Table of Contents. Acknowledgements. Part One EU Tax Law. Chapter 1: Enterprise, Business and Business Profits in EU Tax Law 3 Pasquale Pistone

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1 Acknowledgements Foreword v vii Part One EU Tax Law Chapter 1: Enterprise, Business and Business Profits in EU Tax Law 3 Pasquale Pistone 1.1. Introduction An empirical reconstruction of the three concepts based on ECJ case law A more focused analysis of undertakings in the light of State aid case law Selected issues concerning secondary tax law Directives in the field of direct taxes VAT Directive 2006/112/EC The capital duty directive Legal instruments of EU tax coordination Conclusions 20 Chapter 2: Extra-Textual References to Enterprise and Business in the European VAT Directive 23 Andrea Parolini 2.1. Introduction The no-supply rule enshrined in Art. 19 of the VAT Directive In general The concept of totality of assets or part thereof according to the ECJ Open questions 27 ix

2 Part Two Tax Law Chapter 3: The Meaning of Enterprise, Business and Business Profits in Domestic Tax Law 31 Luc De Broe 3.1. Introduction Civil law vs common law: Main similarities and differences Civil law Common law 37 Chapter 4: Enterprise, Business and Business Profits : From the League of Nations to the Current OECD Model Tax Convention 41 Jacques Sasseville 4.1. Introduction The 1928 models of the League of Nations The 1943 Mexico Model and the 1946 London Model The OEEC reports The deletion of Art. 14 in the 2000 Update The 2008 and 2010 Updates Interpretation of the treaty concepts of enterprise, business and business profits The concept of enterprise The concept of Business The Concept of Business Profits 57 Part Three Special Issues in Tax Treaty Law Chapter 5: Enterprise and Enterprise of a Contracting State : Towards a Century of Confusion Regarding the Term Enterprise in the Model Double Taxation Conventions 61 Kees van Raad 5.1. Introduction Inventory and analysis of the use of the term enterprise in the 2010 OECD Model 62 x

3 Inventory Analysis The term enterprise in the League of Nations Models Introduction The 1925 Resolutions The 1927 Draft Convention The 1931 Draft Plurilateral Convention The 1933 Draft Convention on the Allocation of Business Income The Mexico and London Drafts Evaluation of the use of the term enterprise in the League of Nations draft conventions Proposal 72 Chapter 6: Business and Business Profits 85 Alexander Rust 6.1. Introduction Consequences of an interpretation in the light of domestic law Consequences of an interpretation taking the context into account Relationship between Art. 7 and other distributive rules The meaning of the terms dependent and independent Distributive rules considered leges speciales to Art. 15 or to Art Distributive rules that deal with special aspects of an independent or dependent activity Distributive rules that partially overlap with Art Final thoughts on the relationship of Art. 7 to other distributive rules Consequences for the application of Art. 23A Conclusions for the interpretation of the terms business and business profits 106 Chapter 7: The term Enterprise and Art. 24 of the OECD Model Convention 107 Michael Lang 7.1. Meaning of the term enterprise in Art. 24 OECD Model Convention Legislative developments 108 xi

4 7.3. The term enterprise in the light of the objective and purpose of Art. 24 OECD Model The term enterprise in the context of the Model Convention Significance of domestic law? Conclusion 122 Part Four Country Reports Chapter 8: Australia 127 Graeme S. Cooper 8.1. The meaning of enterprise and business in domestic non-tax law Enterprise in domestic law Business in domestic law The meaning of enterprise, business and business profits in domestic tax law Enterprise in domestic tax law Income tax Indirect taxes Business in domestic tax law Business vs expensive hobby or pastime Business vs isolated profit-making transaction Business vs investment CFC provisions and proposals Business profit in domestic income tax law Capital gains vs revenue receipts Receipts vs profits Investment income as business profits Comparison with the meaning of enterprise and business in EU tax law Enterprise, business and profits as interpreted for the purposes of tax treaties Australia s tax treaty practice The impact of Art. 13 on business profits Modern treaty practice for business profits under Art Interpretation of treaties 153 xii

