Treaty Application for Companies in a Group (FM nr. 178) 2022/3.4.4:3.4.4 Convention provisions aimed at avoiding economic double taxation with dividend distributions

Treaty Application for Companies in a Group (FM nr. 178) 2022/3.4.4

3.4.4 Convention provisions aimed at avoiding economic double taxation with dividend distributions

Documentgegevens:

L.C. van Hulten, datum 06-07-2022

Datum: 06-07-2022
Auteur: L.C. van Hulten
JCDI: JCDI:ADS659328:1
Vakgebied(en): Omzetbelasting / Plaats van levering en dienst

Several bilateral treaties contain specific provisions aimed at the elimination of economic double taxation in respect of dividend payments in group situations. As the OECD Commentary explains,1 various methods are applied for this. Some states opt for including a specific exemption.2 There are also countries that grant a credit for underlying taxes.3 Other states extend the scope of the national participation exemption to treaty residents of the other state.4

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Commentary on art. 23 A and 23 B OECD MTC, par. 52.

E.g., Austria - Germany Income and Capital Tax Treaty 2000, as amended through 2010, art. 23, par. 2, sub c: ‘Dividends covered by sub-paragraph (a) of paragraph 2 of art. 10 and paid by a company which is a resident of the Federal Republic of Germany to a company which is a resident of the Republic of Austria and which have not been deducted in the determination of the profits of the distributing company shall, subject to the relevant provisions of the domestic law of the Republic of Austria but irrespective of any deviating minimum holding requirements of that law, be exempt from tax in the Republic of Austria.’

E.g., United States - Germany Income and Capital Tax Treaty 1989, as amended through 2006, art. 23, par. 1, sub a: ‘In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income: … b. in the case of a United States company owning at least 10 percent of the voting stock of a company that is a resident of the Federal Republic of Germany and from which the United States company receives dividends, the income tax paid or accrued to the Federal Republic of Germany by or on behalf of the payer with respect to the profits out of which the dividends are paid.’

E.g., Belgium - Germany Income and Capital Tax Treaty 1967, as amended through 2002, art. 23, par. 2, at 3, sub a: ‘Double taxation shall be avoided in case of a resident of Belgium in accordance with the following methods: … 2. (3)(a) when a company which is a resident of Belgium owns shares or parts in a company which is a resident of the Federal Republic of Germany the dividends which are paid to it by the latter company and which are subject to the provisions referred to in paragraphs 2 or 3 of art. 10 shall be exempted in Belgium from the corporate income tax to the extent that exemption would have been accorded if the two companies had been residents of Belgium. This provision shall not preclude the imposition of the prepayment on income from movable capital chargeable in accordance with Belgian law on such dividends, provided such dividends -- excluding liquidation payments and distribution of bonus shares -- shall be exempt to the same extent from said prepayment if they are further distributed by the company which is a resident of Belgium to its own shareholders.’