources
Primary sources
- Domestic/supranat/internat law
- Case law
- Tax treaties, MLI…
Soft law
- OECD/UN treaty models + comm
- TP guidelines
- Policy documents (eg. BEPS)
No def in treaty -> dom law (/ agreement between states)
Jurisd
- Exclusive
o “shall be taxable only”
o = only residence/source state can tax
- Shared
o “may be taxed”
1
, o = both states can tax (°DT)
MLI (multilateral instrument)
= change specific tax treaty provisions
5 Policy goals
= equity (fairness) + efficiency + administrability
Efficiency in cross border context
- Cap import neutrality (CIN): eg. same WHT for local investors & investors
aborad
- Cap export neutrality (CEN): eg. investing local = investing abroad
- Nat neutrality (NN)
- Cap ownership neutrality (CON)
- Nat ownership neutrality (NON)
- Global portfolio neutrality (GPN)
6 Double taxation
Possible conflicts
- Residence-residence: multiple sates claim to be residence state
-> rule = art. 4
- Source-source: multiple sates claim to be source state
- Residence-source: 1 state taxes on basis of residence & other state taxes
on basis of source
Juridical & economic DT
- Jur: inc belongs to same taxpayer
- Eco: inc belongs to different taxpayers
7 DT relief
2 mechanisms (art. 23)
- Exemption method
o = exemption for foreign inc
o +: look for country with low tax rate
- Credit method
o = include foreign inc in tax base BUT tax credit for paid foreign tax
o -: if 0 tax in 1st country -> pay all the tax in 2nd country
- (Deduction = deduct foreign taxes as cost)
2
, 8 Subject to tax rule
Sidro doctrine (Cass): meaning of “taxed” inc (subject to tax in other country?)
- Nt per se echt bel betaald
- Voldoende als onderworpen aan bel systeem in land (ook als bv. vrijgesteld
daar)
Eg.
- UAE ≠ inc tax regime -> subject to tax rule ≠ met
- NL = exemption -> OK (not taxed in BE)
(Kritiek: RS uit 1970 ivm interpr nat R gebruiken voor interpr DBV)
9 Double non-taxation
= mismatch (country look at it differently)
Hybrid mismatch
- Hybrid entity: fiscally transparent (non-taxable)<-> non-transparant
(taxable)
- Hybrid instr: investment <-> loan
- => Deduction + non-inclusion
Residence
- Dual residence
-> double deduction
- No residence: stateless taxpayer
-> no worldwide taxation
10 Scope of application of tax treaties
Ratione personae
- Persons (individual, company, other body)
- Residents of 1/both states
3
