Tax Treaty Case Law Around the Globe 2022

Description

Netherlands: Tax credits for foreign withholding taxes and artists with a star company

Artistes flavour our cultural live. Some of them operate only domestically, others cross borders, and go sometimes even around the globe. That is also true for the person in the case dealt with in this presentation: HR 24 September 2021, No. 20/01875, ECLI:NL:HR:2021:1352, Beslissingen in belastingzaken Nederlandse Belastingrechtspraak (BNB) 2022/719. The person involved is a Dutch DJ. In 2015, he performed in Argentina, Austria, Belgium, Brazil, Canada, Chili, India, Japan, and the United Kingdom. The fees for the performances were partly paid to him and (largely) to a ‘star company’ of which he indirectly held the shares. The main issue of the case was of whether he could set off against his Dutch personal income tax (PIT) foreign withholding taxes levied from the star company, but which could not be completely set off against the Dutch corporate income tax (CIT) of that company due to an insufficient basis for settlement. This issue arose under the tax treaties of the Netherlands with Argentina, Austria, Belgium, Brazil, Canada, India, Japan, and the United Kingdom and, in respect of Chili, under the Dutch Unilateral Decree Avoidance of Double Taxation 2001(UDADT).

Tax treaties try to enhance the level playing field by means of creating a kind of internal market, similar to but not at a level comparable with, for example, the internal market of the European Union. Nevertheless, the essential aims of tax treaties and the EU’s internal market law are closely related. Both aim at removing obstacles to the exchange of goods and services and movements of capital, technology and persons in order to contribute to the development of economic relations between states. It is assumed that the further development of these economic relations will improve welfare of the states, individuals and companies.
In tax treaties, the aim of removing these obstacles is realized by allocating tax jurisdiction to states. The general pattern is that the state of residence of a person is allocated unlimited tax jurisdiction and that the other state does not have any tax jurisdiction or a limited tax jurisdiction. If the other contracting state has limited tax jurisdiction, the state of residence of a person must provide a reduction to eliminate or to mitigate double taxation and under circumstances to prevent double non-taxation. In this case, the emphasis is on the elimination or mitigation of double taxation.

This presentation dealt with the issue mainly from the perspective of the involved tax treaties, but also the Dutch UDADT perspective will be addressed. However, the decision was put in a wider context. The key question for the court was: For the purposes of eliminating or mitigating double taxation must the DJ operating through his star company respectively as an individual be identified? The research questions considered in this presentation were:
1.Did the Dutch Hoge Raad interpret the rules of eliminating or mitigating double taxation under the tax treaties between the Netherlands and Argentina, Austria, Belgium, Brazil, Canada, India, Japan, and the United Kingdom in an appropriate way taking into account the purpose of these rules?
2.Did the Dutch Hoge Raad interpret the rules of eliminating or mitigating double taxation under the Dutch UDADT in an appropriate way taking into account the purpose of these rules?
3.Does the court’s interpretation contribute to the OECD BEPS starting-point of ensuring “that profits are taxed where economic activities take place and value is created”?
4.Should judges or lawmakers in other states treat this decision as providing guidance?

Firstly, the facts of the case were briefly be outlined. Secondly, the relevant national laws and tax treaty law was described. Subsequently, the decision of the Dutch Supreme Court was presented. Thereafter, the decision was analysed and evaluated. In this respect, the speaker addressed the Supreme Court’s reasoning in respect of tax treaty interpretation. The speaker assessed of whether the decision contributes to the aim of removing obstacles to the exchange of services and persons in order to contribute to the development of economic relations between states. In this context, he identified the purpose of the rules of eliminating or mitigating double taxation of the involved tax treaties and assessed whether the decision appropriately realized this purpose. The same was done regarding the Dutch UDADT rules for eliminating or mitigating double taxation. Against this background, the author assessed whether the decision contributes to realizing the principle of origin, the ability-to-pay principle, the direct benefit principle, tax neutrality, and/or the notion of single taxation. At the same time, it was questioned of what the impact of increased opportunities of exchanging information may have on these assessments. In respect of these assessments, the speaker also addressed what impact the decision should have on judges and lawmakers in other states in order to better realize the purpose of the tax treaty rules and unilateral rules for eliminating or mitigating double taxation.

Period	14 May 2022
Event type	Conference
Degree of Recognition	International