Tl1e history of double taxation conventions in Be~gium

by Isabelle RrcHELLE 1 and Edoardo TRAHRSA2

vvith the cooperation of Jacques GOJV113EEP.:1

1 krtrodiLlctioru: geruera~ historica! context

1. As with v:1rious othcr sm:1ll Europc;m countrics, Bdgium bas always been an open econon1y cicpending more on impons and cxports than on its intern:1l market in order to maintain its growth. As a consequcncc, its tJx tre:1ty policy is characterised by its prccocity (tax agreements wcre signcd with ncighbouring countries as early as in the rnid-19'h century) :1nd by thc cxtcnt of its tax treaty network. Howcvcr, bccausc of tbc size of its econom.y, Js wel! :~s institutional shortcomings, Belgium cannot afford to h:1ve :1 too defined (or rigid) tax treaty policy, concerning eithcr thc choicc of its trc:1ty partners or the content of the treaty provisions. Nevcrthelcss, important efforts have been recently made by the Belgian tax administntion towards greater openness and transp;uency of their tax tre;lties negotiations and ofthc implemen cation processes both towards its potential treaty partners and the general public.

1.1. indirect taxation: the first Customs Unions

2. Since the lndustrial Revolution, cross-border economie activity has pro­gressively increased first in Europe, then throughout the world. This evolution towards globalization has been graduaL From a tax perspective, the measures tJken by the Europe;m St:1tes to meet the ne·w developments of the economy have prim:1rily focused on indirect tax obst:1cles, not only intenul but :tlso extenul, like the German Custom Union or Zoi/I;crcin (signed on 22 March 1833, ento·ed into force on 1 January 1834), the Austrian Custom Uni on (1854) or the Customs Union between Molciavia and 'vValbchia - that became later Romania- (1847), between It:1ly and San Marino (1862), between France and Monaco (1865), :md even outsiele Europe, the Custom Union between the South African St:1tes (1889).~

3. Belgium also followed this trend. As an example, a law of 1860 \Vas a dopteel in order co prol1ibit the so-called "octrois" wl1ich were indirect taxes levied by

Professor ar Ulg, co-chair of the Tax Insticure (Ulg), avocac (Liedekerke). Professor at UCL, avocat (Liedekerke). Farmer Audireur~General in charge of International Alfairs of the Be!gian Tax Adminiscrarion. L KoHR, "The Hiscory of che Common Market",JEH, VoL 20, No. 3, Sepcember 1960, pp. 441 co 454.

ANT!Il:M\S 53

THE HlSTORY OF DOUBLE TAXATION CONVENTIONSIN BELG I UNI

municipalities on the circulation of goods (and on the services rebted to o

This Jayv concerned the reform of the customs duties at the e:-;:ternal borders.''

Later, Bdgium and Luxembourg agreed on a Custom Union in 1921 (the Bel­gicm-Luxembourg economie Union instituted by the Convention of 25 July

~1921), joined by the Netherlands in 1948. Several conventions between these

countries were also adopted within this framework in the area of e:-;:cise duties

on alcohol in 1929, 1935 and 1950.

In the field of indirect taxes on motor vehicles also, Belgium signed in 1931 a

multilateral agreement and sevenl bibteral conventions on the reciprocal

exemption of rnator vehicles dutiès 7

1.2. Djrect taxes: the influence of the League of NaUons

<'. As to direct taxes, a nuj or dcvclopment ocnn·red between 1921 Jnd 1945, with the cre1tion ofthe League ofN:1tions, which providcd a forum to discuss

che problèms arising from double taxation :md to fine! solutions to them-' This

also fostered the acadé:mic dèb:1te on issues of internatiOinl double taxa ti on"- In

