Question 1, Case A
Question 1, Case A
Question 1, Case A (Part 1)
•The case „Saint-Gobain“ was about a French company having a
PE in Germany that held participations in foreign companies incl.
companies in non-EU member states. As Germany granted the
participation exemption only in tax treaties the PE was not entitled
to this participation exemption. A PE is not a (independent) person
and cannot invoke
treaty benefits. The court decided that the
French company was discriminated. The freedom of establishment
ensures that each European company may freely choose which
business form they use for doing business abroad.
•If the French company was a Russian company the letter was not
entitled to the benefits of the EC-Treaty. Russia is not a EU
Member State. The ECJ would not be involved, the court has to
rule about the interpretation of European law that is not subject to
Question 1, Case A (Part 2)
• However, the discrimination clause of the treaty
between Germany and Russia could lead to the
same result (see Article 24 (3) OECD Model).
Paras 49 and 50 of the Commentary on Article
24, however, show that there are different
opinions about this issue and the outcome will,
therefore, be dependent on the interpretation
made by the court in question.
• If the Russian company was willing to go to court
it would have to bring the case to the Russian
court that is responsible for this kind of cases.
Question 1, Case B (Part 1)
• Treaty between Brazil and Germany?
– Treaty entitlement (Article 1 OECD Model) of the partnership?
Partnership is well a person („body of persons“) in terms of
Article 3(1)(a) but it is not resident in terms of Article 4(1) since it
is not subject to tax.
– Treaty does not apply!
– (If Brazil considered the partnership a company the partnership
would be treaty entitled to the treaty with Germany; Brazil would
apply the the rate stipulated by that treaty; however, according to
the OECD Commentary (para 6.3 on Article 1) Brazil should take
into account the tax treatment in the state of the partnership
(actually the domestic rate would apply because there is no
treaty anymore; this only for information purposes))
Question 1, Case B (Part 2)
• Treaty between Brazil and Austria/Netherlands? If a
partnership is fiscally transparent the partners are taxed
with the respective income and therefore the partners
are treaty entitled (para 5 Commentary on Article 1).
Brazil will apply the treaties with Austria and the
• However, the partnership forms a PE of the partners in
Germany. According to the treaties between A/NL and
Germany the profits of the partnership (incl. the royalty
income if attributable to the PE) are taxable in Germany
(Article 7 OECD Model). Therefore the income will be
taxable in Germany, Germany has to avoid the double
taxation (WHT Brazil) on basis of the discrimination
clauses in the treaties between A/NL and Germany.
Question 2 A
ECJ’s Case Law on Double Taxation
The ECJ has held that juridical double taxation is not
precluded by EU law. In it’s case law, the ECJ argues
that, in the absence of Community measures for the
avoidance of double taxation, it is the exclusive
competence of the Member States to determine the
connecting factors for taxation.
In Gilly (para. 17) for example, the ECJ held that
Article 293 EC has no direct effect.
In Kerkhaert/Morres the ECJ reaffirmed its point of
view (1/2 p.). The ECJ stated that the double taxation
in the case followed from the parallel execution of
taxing competence by the Member States (para. 20).
Question 2 B
• In Cassis de Dijon the ECJ drew a distinction between measures in
breach of Article 28 which were indistinctly applicable as opposed to
distinctly applicable. Indistinctly applicable measures are ones that,
prima facie, do not favour domestic producers over importers, and
whose effects are equal on both. The ECJ argued that indistinctly
applicable measures that favoured domestic traders over importers
were not necessarily in breach of Article 28. They could be justified if
they satisfied 'mandatory' requirements - namely that the measure is
necessary for protecting the public or the consumer. The rule of
reason is essentially the proposition that a proportionality exercise
must be performed by the Court to determine whether the effects of
Member State legislation on the free movement of goods is justified
in light of the legislation's stated goals.
• This proportionality exercise has itself been applied by the ECJ
further than the boundaries of Article 28 would initially allow.
Question 2 C
• Article 23A(4) avoids double non-taxation in cases of
differences in interpretation of the DTC between the
• It concerns cases where the source state interprets the
DTC to the effect it has no tax jurisdiction on an item of
income, the resident state interprets it to the effect that
the source state is allocated jurisdiction for which the
resident state should give double tax relief.