5 The meaning of enterprise Including isolated transactions as a business Gains of a speculator as business profits vs profits from the alienation of property Revenue gains of an ongoing business as business profits vs profits from the alienation of property Capital gains of an ongoing business Investment income as business profits Enterprise and business profits from source-state perspective or the State of residence-state perspective Compatibility between domestic tax law and tax treaties 164 Chapter 9: Austria 167 Elke Aumayr 9.1. The meaning of enterprise and business in domestic non-tax law General The meaning of enterprise in Austrian commercial law The meaning of enterprise, business and business profits in domestic tax law The meaning of enterprise in domestic tax law The meaning of business and business profits in domestic tax law The meaning of place of business in domestic tax law The meaning of enterprise and business in EU tax law General Implementation of the term economic activity in Austrian VAT law Implementation of Art. 11 of VAT Directive 2006/112/EC Enterprise, business and business profits as interpreted for the purposes of tax treaties Austria s tax treaty practice 183 xiii

6 General Taxation of business profits The definition of permanent establishment Independent personal services The interpretation of tax treaties General Treaty interpretation in Austria Enterprise and business profits from the source-state perspective or the residence-state perspective General Austria as the state of residence Austria as the state of source Compatibility of Austria s domestic tax law with tax treaties and EU law 193 Chapter 10: Belgium 197 Katrien Willoqué and Ellen Cassaer The meaning of enterprise and business in domestic non-tax law Belgian economic law: Commercial vs non-commercial The term enterprise in legal literature Enterprise in Belgian economic law Accounting law Belgian legislation on the registration of enterprises Competition law Market practices and consumer protection Belgian act on continuity of enterprises Conclusion: There is no such thing as the enterprise in Belgian non-tax law De lege ferenda Business the most notable absentee in Belgian non-tax law Determination of the place of business is a matter of fact Enterprise, business and holding companies The meaning of enterprise, business and business profits in domestic tax law 207 xiv

7 Enterprise, business and business profits in Belgian income tax law: Introduction Business : A non-existent term in Belgian income tax The terms enterprise and business profits in personal income tax Carrying on an enterprise: Profits Carrying on of a professional service or other professional activities of an independent character: Benefits Benefits vs profits Enterprise and business profits : Corporate income tax vs legal entities tax Company in income tax law vs company in corporate law Company, enterprise and business Investment and holding activities Non-profit organizations Examples Business profits Business, enterprise and business profits in Belgian income tax Non-resident tax and place of business Enterprise in other kind of taxes The meaning of enterprise and business in EU tax law EU direct tax law VAT legislation The meaning of economic activity in EU tax law The meaning of economic activity and enterprise in Belgian VAT law VAT grouping Enterprise, business and business profits as interpreted for the purposes of tax treaties Belgium s tax treaty practice Introduction The concepts of enterprise, business and business profits in Belgium s tax treaties The interpretation of tax treaties Introduction 228 xv

8 The Vienna Convention and Art. 3(2) of the OECD Model The Belgian Standard Model Draft The Belgian tax administration s view point Interpretation of the concepts enterprise, business and business profits Enterprise and business profits from the source-state perspective or the residence-state perspective Compatibility of domestic tax law provisions with EU law and tax treaties 240 Chapter 11: Canada 245 Kim Brooks Function of the concept of business in Canadian tax law The meaning of enterprise and business in Canadian non-tax law The meaning of enterprise, business and business profits in Canadian tax law Distinguishing non-deductible personal expenses and deductible business expenses Distinguishing non-taxable amounts with no source from business income Distinguishing business income from other sources of income Distinguishing employment income from business income Distinguishing income from property from business income Distinguishing capital gains from business income Business income as a measure of geographic nexus Differences between income tax law and other tax legislation Enterprise, business and business profits as interpreted for purposes of tax treaties State tax treaty practice Definitions 264 xvi