1921, the Financial Committcc of thc League of Nations, under pressun.: frorn

rcsolutions :1dopted during tbc 1920 Brussels International fimncial Confer­

ence and Penis lntènutional Chambcr of Commerce 1Vlceting, 11' appointed four

54

Law of 18 july 1860 on the abolition of municipal octrois, NIB, 19 July 1860. Nl. DE )ONCKHEERE, Oe gemeentelijke belastingbevoegclheid:fiscaaljuridische aspecten, Bruges, la Charte, 1996, §§ 423 ff. See a lso W.O. HENDERSON, "A nineteenth century approachtoa west European camman marker", Kyklos 10 (4), 1957, pp. 448 to 459. I neernario na! agreement on che fiscal regime of foreign motor vehicles, signed in Geneva on 30 fV\arch 1931 (t\118, 29 January 1933). Concerning rhis particular topic, see also the Conventlans signed by Belgium with

Sweden (10 and 25 September 1928), Spain (31 January 1930) France (23 December 1931), Switzerland (30 August 1935), Germany (21 December 1935), Norway (17 lv\ay 1936), Egypt (20 May 1937), United l<ingdom (1 June 1937) and the Netherlands (30 April1938). Fora genera! overview, 1<. C. WANG, "lncernational Double Taxatien oflncome: ReliefThrough International

Agreement 1921·1945", Harvard Law Review, Vol. 59, No. 1. November 1945, pp. 73 to 116: NI 8. CARROLL, "International Tax Law", The International Lawyer (ABA), 1967·1968, No. 2, pp. 692 to 728: Nl. GRAETZ and lVI. O'H EAR, « The 'originallntent' of US International Taxation »,OL), Vol. 46, No. 5, March 1997, pp. 1021 to 1109. See for insrance, P. GuGGENHEIM, L'imposition des Successlons en Droit International et Ie Problème de la Double lmposition, Geneva, Georg, 1928: J. G. HERNDON, Relief From International lncome Taxation: 1l1e Oevelopment of International Reciprocity for the Prevention of Double In co me Taxation, Chicago, Callaghan ond Company, 1932; E. SELIGMAN, Double Taxation and International Fiscal Cooperation, New York, The Macmillan Company, 1928 (!ecrures originally delivered in French ac cheAcac/émie de Oroit International de la Haye, Rec. de La Haye, 1926, t. lil, pp. 5 co 169), in which reference is made co early double taxacion phe· nomena concerning property taxes levied in Frcmce and ltaly in the 131

h century, in situations where the

property and the owner were located in two different countries. However, important academ-Ie works on

the topics had al ready been published by the end of the 19'" century: see SAREDO, Traité des /ois, Florence, 1871; G. voN ScHANZ, "Zür Frage der SteuerpAichc'; Finanz-Archiv, 1892, Vol. 9, p. 365; J. WESTLAI<E, "The Tlleory of Taxation, with Reference to Nationality, Residence and Property", E), 1899, Vol. IX, pp. 365 co 377. In 1921, the International Chamber of Commerce produced more detailed resolutions drafred by a commit~

ree composed by represenrarives from the national chambers of commerce of Belgium, France, Unired Kingdom, ltaly, the Netherlands, and the United States. The Chamber played an active role in the various

r\NJIIhV\JS

ISABELLE RICHELLE ANO EDOARDO TRAVERSA

economists (Eimudi tî:om Itah·, Brums ti-om the L'.icthcrlands, Su Stamp from

the Uniteel IGngdom and Scligman from. thc United States of America), in

order to write a report on internatioml double t:JXation (released in 1923). 11

According to this report:

