TAX NEWS - DECEMber 2009
Tax treaty round up
Belgium - New Zealand Tax Treaty - The protocol signed on 7 December 2009, once in effect, will exempt additional items from withholding tax on interest, including interest paid to a bank performing the functions of a central bank, and interest paid to, and beneficially owned by, a resident of the other contracting state if paid on a loan made, guaranteed or insured or a credit extended, guaranteed or insured by public entities to promote exports and that is agreed upon by the competent authorities of both contracting states.
Brazil - Peru Tax Treaty - The 2006 tax treaty between Brazil and Peru entered into force in August 2009 and will generally apply beginning 1 January 2010. Once in effect, the treaty provides for a 10% withholding tax on dividends paid to a company that holds directly at least 20% of the capital paying the dividends, and 15% in all other cases. Brazil does not, however, levy withholding tax on dividends. Interest and royalties will be taxed at a maximum rate of 15%.
Cyprus - Czech Republic Tax Treaty - The April 2009 tax treaty and protocol replacing the 1980 treaty entered into force 26 November 2021 and will generally take effect 1 January 2010. When in effect, the treaty will provide for a 0% withholding tax on dividends paid to a company (other than a partnership) that holds directly at least 10% of the capital of the company paying the dividends and where the participation has been held for an uninterrupted period of no less than one year. The rate in all other cases will be 5%. Interest may only be taxed by the state of residence of the recipient. A 10% withholding tax will apply to royalties paid in respect of a patent, trademark, design or model, plan, secret formula or process, computer software, or industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience; and a copyright of literary, artistic or scientific work including cinematograph films and films or tapes for television or radio broadcasting. Cyprus, however, does not impose withholding tax on dividends, interest or royalties.
France - United States Tax Treaty - On 2 December 2009, France's President signed a law ratifying the protocol to the 1994 France-U.S. treaty. This action was followed on 3 December by the U.S. senate giving its advice and consent to ratification. If ratification is completed and each country has formally notified the other by the end of the 2009 calendar year, the protocol will generally apply to withholding taxes paid or credited on or after 1 January 2009. With respect to other income or capital taxes, the protocol will generally apply for taxable periods beginning on or after the first day of January 2010. Notable changes contained in the protocol include a 0% rate on certain qualifying (i.e. intercompany) dividends and a 0% rate on royalties.
Italy - United States Tax Treaty - Tax treaty signed in 1999 to replace the 1984 treaty between Italy and the U.S. entered into force on 16 December 2009. Subject to a grandfathering clause, the new treaty will apply to taxes withheld at source for amounts paid or credited on or after 1 February 2010, and will generally apply to taxable years starting on or after 1 January 2010. Once in effect, a 0% rate will apply where the beneficial owner of dividends is a qualified governmental entity that holds, directly or indirectly, less than 25% of the voting stock of the payor; a 5% rate will apply where the beneficial owner is a company that owns at least 25% of the voting stock of the company paying the dividends for 12 months ending on the date the dividends are declared; the rate will be 15% in all other cases. A 0% rate will apply to interest paid to a qualified governmental entity that holds, directly or indirectly, less than 25% of the capital of the person paying the interest; interest paid or accrued with respect to a credit sale of goods, merchandise, or services provided by one enterprise to another; or interest paid or accrued in connection with the credit sale of industrial, commercial or scientific equipment; and 10% in all other cases. A 0% rate is provided for royalties paid for the use of, or right to use, a copyright of literary, artistic or scientific works (with some exceptions); 5% for royalties for the use of, or right to use, computer software or industrial, commercial or scientific equipment; and 8% in all other cases.
Luxembourg - Barbados Tax Treaty - Once in effect, the tax treaty signed 1 December 2021 will provide an exemption from withholding tax for interest and royalties. Dividends also will be exempt if the beneficial owner is a company (other than a partnership) that directly holds at least 10% of the capital of the company paying the dividends for an uninterrupted period of at least 12 months prior to the decision to distribute the dividends; otherwise, the withholding tax rate will be 15%.
Malta - Montenegro Tax Treaty - The 2008 tax treaty entered into force on 23 September 2021 and will generally apply 1 January 2010. Once in effect, dividends paid from Malta will be taxed at a rate not to exceed that chargeable by Malta on the profits out of which the dividends are paid. Interest will be subject to a 10% withholding tax rate. The withholding tax rate on royalties will be 5% if for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or films or tapes used for radio or television broadcasting; and 10% for the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience.
Mexico - Netherlands Tax Treaty - The 2008 amending protocol to the 1993 Mexico-Netherlands tax treaty enters into force on 31 December 2021 and will apply generally as from 1 January 2010. The protocol provides for a 5% withholding tax on interest on loans by a bank or financial institution and on bonds and debentures traded regularly on a recognized stock market, and 10% in all other cases. The withholding tax on royalties will be 10%.
Netherlands - Barbados Tax Treaty - Due to changes in Barbadian domestic legislation occurring after the signing of the Barbados-Netherlands tax treaty, dividend payments by a Dutch tax resident to a Barbados tax resident, and consequently by the Barbados tax resident to its shareholders, could be made without any Barbados taxes imposed if certain conditions were satisfied. In practice this change meant that shareholders of Dutch taxpayers could avoid a Dutch dividend withholding tax claim by interposing a Barbados entity, without creating additional Barbados tax. To close the resulting loophole, the two countries signed a protocol on 27 November 2009, which adds limitation-on-benefits type provisions to the treaty's dividend article so that the treaty exemption for dividends will be granted only to specifically defined beneficial owners. The protocol also adds OECD compliant information exchange provisions.
United Kingdom - Channel Islands Tax Treaty - The tax information exchange agreement amending the U.K.-Guernsey double taxation arrangement, signed on 20 January 2009, entered into force on 27 November 2009, as did the double taxation arrangement between the U.K. and Jersey, signed on 10 March 2009. The agreements will take effect in Jersey and Guernsey as from 6 April 2010, and in the U.K. as from 1 April 2022 for corporation tax and as from 6 April 2022 for income tax.
United Kingdom - Oman Tax Treaty - The U.K. and Oman signed a protocol to the existing treaty on 26 November 2009, but the tax treaty is not yet in effect. When in force, the protocol eliminates the withholding tax on dividends (previously a maximum of 10%) with a carve-out of 15% for U.K. REITs and introduces an 8% withholding tax rate on royalties.
United States - Liechtenstein Tax Treaty - The Liechtenstein government has announced that the tax information exchange agreement (TIEA) with the U.S. entered into force on 4 December 2021 and will generally apply beginning 1 January 2010. In addition to the TIEA's information exchange provisions, the appendix provides that the U.S. will renew Liechtenstein's treatment as an eligible qualified intermediary jurisdiction for the standard six-year term, expiring at the end of 2015.