Non-discrimination: art. 24

Question 1

What is non discrimination?

Answer 1

• Article 24(1): principle of non-discrimination based on nationality
• So: Belgiumm shall not subject national of Italy = more burdensome taxation than Belgian nationals in same circumstances: criterion = nationality and not resident!
  
  • Definition national: covering individuals (passport) and legal persons (defined by company law)
• “In the same circumstances”:
  
  • Substantially similar circumstances both in law and in fact
  • “in particular with respect to residence”
  • Discrimination of non-residents is to be tackled under EU freedoms
    
    • Freedom of capital also plays in connection with 3rd states!
• “Taxation or any requirement connected therewith”: same basis of tax, method of assessment, rate, formalities (returns, payment etc.), burden of proof

Question 2

What is the prohibition of PE-discrimination?

Answer 2

• Art. 24(3): Discrimination based on the residence the enterprise - tax treatment of PEs in PE-State same as that of resident enterprises
• Example: forbids Belgium to tax PE’s of Italian companies less favourably than Belgian for same activities
• PE’s expenses, depreciation, reserves, carry back/forward of losses, capital gains treatment, tax incentives, tax rates etc. should get same treatment as those of resident enterprises
• Relief for economic double taxation on dividends received should be same as for resident companies (diverging views within OECD (Comm. Art. 24 § 48 - 54)
  
  • But not of Belgian Supreme Court (26/01/95 and 23/03/95): different treatment of PE = discrimination
  • And not of ECJ = discrimination if PE is not treated like resident company as dividends received are in both instances (PE/resident cy) within the tax jurisdiction of the MS. ECJ non-discrimination = host State equality
  • See Saint Gobain-case supra (slides 54 et seq)

Question 3

What is the interaction between art. 10(4) and art. 24(3)?

Answer 3

• Withholding tax on dividends, interest and royalties received by a PE from domestic sources: Art. 10 (4), 11 (4) and 12 (3) no reduction of source State withholding tax (see e.g. slide 216a)
• This leads to discrimination if source state only levies WHT on payments to non-residents (PEs)
  
  • Internal inconsistency in the treaty: prefer the nondiscrimination.
• Example: US company with a Belgian PE has invested in shares = attributable to the PE: art. 10(4): will be taxed at 30% because the reduced rate WHT does not apply.
  
  • But if a Belgian company distributes to Belgian subsidiary: no wht under Parent/Subsidiary Directive!
  • Blatant discrimination!

Question 4

What with the credit for foreign tax?

Answer 4

• Credit for foreign tax: only residents entitled to foreign tax credit (Art. 23 A (2) and 23 B OECD MC), refusing PE foreign tax credit –> discrimination. Confirmed by Court Brussels 09/11/06 under Belgium/India tax treaty
• Case: Indian company with PE in Belgium who had given an loan to Italian company = interest has Italian source.
  
  1. How much WHT is due in Italy = which treaty?
     
     • Italian source: italian treaty: art. 11 in the Italian-India treatment = determines the rate: paid to a resident of India
     • Amount of WHT: 10%: Belgian PE only receives 90 of interest + 25% corporate tax: claims credit for 10% Italian tax
  2. Does Belgian PE get the credit?
     
     • No: we only give credit to residents: Belgian PE = non-resident
• Court found discrimination based on PE discrimination

Question 5

What were the diverging views of the OECD?

Answer 5

• PE’s expenses, depreciation, reserves, carry back/forward of losses, capital gains treatment, tax incentives, tax rates etc. should get same treatment as those of resident enterprises
• Relief for economic double taxation on dividends received should be same as for resident companies (diverging views within OECD (Comm. Art. 24 § 48 - 54)
  
  • But not of Belgian Supreme Court (26/01/95 and 23/03/95): different treatment of PE = discrimination
  • And not of ECJ = discrimination if PE is not treated like resident company as dividends received are in both instances (PE/resident cy) within the tax jurisdiction of the MS. ECJ non-discrimination = host State equality
  • See Saint Gobain-case supra (slides 54 et seq)

Question 6

What is article 24(4)?

Answer 6

• Very important but narrow scope
• Art. 24 (4): interest, royalties + other expenses paid by resident enterprise to residents of the other state deductible under same conditions as payments to residents. Ban on discrimination according to residence of beneficiary of payment of costs
  
  • Except if Art. 9 (1), 11 (6) or 12 (4) applies: arm’s length profit adjustments

Question 7

What is art. 24(5)?

Answer 7

• (Art. 24 (5): no discrimination on the basis of origin of capital (national/foreign). Ban on discrimination because of nationality of shareholder. Only concerned with the taxation of the resident company not with the taxation of its shareholders
  
  • No effect on levy of WHT on dividends because WHT is tax on shareholder (Comm. Art. 24 § 78)
• Narrow scope: deductions narrow scope: deduction of interests, royalties & other expenses paid to resident enterprise to resident other state = treat the same as domestic taxpayer:
  
  • Deductions cross border not less advantageous than deductions domestic payments
• Example: Belgian company pays royalties: irish comp:
  
  • Belgium must allow that royalty as a deduction under same conditions as if: Belgian company = royalties to Belgian company

Question 8

What is the 1 situation where we treat crossborder payments worse and it is not discrimination?

Answer 8

• Payments not at arm’s length: TP only crossborder = cannot tax other recipient if outside territoriality (except if PE in Belgium)
• It makes no sense to apply TP rules in domestic context
• Exception in art. 24(4) for all TP rules as well as excessive interest, royalties

Question 9

When does article 24(4) apply?

Answer 9

• Very narrow scope: only with deductibility of costs; expenses: only applies with expenses paid by resident enterprise → companies + independent service providers
• Not for individuals: lots of discrimination wrt alimony: many tax laws prohibit deduction if former spouse is a non-resident cannot use art. 24(4).
• Also not for pension funds

Question 10

Does article 24(5) work in Belgium?

Answer 10

• No because Belgium may not discriminate taxation of companies because share are owned by non-resident/non-nationals = already the case and thus not a problem in Belgium
• Very narrow scope: not deal with withholding taxes on shareholders

Question 11

What is art. 24(3)?

Answer 11

• No obligation for State to grant to residents of other State the same personal & family allowances and reductions which it grants to its own residents (Art. 24 (3))
• Ratio: avoidance of double personal & family allowances & relief:
  
  • The residence state knows the personal information of the person better.
  • Impact of EU law: Schumacker case:
    
    • Work state should not give personal allowances = no discrimination except if non-resident worker earns all or most income in work state = no claim in residence state possible.
• Change in laws of Belgium: personal allowances granted to non-residents if they earn 75% of their worldwide professional income in Belgium

Question 12

What was the case Schumacker?

Answer 12

• 50.000 income in Belgium, family in Germany: Belgium does not want to give rate reduction → Germany = exemption state so cannot claim claim
• Court: free movement restricted: Belgium had to give rate reduction
• Arguments court:
  
  1. Same as Saint-Gobain: residents are not in the same position as non-residents = Belgium should not give same tax advantages
  2. But: different if non-resident eans all income from Belgian source = should get some benefits: ECJ: right rate of reduction

Question 13

What is the MAP?

Answer 13

• Article 25
• Taxation not in accordance with the provisions of the convention
• Substantive requirement: tax charge contrary to the convention
  
  • Juridical double taxation
  • Economic double taxation
  • Nut also in case of absence of double taxation, if incorrect application of tax treaty
• Admissibility requirement:
  
  • Claim before competent authority of State of residence
  • Three year time limit (as of first notification of double taxation)