"Pmctical!y, t!Jcrc/orc, apart Jronr tl1c qucstiou o{uatioua!ity, w!Jich still ploys n miu,Jr rolc, t!Ic c/Joice lies betwem tl1c priuciplc of domicilc 1111d t!wt of lowtion or or(~i!l. TMciuy tl!c field of toxr1tiou as o w!wle, rhc reasou ~~·liy ta'x aurlwrirics tJ}(JtJer between t!tesc !wo principlcs is t!wr ene!! l!lr7)' bc considcred as prtrt of tl1e still /m){)du priuciplc c:f cw-110mic allcgiouce, as ngninst t!te on:!Ziunl doctrine of politica! al!cyinuce. A part of tlic toto! S/1111 pnid according to tl1e r1inïity '!fa persou ouyht to rcnc/1 tl1e competing nut/Jorities according to !tis ewnoJnic interest llll!icr ene/i aut!Jority T!IC idenl solutiou is t!wt t!Jc indi~id/.lnf~, wlwlejwJ!ty sliould bc tnxed, buttlwt ir s/Jould /1c taxed ouly oucc, oud t!JOt tf1c !iabiliry slwuld /x di~idcd !l!IIOIIX r!Jc la;,; districts nwmliu.~ to /u:s rcfillii'C iutcrcsts iu coc!t. nl~

5. Therc:1ftcr, the Financial Camnuttee askcd senior membcrs of n:1tional tax

adnunistrations to study tbc administrative aspectsof intcrnation:tl double tax­

ation and internation:1l tax evasion. 13 A report, relc:1sed in 1925, 1" showed tlnt

common criteri:1 to alloo te taxing power between different jurisdictions were

difficult to find. This sccmed rcbted to thc bet that the ir1eome tax systcms ot'

the mèmber countrics could bc dividcd into two main c1tegories: some cmm­

tries had a scheelubt system, with diflèrent taxès applied to èach type of ÜlCome

(iurpots reels), a system tint nninly relied on the souree criteria, while others had

already adopted gèneral or pcrsoml ÜlCome uxes, basecl on the resiclence of the

taxpayer. 15

From 1923 to 1927, dLJfts of Modd conventions (with comment:1ries) on the

prèvention of double t:1xation (dirèct taxes and succession duties) and on :Jdmin­

istrative coopcration were ebborated and submitted to nation:1l governmènts,

initiatives set up by the League of Nationsin order to remave double taxacion. See International Chamber

of Commerce, Pa ris, "Double Taxation", Brochure No. I I, 192!, p. 57; 1<. WtLK, "International Organisation and the International Chamber of Commerce: PSQ, Vol. 55, No. 2,June 1940, pp. 231 to 248;j. VAN HouTTE, "Les réso!utions du xc· Congrès de la chambre de commerce internationale en matière de double imposition",

Rép. Fisc., 1947, pp.183 to 186. The League of Nations Economie and Financia! Commission, Report on Double Taxation, submitted co the

Financial Committee of the League of Nations by Professors Bruins, Einaudi, Seligman and Sir Josiah Stamp, E.F.S. 73, F. 19 ( Geneva 1923). See a lso 0. N\AY, Double Taxation, Foreign Affairs 5, 1926·1927, pp. 69 ff. Th is paragraph is quoeed in a camment ofche report made by W. 8. CowcHER, E), Vol. 33, No. 132, December 1923, pp. 566 to 579. See also C.j. (ROBAUGH, "International Comity in Taxation",). Po/it. Econ., Vol. 31, No. 2, April, 1923, pp. 262 co 275, and Nl. GRAETZ and Nl. O'HEAR, "T11e 'originallntent' of US International Taxa· ti on': OL}, op.cit .. pp. 1075 ff. The councries initially represented were Belgium, Czechos!ovakia, France, !taly, che Netherlands, Sw'ttzer!and

and the United l(ingdom. Later, the working group was extended to Argentina, Germany. Japan, Poland and Venezuela (1925) and to the Unieed Scates of America (1927). The League of Natîons, Double Taxacion and Tax Evasion, Report and Resolutions, submîtted by the Techni~

cal Experts to the Financial Cammietee of che League of Nations, League of Nations Doe. F. 212, p. 32

(Geneva, 7 February 1925). T. WusTENBERGHS, Oe vaste inrichting op de helling, PhD Dissertation, Brussels, Larcier, 2005, p. 27.

