EU and International Tax Law

Transcription

1 EU and International Tax Law Article 13 OECD MTC (Capital Gains) Feb 25, 2015 Roberto Scalia Ph.D.

2 Article 13 MTC ARTICLE 13 Capital Gains ( ) (*) 2. Gains from the alienation of movable property forming part of the business property of a PE which an enterprise of a contracting State [STATE R] has in the other contracting State [STATE S], including such gains from the alienation of such a PE (alone or with the whole enterprise), may be taxed in that other State [STATE S]. 3. Gains from the alienation of ships or aircraft operated in the international traffic, boats engaged in inland waterways transport or movable property pertaining to the operation of such ships, aircrafts or boats, hall be taxable only in the Contracting State in which the POEM of the enterprise is situated. ( ) (*) 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. (*) Par. (1) and (4) of Article 13 see Lecture on Article 6

3 Article 13(2) MTC ARTICLE 13(2) Capital Gains ( ) 2. Gains from the alienation of movable property forming part of the business property of a PE which an enterprise of a contracting State [STATE R] has in the other contracting State [STATE S], including such gains from the alienation of such a PE (alone or with the whole enterprise), may be taxed in that other State [STATE S]. «Alienation» «movable property» participation in partnerships «forming part» of the business property of a PE

4 Article 13(3) MTC ARTICLE 13(3) Capital Gains ( ) 3. Gains from the alienation of ships or aircraft operated in the international traffic, boats engaged in inland waterways transport or movable property pertaining to the operation of such ships, aircrafts or boats, hall be taxable only in the Contracting State in which the POEM of the enterprise is situated. Article 13(3) <-> Article 8

5 Article 13(5) MTC ARTICLE 13(5) Capital Gains ( ) 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. Article 13(3) <-> Article 8

6 EU and International Tax Law Article 15 OECD MTC (Income from Employment) Feb 25, 2015 Roberto Scalia Ph.D.

7 Article 15(1), MTC ARTICLE 15(1) 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of employment shall be taxable only in that State unless the employment is exercised in the other contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State Allocative rule Meaning of salary, wages and other similar remuneration Meaning of «Employment» Interaction with other Articles

8 ARTICLE 15(1) Article 15(1), MTC - Allocative Rule - 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of employment shall be taxable only in that State Derogation unless the employment is exercised in the other contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State State R State S Salaries, wages and other similar remunerations General rule Exclusive taxing powers are with STATE R Derogation Primary taxing right with STATE S

9 ARTICLE 15(1) Article 15(1), MTC - Meaning of «salary, wages» etc Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of employment shall be taxable only in that State MTC Commentary on Art. 15, 2.1. (added in 2010) Benefits in kind -> e.g. stock-options; use of residence or automobile, health or life insurance coverage, club membership MTC Commentary on Art. 15, 2.2. (added in 2010) Source State tax entitlement -> income must be derived from the exercise of employment in the STATE S ( ) regardless of WHEN that income may be paid, credited or is otherwise definitively acquired by the employee

10 ARTICLE 15(1) Article 15(1), MTC - Meaning of «Employment» 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of employment shall be taxable only in that State What s the Source of Income? State R State S Salaries, wages and other similar remunerations deriving from or «in respect of» employment Employment What is the meaning of «employment»?

11 ARTICLE 15(1) 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of employment shall be taxable only in that State What is the meaning of «employment»? Article 15(1), MTC - Meaning of «Employment» - MTC Commentary on Art. 15, 8.1. (added in 2010) 8.1. (t)he issue of whether or not services are provided in the exercise of an employment may sometimes give rise to difficulties ( ) MTC Commentary on Art. 15, 8.7. (added in 2010) 8.7. ( ) the concept of employment to which Article 15 refers is to be determined according to the domestic law of the State that applies the Convention (subject to the limit described in paragraph and unless the context of a particular convention requires otherwise ( ) (1) NO autonomus Treaty meaning -> Refererence to the «domestic law» of the State applying the DTC (2) Subject to the limits under par > Relevance of the «formal» contractual relationship (3) Reference to «the context»

12 ARTICLE 15(1) Article 15(1), MTC - Interaction with other Articles - 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of employment shall be taxable only in that State Salaries, wages and other similar remunerations Art. 15 Pensions X Art. 15 Art. 18 Remuneration and Pensions from Government Services Remuneration of Members of Board of Directors X Art. 15 Art. 19 X Art. 15 Art. 16 State R State S

13 Article 15(2), MTC ARTICLE 15(2) 2. Notwithstanding the provision of paragraph 1, remuneration derived by a resident of a contracting State [STATE R] in respect of an employment exercised in the other contracting State [STATE S] shall be taxable only in the first-mentioned State [STATE R] if: a) The recipient is present in the other State [STATE S] for a period or periods, in the aggregate, not exceeding 183 days in any twelve month period commencing or ending in the fiscal year concerned and; b) the remuneration is paid by, or on behalf of, an employer who is not a resident in the other State [STATE S];. c) the remuneration is not borne by a permanent establishment which the employer has in the other State [STATE S] General exemption under Art. 15(2); content and rationale behind The «three conditions» test International Hiring-Out of Labour

14 ARTICLE 15(2) Article 15(2), MTC - Content and rationale behind - 2. Notwithstanding the provision of paragraph 1, remuneration derived by a resident of a contracting State [STATE R] in respect of an employment exercised in the other contracting State [STATE S] shall be taxable only in the first-mentioned State [STATE R] if: Art. 15(2) provides for an exception to the general rule that income from employment income shall be taxable in the State in which employment has been carried out. Reference to Article 15(1) implies that exception shall NOT apply to item of income ruled out in Articles 16, 18 and 19. Where Art. 15(2) applies, STATE R has an exclusive power to tax (according with the shall be taxable only formula). Conditions provided for in Article 15(2) letters a) to c) shall be fulfilled togheter.

