Taxation of royalties, technical services and capital gain

Question 1

Royalty (definition)

Answer 1

Any payment of any kind received as consideration for
the use of, or the right to use, any copyright of literary,
artistic or scientific work including cinema tographic films,
patents, trademarks, designs, or models, plans, secret
formulas or processes, or the information concerning
industrial, commercial or scientific ̈

Question 2

Allocating taxing rights for royalty

Answer 2

Article 12 OECD MC
* Exclusive taxing rights for the Residence State
* In the Commentaries OECD MC – progressive limitation of
the meaning of royalty

rticle 12 UN MC
* Shared taxing rights (Source and Residence State)
* Limited taxing rights for source State (example 10% + double
taxation relief at the residence State (credit)
* Broad concept _ also royalty (leasing industrial, commercial
or scientific equipment) – they were eliminated from the
OECD MC within the definition of royalty

Question 3

Distribution agreements, commercialization of a product
does not entail the right of use of the trademark

Answer 3

Paragraph 10 (1) Commentaries to article 12 OECD
MC – exclusive distribution right of a product is not a
royalty (exclusive right to sell branded t-shirts – no right
to use the trademark)

Question 4

Treaty shopping

Answer 4

the attempt by a person to indirectly access the benefits of a tax treaty between two contracting states without being a resident of one of those jurisdictions.

Question 5

Many countries, principally developing countries
charge a withholding tax on the gross amount of
payment made to non-resident in respect to technical
services. Awareness!

Question 6

“fees for technical
services

Answer 6

means any payment
in consideration for any service
of a managerial, technical or
consultancy nature (broad
meaning)

Question 7

Capital gain (taxed)

Canadian company sells everything to columbia

Answer 7

Article 13 OECD/UN MC
(different su-allocation rule)
* Paragraph (5) “Gains from the
alienation of any property, other than
that referred to in paragraphs 1, 2, 3
and 4, shall be taxable only in the
Contracting State of which the
alienator is a resident”

Sale of shares, patents, know-how
(13.5)
* Transfer of shares – company
resident in Canada sell the shares of its subsidiary in Colombia/ only Canada can tax the capital gain

Question 8

alienation

Answer 8

a the transfer of property, as by conveyance or will, into the ownership of another. b the right of an owner to dispose of his property.

Question 9

Exit taxation:
Compay A sells the asset to a Belgian
Company (DTC Belgium/Lux and domestic
law

Answer 9

1. Change of place of
   Effective management
   (POEM) of Company A
2. Sale of the assets of
   Company A to a resident
   in a third country
3. Exemption of capital
   gain
4. UK loses taxing rights
5. Exit taxation

Question 10

capital gain

Answer 10

a profit from the sale of property or an investment.

Question 11

Article 13 paragraph 5 on Capital gain tax:

Answer 11

Gains from the
alienation of any property, other than
that referred to in paragraphs 1, 2, 3
and 4, shall be taxable only in the
Contracting State of which the
alienator is a resident”

Question 12

CFC definition (long)

Answer 12

a company in which another company (controlling company), alone or together with related persons, owns directly or indirectly more than 50% of the capital, holds a direct or indirect participation of more than
50% of the voting rights or an entitlement to receive more than 50% of the profits (article 13ab(3) of the Vpb).