• In that case the resident state is not obliged to provide
double tax relief for that item of income on basis of
Question 2 C - example
• State S regards a business activity of a
company resident in R on the territory of S
NOT to constitute a PE (Art. 5), whereas
State R DOES and exempts a part of the
business income income (Art. 7 & 23A).
• On basis of Art. 23(4), State R may
reverse the exemption.
Question 3, Part 1
• Has Nor-Corp a PE in Australia?
• In principle not because there is no place of business, a
helicopter is not fixed (Article 5(1) OECD Model)
• However, the helicopter was leased to A-Corp.
• According to the commentary on Article 5 (para. 8)
industrial equipment (a part of a complete form; as the
helicopter is an entirety there could be doubts whether it
may be considered equipment) may be considered a PE
– There is a place of business used for leasing activities – here no
place of business; or
– If the activity goes beyond mere leasing, i.e. the supplied
personnel has wider responsibilities than operation or
maintenance – here no wider responsibilities – no PE
Question 3, Part 2
• Olafson works 96 days in Australia for an
– Principle: taxation in state of work (Article 15(1))
– Exception: taxation in state of residence (Article 15(2)
if salary born by the PE
• Two different opinions
– As the salary is cost attributable to the PE (Article 7 OECD
Model), it should be deductible in Australia and therefore
subject to tax in Australia (see para 7 Commentary on Article
– If the costs are not covered by the PE (bookkeeping) the salary
is not born by the PE (wording; argument used by a New
Profit Share (3)
• DTC law
– AD 1. DTC Germany-France, beneficial owner is a
company resident of Germany and the paying
company is a resident of France; On basis of article
10(3) the payment qualifies (autonomously) as a
dividend (income from shares). On basis of article
10(2)(a), France is allowed to apply a 5% WHT.
– AD 2. DTC Netherlands-France, beneficial owner is
a company resident of the Netherlands and the
paying company is a resident of France. The 2%
interest payment qualifies (autonomously ) as an
interest payment on basis of art. 11(3). On basis of
art. 11(2), France is allowed to apply a 10% WHT.
• Qualification of the loan arrangement
– “Hybrid Bond”, i.e. an optional convertible
profit sharing bond.
DTC law (cont.)
• One first has to resort to the ordinary meaning of art.
10(3) and 11(3) that links to the underlying legal relation,
respectively ‘corporate right’ and ‘debt claim of any kind’.
The payment should be qualified as interest, since the
legal relation is under the title ‘debt claim’ and art. 11(3)
explicitly includes profit sharing and convertible bonds.
• Secondly, it reads in COMM. Art. 11, para. 19, (also
COMM. Art. 10, para. 25) that in exceptional
circumstances a presumed interest payment should be
qualified as a dividend, because the specific conditions
in the individual loan arrangement effect that the debt
claimant effectively shares the risks run in the debtor.
DTC Law (cont.)
• Furthermore, the COMM. Art. 10, para. 25 provides
certain conditions. [ANALYZE!]
• The profit share payment should for DTC purposes be
qualified as interest.
• Thirdly, In extreme cases of doubt, one could by force of
Art. 3(2) and 10(3) resort to French law and consider that
French law regards (part of) the payment a dividend
payment. (corporate right definition)
• ALFA does not hold directly a minimum holding of 10%,
so art. 10(2)(b): 15% WHT
• Depending on the qualification, either a 15% (dividend)
or a 10% (interest) WHT is allowed.
• AD 1.
The Parent-Subsidiary Directive clearly
applies. On basis of Art. 5 PSD, France may not levy a
WHT on the payment.
• AD 2.
The Interest/Royalty Directive clearly does
not apply to this holding relation, see Art. 3(b) since
there is no direct holding.
• AD 3.
The Interest/Royalty Direct clearly does not
apply, Art. 3(b) and 4(1)(a), (b), and (c). The PSD could
apply, if the payment can be qualified as a ‘distribution of
profit’. However, the PSD does not cover payments
where the beneficial owner has no direct holding in the
paying company. EU law does not limit the French WHT.
• AD 1. No WHT allowed on basis of PSD,
as EU law overrides the DTC based WHT.
• AD 2. A DTC based WHT of 10% is
• AD 3. A DTC based WHT of either 10%
(interest) or 15% (dividends) is allowed.