9 Permanent establishment Business profits Non-discrimination Compatibility of Canadian tax law with Canada s tax treaties 271 Chapter 12: France 273 Nicolas Message Introduction The meaning of enterprise and business in French domestic non-tax law The French definitions of business and enterprise The commercial business (fonds de commerce) The agricultural business (fonds agricole) The crafts business (fonds artisanal) The civil business (fonds civil or fonds d exercice libéral) The place of businesses and enterprises under French domestic non-tax law Meaning of enterprise, business and business profits in domestic tax law The meaning of enterprise, business and business profits according to the French territoriality principle Other considerations as regard to the meaning of enterprise, business and business profits in domestic tax law The profitability criterion The economical criterion: Real spot of convergence Other nuances deriving from commercial taxes Holding companies and fictitious companies Holding companies and holding activities Fictitious companies The meaning of enterprise and business in EU tax law EU tax law widens the borders of the domestic definitions enterprise and business 287 xvii

10 The ECJ Papillon case Common Consolidated Tax Base Enterprise and business in EU VAT legislation Implementation of the term economic activity in French VAT Definition of economical activity according to ECJ case law Definition of economical activity according to French case law Implementation of Art. 11 of the VAT directive The meaning of enterprise, business and business profits as interpreted for the purpose of tax treaties French tax law interpretation of a permanent establishment A place of business What is a fixed place of business in terms of geographical location (the location test)? What is a fixed place of business in terms of the time that the place is used (the duration test)? Meaning of through which the business of an enterprise is wholly or partly carried on Does the place of business have to be owned or rented by the taxpayer (right of use test)? Other aspects of the relationship between the place and the enterprise s business Can the activity of owning and renting buildings source a PE? Should a business installation be autonomous? French interpretation of the listed examples of a permanent establishment (Art. 5(2)) A place of management A branch 297 xviii

11 An office A factory or a workshop A mine, an oil or gas well, a quarry or any other place of extraction of natural resources Compatibility of domestic tax law provisions with tax treaties and EU law 300 Chapter 13: Germany 305 Sebastian Heinrichs Introduction The meaning of enterprise and business in domestic non-tax law The meaning of enterprise Enterprise as an object in private law Enterprise as a subject in group law Enterprise as a subject in competition law Enterprise as an object in bankruptcy law The meaning of business Business as an object of reference in employment law Business as an object of reference in commercial law Business as an activity commercial law and competition law The meaning of enterprise, business and business profits in domestic tax law The meaning of business in German tax law Business in German income and municipal trade tax law Positive requirements Extensions by case law and special regimes Negative statutory requirements Demarcation between business, independent personal services, and agriculture and forestry 319 xix

12 Negative requirement by case law Demarcation between business and mere private investment Legal form and business Special modifications Trade Tax Business in inheritance and gift tax law Business in turnover tax law Comparison with the meaning of business in domestic non-tax law The meaning and scope of business profits in German income tax law The place of business in German tax law The meaning of enterprise Enterprise in income tax and trade tax law Turnover tax law The meaning of enterprise and business in EU tax law Implementation of the term economic activity in domestic VAT law Examination of the domestic definition Comparison with the enterprise definition under domestic income tax law Art. 11 of VAT Directive 2006/112/EC (Organschaft) Enterprise, business and business profits as interpreted for the purposes of tax treaties Germany s tax treaty practice The business and enterprise definitions in Art. 3 of the OECD Model The fate of Art. 14 of the OECD Model after The treaty practice on Art. 7 of the OECD Model The interpretation of tax treaties The meaning of business and enterprise in the field of German double taxation treaties 334 xx