ANillh'vlfS 55

THE HlSTORY OF DOUBLE TAXATION CONVENTIO_N_:S_:I_N_G_:E_:L_:G_IU_M _____ _

c:vc:n chose: notpart of thc: League: of Nations. In 1927, tvvo IVlodd com·c:ntions on dirc:ct taxes wc:re published, with a difference made betwe<::n real and pèr­sonal income taxes. 16 They were foliowed by tb ree otbt':r Model conventions in 1928: apparently, one convention for countries with a general (person:1l) income tax system, one convention for countnc:s witb schc:dubr tax systems and one convention for"mi..xed" (personal and impc:rsonal) incomc: tax systems (or aimed at countries having different systems altogethèr) .17 In 1929, the Com1Cil of the Leaguc: of Nations :1ppointed a pernunent Fiseli Committee. In 1931, drafes of multil:1teral Convention were presenteeL In 1933, tbis Committee issued :1 Dnft (bilateral) Convention for thc: Alloc1tion of Business Incomc: between Stat es for the Purposes of Taxa ti on." Tbe Dr:1ft Convention was revised by the Fiscal Conmilttee in June 1935. 1

'' Other Modd conventions were publisheel by tbe Fiscal Committee of tbe League in 19-1-3 (Mexico) and 19-1-6 (London)."" Tb en, witb tbc dis:1ppe1nnce of tbc League ofN:ltions, tbc tasks wcre :lSSumed by tbc Unieed N:1tions. 21

2. Natiouua~ experience cor~ceming tax treaties

2. 1. Ear!y tax treeties

2.1.1. The first tax treaties signed by Belgium: the 1843 and 1845 agreements with France, Luxembourg and the Netherlands

6. Belgium was one of the first countries m Europe to enter into bilaceral agreements :1s regards registration and inberitancc duties. On 12 August 1843,

56

The League of Nations, Report Presented Ta T11e Financial Comrnittee of the League of Nations by the Commit~ tee of Technica/ Experts on Double Taxa ti on and Tax Evasion, lntroduction, League of Nations Doe. C.216 IV\.85 1927 11 (London, 12 April1927). Fora comment, see IV\. B. (ARROLL, "Double Taxation Relief, Discussion

of Convenrions Drafeed at International Conference of Experts, 1927 and Och er Measures", Tra de lnforma~ tion Bulletin, No. 523, 1927.

The League of Nations, Double Taxarion and Tax Evasion Report, preseneed by the General Meeting of Gov~

ernment Experts on Double Taxation and Tax Evasion. League of Nations Doe. C.562.M.178.1928 11 (Geneva, October 1928).

Draft Conveneion Adopted for the Allocation of Business lncome between Staces for the Purpose of Taxa~

ti on, in the League of Nations, Fiscal Cornmittee Report to the Council on the Fourth Session of the Comrnittee Held at Genevafrom 15 to 26}une, LeagueofNations Doe. C.399.M.204.193311 A (Geneva, 26june 1933). For a comment, see M. B. CARROLL, "AIIocation of Business lncome: The Draft Convention of the League of

Nations Sou ree': Columbia law Review, Vol. 34, No. 3, March 1934, pp. 473 to 498.

The League of Nations Fiscal Committee, Report w the Council on the Fifth Session of che Commitcee,

held in Geneva from 12 to 17 June, 1935. League of Nations Doe. C.252.M.124.1935.11 A, 1935. See also M. B. CARROLL, Globaf Perspectives of an lnternationa{ Tax Lawyer, Hicksv.ille, New York, Exposirion Press, 1973.

Model Bilaceral Convention for the Prevention of the Double Taxation of lncome (Mexico 1943), in The

League of Nations, Fiscal Committee, London and IVlexico !Vlade/ Tax Conventions Cammentory and Text, League of Na ti ons Doe. C.SS.!V\.88.194611 A (Gen eva, November 1946).

