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INTERNATIONAL AND EUROPEAN TAX LAW~ Summary of tutorial meetings ~
____
/ \
<{ 01 }>---------------------------------------------- 02-11-2010--
\____/ (Meetings 1 and 2) 05-11-2010
(For all cases, it is assumed that the countries involved
apply the rules of the OECD Model Convention for purposes of
avoiding double taxation).
TREATIES CANNOT BE LEGAL BASES FOR LEVYING TAX, IF A TAX IS
NOT PRESENT IN THE DOMESTIC LAW OF THE STATE THAT IS GIVEN THE
EXCLUSIVE RIGHT TO TAX, THE TREATY DOES NOT BESTOW THE RIGHT
TO LEVY SUCH A TAX ANYWAY.
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(1) Income from immovable property (art. 6 OECD)
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To solve the first case, we actually need to have some more
information, since rental income is not taxed directly in
the Netherlands. Instead, the value of the second house will
be subject to taxation in the Dutch box 3, meaning that a 30%
tax will be levied over 4% in fictitious income from the
house in Turkey. Since the value of the house is not given,
we cannot solve the case specifically for these countries.
VALUE OF HOUSE AMOUNTS TO EURO 100.000.
If we, for the sake of argument, assume that both Turkey and
the Netherlands tax rental income, it is clear that double
taxation will occur. After all, Bill is a resident of the
Netherlands, and therefore will be taxed for his worldwide
income, including the rental income from the house. Turkey,
on the other hand, will want to tax the rental income since
the immovable property that this income flows from is loca-
ted within their territory.
The rule for the distribution of the right to tax income
from immovable property between Contracting States is stated
in art. 6(1) OECD. This income may be taxed in the State
where the immovable property is located - in our case, that
would be Turkey. This means that the Netherlands, as Bill's
state of residence, must provide double tax relief. Since
art. 6(1) OECD does *not* exclude the Dutch right to tax,
the Netherlands have the choice to provide this relief through
either an exemption of the rental income VRIJSTELLING(art. 23A OECD) or
a tax credit for the tax paid on that rental income in Turkey
AFTREK (art. 23B OECD). For more information about these methods,
refer to section (x), which can be found below section (7).
NL DOET EXEMPTIOM WITH PROGRESSION.
REASON TO NOT FOLLOW THE CALCULATION FROM THE SOURCE STATE: IF THEY GIVE A CREDIT,
THEN THEY MAKE THEIR OWN CALCULATION.
, MOST TIME COUNTRY'S DO THE SAME AS THEY DO IN DOMESTIC LAW IF THEY HAVE TO CHOSE
BETWEEN METHOD A OR B.
LANDEN HEBBEN DUS NIET DE VERPLICHTING OM DE REKENMETHODE VAN HET ANDERE LAND OVER T
NEMEN.
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(2) Business profits and permanent establishment (art. 7 OECD)
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FIRST ART 1 AND 2 TO SEE IF THE TREATY APPLIES
In the second case, we are talking about business profits
made with a shop in Luxemburg and a shop in Germany by a
resident of Luxemburg, DANIQUE. Since the profits from both
shops belong to DANIQUE's worldwide income, they will be taxed
by Luxemburg. Germany, however, will want to tax the profits
made with the German shop because they were made with a
permanent establishment in Germany. With regards to those
profits made in Germany, this means that double taxation
will occur.
To determine how the right to tax will be distributed, we
turn to art. 7(1) OECD. This article states that profits of
an enterprise of a contracting state shall be taxable only
in that state. However, if the enterprise carries on busi-
ness through a permanent establishment (PE) situated in the
other contracting state, the profits that are attributable
to this PE may be taxed in that other state. For our case,
applying this rule means that Germany may tax the €5,000 in
profits made with the PE and that Luxemburg must provide for
double tax relief through either an exemption or a tax
credit.
Of course, a necessary condition for applying the above rule
is that the German shop can be seen as a permanent establish-
ment of DANIQUE's Luxembourgian enterprise in Germany. The OECD
Model Convention has its own definition of a PE, which can
be found in art. 5(1) OECD. This article states that a PE is
a "fixed place of business through which the business of an
enterprise is wholly or partly carried on". A shop is quite
likely to fulfill the criteria for a PE. We will study the
conditions for the presence of a PE in much more detail
later in the course.
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(3) Employee remuneration (art. 15 OECD)
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Eventually, DANIQUE has to spend more and more time in Germany,
which means that she can no longer tend to her shop in Luxem-
burg. She hires ISABEL, a resident of Belgium, to work in
the shop in Luxemburg for 126 days a year(3*42), receiving a wage
of €18,000 per year. To solve this case, we'll assume that
DANIQUE has moved to Germany, which means that unlike in the
situation at (2) she now is a resident of Germany with a
permanent establishment in Luxemburg. Of course, ISABEL will
be faced with double taxation in this case, since Belgium
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