Article 13: Capital Gains

Question 1

What is the general rule for capital gains?

Answer 1

• Article 13(5): “other property”
  
  • State of residence of alienator = exclusive taxing rights: may tax.
  • In particular gains from the alienation of shares, bonds & other securities.
• Scope: alienation = all possible transactions whereby assets are transfferred from 1 property to another.

Question 2

What are the exceptions to the general rule of capital gains?

Answer 2

1. Gains from the alienation of immovable property: whether part of PE assets or not
   
   • Taxed in State where property is located.
2. Gains from the alienation of movable property connected to a PE
   
   • State of PE: if some asset is economically owned by PE because it was functionally used there = gain also attributable to PE.
3. Gains from ships/aircraft in international traffic: very narrow scope:
   
   • Place of effective management of company
4. Gains from the alienation of shares deriving more than 50% of their value (in)directly from immovable property situated in other Contracting state: anti-avoidance rule.
   
   • State of situs of immovable property.

Question 3

What is the example of the anti-avoidance rule?

Answer 3

• German resident with real estate company that invests in Belgian real property. If he sells = taxing rights if building in Brussels.
• Tax avoidance structure: buy shares Belgian company owning real property = indirect investment.
  
  • Share of sales so Belgium would not be able to tax but Germany has taxing rights.
• OECD installed an anti-avoidance rule is needed.
• Provisions = transparant provision to look through legal personality of Belgian company to pretend it is a sale of real property and not the sale of shares. Back in rule 1 = where the property is located

Question 4

What was the former article 14?

Answer 4

• Income from independent professional services = former article 14: article has been deleted but still relevant because 60% of the treaties still have this clause.
• Only income attributable to “fixed base”: taxable in the ohter contracting state.
  
  • Fixed base = conceptually very similar to art. 7 (business profits) + distinction between business/independent professional services and “PE/fixed base” is not very clear.
• Deleted from the OECD MC and integrated in art. 7 in 2000 MC.