13 The meaning of business profits in the field of German double taxation treaties Enterprise and business profits from the source-state perspective or the residence-state perspective Compatibility of domestic tax law provisions with tax treaties and EU law 340 Chapter 14: Italy 341 Francesco Avella Introduction The meaning of enterprise and business in domestic non-tax law Real and personal criteria to identify entrepreneurs The non-tax law definition for entrepreneur Activity of producing or trading goods or services Proposed Italian non-tax law meaning of business Features for a business to qualify as an enterprise : Professional, organized, economic Enterprise vs professional services and other activities of an independent character Examples in the Commentary on Art. 5 of the OECD Model and Italian non-tax law Holding activities and isolated commercial transactions The meaning of enterprise, business and business profits in domestic tax law Premise Real and personal criteria The real criterion: Income tax law definition for enterprise Commercial activities under income tax law Proposed Italian tax law meaning of business Features for a business to qualify as an enterprise: Professional and economic; limited significance of organization Business vs professional services and other activities of an independent character The personal criterion 374 xxi

14 Examples in the Commentary on Art. 5 of the OECD Model and Italian tax law Holding activities and isolated commercial transactions The meaning of enterprise and business in EU tax law Enterprise and business in EU tax law The implementation of the term economic activity in domestic VAT law Enterprises Self-employment activities The implementation of Art. 11 of Directive 2006/ Enterprise, business and business profits as interpreted for the purposes of tax treaties Italy s tax treaty practice The interpretation of Italian tax treaties Enterprise, business and business profits Independent professional services References to the OECD Model Commentaries Enterprise and business profits from source-state perspective or residence-state perspective 397 Chapter 15: Japan 399 Asatsuma Akiyuki The meaning of enterprise and business in domestic non-tax law Business and enterprise in civil law Business and enterprise in commercial law The meaning of enterprise, business and business profits in domestic tax law The meaning of business profits The meaning of business income and salary income The meaning of business income and capital gain The meaning of business income and miscellaneous income 406 xxii

15 The meaning of business income and dividend income The meaning of business Special legislation regarding companies that are deemed not to operate a business The meaning of business in corporate tax law The meaning of business and enterprise for all other types of taxes Enterprise, business and business profits as interpreted for the purposes of tax treaties State s tax treaty practice Business profits provision as of Arts. 5 and 7 of the OECD Model Individual service income provision as of Art. 14 of OECD MC The interpretation of tax treaties Enterprise and business profits from the source-state perspective or the residence-state perspective From the source-state perspective From the residence-state perspective The potential impact of the OECD approach on conflicts of qualification Compatibility of domestic tax law provisions with tax treaties 421 Chapter 16: Luxembourg 427 Katarina Köszeghy Introduction The meaning of enterprise and business in domestic non-tax law The concepts of enterprise and business in Luxembourg civil law The concept of enterprise in Luxembourg commercial law No legally enshrined definition of enterprise in Luxembourg commercial law The definition of enterprise in Art. 8 of the Commercial Code 429 xxiii

16 Trader as an enterprise Commercial companies being an enterprise Branches of non-resident companies being an enterprise The meaning of business in Luxembourg non-tax law The distinction between enterprise, business and independent personal services The relation of domestic provisions to Art. 5 of the OECD Model The meaning of enterprise and business in domestic tax law The meaning of enterprise in the Luxembourg Income Tax Law (LITL) The meaning of enterprise for tax-transparent entities Income derived by an enterprise A definition of enterprise in Art. 14(1) of the LITL The meaning of enterprise for fiscally non-transparent entities The meaning of enterprise for municipal business tax law (MBTL) purposes The deemed enterprise concept created by Luxembourg income tax law Extension of the meaning of enterprise by Art. 14(4) of the LITL (théorie de l empreinte/ Geprägetheorie) Extension of the meaning of enterprise by Art. 14(2) of the LITL The extension of the meaning of enterprise by the theory of tainted income Extension of the meaning of enterprise by case law Extension of the meaning of enterprise by subordination provisions (théorie de la subsidiarité) 443 xxiv