15 Article 15(2)(a) to (c), MTC ARTICLE 15(2) 2. Notwithstanding the provision of paragraph 1, remuneration derived by a resident of a contracting State [STATE R] in respect of an employment exercised in the other contracting State [STATE S] shall be taxable only in the first-mentioned State [STATE R] if: a) The recipient is present in the other State [STATE S] for a period or periods, in the aggregate, not exceeding 183 days in any twelve month period commencing or ending in the fiscal year concerned and; b) the remuneration is paid by, or on behalf of, an employer who is not a resident in the other State [STATE S];. c) the remuneration is not borne by a permanent establishment which the employer has in the other State [STATE S] General exemption under Art. 15(2); content and rationale behind The «three conditions» test

16 ARTICLE 15(2)(a) Article 15(2)(a), MTC - The «First» condition - The recipient is present in the other State [STATE S] for a period or periods, in the aggregate, not exceeding 183 days in any twelve month period commencing or ending in the fiscal year concerned and; «183 rule» in «any 12 month» <-> fiscal year any 12 month period «commencing or ending» in the fiscal y calculation of «183 days» «days of physical presence» MTC Commentary on Art. 15(2), 5 part of day; day of arrival; day of departure; all other days (Saturday and Sunday included, national holidays included), short breaks; days of sickness

17 ARTICLE 15(2)(b) Article 15(2)(b), MTC - The «Second» condition - the remuneration is paid by, or on behalf of, an employer who is not a resident in the other State [STATE S]; Employer who is NOT resident in State S The «bilateral approach» Employer who is resident in State R The «partnership dilemma» Is a partnership «resident»? MTC Commentary on Art. 15(2), 6.1. «(t)he application of the second condition in the case of fiscally transparent partnerships presents difficulties since such partnerships cannot qualify as a resident» MTC Commentary on Art. 15(2), 6.2. «the concepts of «employer» and «resident», as found in subp. b) are applied at the level of the partners»

18 ARTICLE 15(2)(b) Article 15(2)(c), MTC - The «Third» condition - the remuneration is not borne by a permanent establishment which the employer has in the other State [STATE S] Meaning of «borne by» rationale behind the exception Deduction of cost by the PE Taxation of salary

19 ARTICLE 15(2) What is the rationale behind conditions under sub-paragraphs (b) and (c) of Art. 15(2)? PROBLEM Article 15(2), MTC - International Hiring-Out of Labour - MTC Commentary on Art. 15(2), 8. «(t)here is a direct relationship between the principles underlying paragraph 2 [of Article 15(2)] and Article 7» MTC Commentary on Art. 15(2), 8.1. «It may be difficult, in certain cases, to determine whether the services rendered in a State [STATE S] by an individual resident of another State [STATE R], and provided to an enterprise of the first State [STATE S] (OR THAT HAS A pe IN THAT State [STATE S], constitute employment services, to which Article 15 applies, or services rendered by a separate enterprise, to which Article 7 applie, or more generally, where the exception applies». PROBLEMS usually become opportunities in tax planning..

20 Article 15(2), MTC - International Hiring-Out of Labour - ISSUE: How to avoid the conditions under Article 15(2)(b) and/or (c)? ANSWER: ACo Art. 15(2)(b) Salaries, wages and other similar remunerations Borne by PE Art. 15(2)(c) BCo State R State S Description: Employee is STATE R resident. He is employed by BCo. Bco enters into a «service contract» with ACo (or PE, as well) according to which its employees will carry out activities in STATE S. According with contract law, the Employee s salary is borne by BCo

21 EU and International Tax Law Articles 16, 17 and 18 OECD MTC (Directors fee; entertainers and sportsperson; pensions) Feb 25, 2015 Roberto Scalia Ph.D.

22 Article 16, MTC ARTICLE Director s fee and other similar payments derived by a resident of a contracting State [STATE R] in his capacity as a member of the board of directors of a company which is resident in the other contracting State [STATE S] may be taxed in that other State [STATE S] Fees and «similar remunerations» Derived «in his capacity»

23 Article 17, MTC ARTICLE Notwithstanding the provisions of Article 15, income derived by a resident of a contracting State [STATE R] as an entertainer, such as theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from that resident s personal activities as such exercised in the other contracting State [STATE S] may be taxed in that other State. 2. Where income in respect of personal activities ( ) accrues not to the entertainer or sportsperson but to another person, that income may, notwithstanding the provisions of Article 15, be taxed in the contracting State [STATE S] in which the activities ( ) are carried out «Such as» personal activities «as such» exercised «Rent-a-star» schemes Interaction with other Articles

24 Article 18, MTC ARTICLE Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State [STATE R] in consideration of past employment shall be taxable only in that State [STATE R] «other similar remuneration» non-periodic payments «other similar remuneration» <-> final remunerations under Article 15 (MTC Comm Art. 18, 6 «question of fact»)