17 Differences between enterprise and independent personal services The meaning of enterprise in the VAT law (VATL) of 5 August The meaning of enterprise for Luxembourg non-resident taxpayers under LITL The meaning of enterprise and business in EU tax law (VAT implementation of economic activity ) The meaning of enterprise and business derived from EU law The implementation of economic activity in Luxembourg law The non-implementation of Art. 11 of the VAT Directive in Luxembourg law The meaning of undertaking for purposes of Art. 107 of the TFEU Enterprise in LITL vs economic activity in VATL Enterprise, business and business profits as interpreted for the purposes of tax treaties Luxembourg tax treaty practice Particularities of tax treaties concluded by Luxembourg Art. 14 of the OECD Model in tax treaties concluded by Luxembourg The interpretation of tax treaties in Luxembourg In general on the interpretation of tax treaties in Luxembourg The meaning of enterprise, business and business profits for tax treaty interpretation The definition of enterprise and business The definition of business profits Enterprise and business profits from the source-state perspective or the residence-state perspective Compatibility of domestic tax law provisions with tax treaties and EU law 458 xxv

18 Chapter 17: Netherlands 459 Anna Gunn Introduction The meaning of the terms enterprise and business in Dutch non-tax law Use of the terms enterprise, business and profession Use and meaning of the term enterprise in the Workers Council Act Use and meaning of the term enterprise in the Trade Register Act Use and meaning of the term enterprise for the protection of employees rights Use of the term business in the Bankruptcy Act Distinction between entrepreneurial and investment activities Would the examples under OECD Commentary to Art. 5 constitute a place of business in Dutch non-tax law? The meaning of enterprise and business profits in Dutch direct tax law Individual Income Taxation Act 2001 (IITA) Overview of the system of the IITA Box 1: Taxable income from work and home ownership Box 2: Taxable income from a substantial shareholding Box 3: Taxable income from savings and investments Meaning of the term business profits (Art. 3.2 IITA) Meaning of the term entrepreneur (Art. 3.4 IITA) Use of the hours-criterion (Art. 3.6 IITA) Meaning of the term enterprise Business profits vs wage income Business profits vs income from other activities Business profits vs investment income 479 xxvi

19 Distinction between the concepts of an objective enterprise and a subjective enterprise in Dutch tax doctrine Treatment of professional activities (Art. 3.5 IITA) Points taken into account by the Dutch tax authorities when assessing the status as entrepreneur Corporate Income Taxation Act 1969 (CITA) Unlimited tax liability (use of the formal enterprise concept under Art. 2(5) CITA) Limited tax liability (use of the concept of a material enterprise ) Use and meaning of the term enterprise for Dutch non-resident taxpayers Distinction between entrepreneurial activities and investment activities Use and meaning of the term enterprise in other provisions under CITA Would the examples under OECD Commentary to Art. 5 constitute an enterprise in Dutch tax law? The meaning of enterprise and business in EU law The Dutch VAT Act (Council Directive 2006/112/EC) Use of the term entrepreneur in the VAT Act Use of the concept of an economic activity in Dutch case law The VAT fiscal unity (Art. 7(4) VAT Act) Use of the term enterprise in the Competition Act Some differences between the term economic activity and the concept of an objective/material enterprise in Dutch direct tax law The meaning of the terms enterprise and business profits in Dutch tax treaties The Netherlands tax treaty practice Dutch treaty policy on the term profit as formulated in the 1998 Nota on international fiscal policy Meaning of the term enterprise in the tax treaty with Germany 498 xxvii

20 Meaning of the term enterprise in the tax treaty with Switzerland Inclusion of Art. 14 (Independent Personal Services) in Dutch tax treaties concluded after Use of the term enterprise in the unilateral Decree for the Prevention of Double Taxation The interpretation of tax treaties Significance of the OECD Commentary for tax treaty interpretation in the Netherlands OECD Commentary on the terms enterprise, business and business profits Use of the mutual agreement procedure for the interpretation of the terms enterprise and business profits Enterprise and business profits from the source-state or residence-state perspective The Dutch interpretation of the terms enterprise and business profits where the Netherlands is source state The Dutch interpretation of the terms enterprise and business profits where the Netherlands is resident state The observation made by the Netherlands to the OECD Commentary to Art. 23A/B Alternative approaches adopted by the Netherlands towards conflicts if qualification Compatibility of provisions of Dutch domestic direct tax law with international law Compatibility with tax treaties Compatibility with EU Law Compatibility with international public law 512 xxviii

21 Chapter 18: United Kingdom 515 Rachael Arning The meaning of enterprise and business in domestic non-tax law The meaning of business Consumer protection law Commercial law Company law Insolvency Professional services Passive holding of investments Frequency of transactions The meaning of the word enterprise Comparison of the concept of a fixed place of business and professional services in UK domestic non-tax law with the examples in the Commentary to Art.5 OECD MC Fixed place of business in UK domestic non-tax law Comparison of the concept of a fixed place of business and professional services in UK domestic non-tax law with the examples in the Commentary to Art.5 OECD MC The meaning of enterprise business and business profits in domestic tax law The meaning of business Meaning of trade Meaning of profession or vocation Isolated transactions Meaning of business profits Holding activities Companies Partnerships Individuals Definition of trade in the context of exemptions and reliefs Capital gains Capital allowances Incorporation relief and rollover relief 537 xxix

22 Entrepreneurs relief Substantial shareholding exemption Savings Venture Capital Trusts, Enterprise Investment Scheme and Corporate Venturing Scheme Inheritance tax Fixed place of business in UK domestic tax law Corporation tax Controlled foreign company (CFC) regime: The exempt activities test Comparison of the concept of a fixed place of business and professional services in domestic tax law with the examples in the Commentary to Art.5 OECD MC The meaning of enterprise The meaning of enterprise and business in EU tax law The meaning of enterprise Meaning of business Direct taxes Indirect tax Holding activities Art. 11 VAT Directive 2006/112/EC Anti-avoidance Enterprise, business and business profits as interpreted for the purposes of tax treaties State s tax treaty practice Treaty practice in relation to the terms enterprise, business and business profits Fixed place of business Independent personal services The interpretation of tax treaties Meaning of business Meaning of enterprise Meaning of business profits Meaning of fixed place of business in the PE article Mutual agreement procedure (MAP) 567 xxx

23 Enterprise and business profits from the source-state perspective or the residence-state perspective Enterprise Business profits Compatibility of UK domestic tax law provisions with tax treaties and EU law Compatibility of UK domestic tax law provisions with tax treaties Treaty override Legislative Treaty override Judicial Compatibility of UK domestic tax law provisions with EU Law Controlled foreign company rules VAT grouping rules 573 Chapter 19: United States 575 Allison Christians and Yariv Brauner The meaning of enterprise and business in domestic non-tax law Corporate law The Uniform Commercial Code Bankruptcy law Place of business in connection with the examples in Commentary to Art. 5 of the OECD Model The meaning of business, enterprise and business profits in domestic tax law Business Domestic law definition Modifications in the case of foreign persons Presence requirement Ownership of assets Treatment of services Attribution from other taxpayers Business entities Business profits Enterprise, business and business profits as interpreted for the purpose of tax treaties 594 xxxi

24 State s tax treaty practice United States Model Tax Convention Definition of enterprise Definitions of business and business profits Use of terms in treaties in force Art. 14 Independent personal services The interpretation of tax treaties Definition of enterprise Definition of business Definition of business profits Enterprise and business profits from the source-state perspective or the residencestate perspective Compatibility of domestic law provisions with tax treaties General Relevant relationship between treaties and the Code 607 Part Five Round-Table Discussion Chapter 20: Round Table: On the Desirability to Change the OECD Model Convention and its Commentaries The practical issues and questions Conclusions 635 Contributors 639 xxxii