The League of Na ti ons, Fiscal Committee: Report on the Workof the Tenth Session of the Committee, held in London from 20 to 26 March, 1946 (C.37.1V\37.19"6.11.A), p. 8.

ISABELLE RICHELLE AND EDOARDO TRAVERSA

Belgium and Fr:mce signL'd an agreement on reciprocal :1dm.inistrativc :JSSis­tance.21 Sbortly thereal:ter, in 1845, Bcigium signcd sim.ibr agreemt:nts with Luxembourg and tbc Nctbcrbnds."·' These agreements essentially covered registration and inherit:mce duties~ but also property taxes, which at the time w~re the most im.portant fiscallevies.Tbeir aftirmcd objective was to regubrize the (existing) unoffici:1l pr:1ctices between the national ~1dnlinistrations.

7. These agreements had however p:1rtin;br fe:1tures that made them look more like adnlinistrative understandings th:ui proper tax creaties aimed at recip­rocally linliting the taxing power of the Contracting Parties. As an indication of tlus, one can note tbat tbey werc signed by two members of tbc n:1tion:1l tax aclnurustrations on behalf of tbc Government (and not by tbe Government itsdf)"~ and th:lt they belnotbeen ratified by Parli:unellt. As to their content, tbey set up a somcw lu t braad systcm. of information exchange between officials of the tax adnunistration in charge of thc colketion of rcgistration and inhcr­icance duties, by which all the official documcnts relevant tor t:1x purposes could be tr:msmittcd, such as:

all the :Jets in onc Contracting St:ltc conccrning the (parti:ll) dis-posal of immovable property locatcd in the othcr Contracting State (salc, rent, donJtion, marriage, etc.);

all tht: judgments concerning immovablc propcrty located in the othèf State;

marriage contracts and wills concerning persons and goods of the other Contracting State;

acts concerning interstate annuitics and clcbts;

mortg:1ges granted to residentsof the otbcr Contr:Kting State.

Interestingly, the 18-1-3 and 1845 conventions are still in force and are effectively appliec\, 25 albeit in conjunction with more recent intenutional Jnd Europe:m law instruments th,lt have been subsequt:ntly adopted by these countries in this area. 2r1

2l

Conveneion of 12 August 1843 "in order to regulate the relations between the registration administrations

of France and Be!gium': signed in Lille, available on www.impocs.gouv.fr/ conventions_fiscales/ belgl843. hem.

Convention of 24 May 1845 "regulating the relations between the registration adminiscracions of the

Neeherlands and Belgium': conc!uded in The Hague, published in E.G. LAGEMANS, Recueil des traités et conventions conclus par fe royaume des Pays~Bas a vee fes puissances étrangères de 1813 jusqu'à nos jours, The

Hague, Belifante Frères, 1859, T.lll, p. 160, available on Google Books. The Belgian~French Agreement of 1843 has nevertheless been conflrmed by the Belgium~France Double Tax

convention of 20 january 1959 (inheritance and regisuation duties), NIB, 10 june 1960.

In 2004, the Ministry of F"mance acknowledged that Belgium received 5,573 doeurnenes from the French

authorities in 1999 and 3,374 in 2000, while the Netherlands only transmitted respectively 43 and 175 doc­

uments; Luxembourg transmieeed 8 documentsin 1999 and 67 in 2000. See Answer to Parliamentary Ques­

tion No. 3·1254 of28july 2004 of Sen. Nyssens, Bull. Q & R, Sen .. 2003·2004, No. 3·23.

In a 2002 agreement between the Belgian and the French administrations, reference is made co the 1843

agreement, a!though the original scope of application seems co have been reduced: automatic exchange of information in the area of registration and inheritance duties is only provided for transfer of immovable

AN IIIHviiS 57

THE HlSTORy OF DOUBLE TAXATION CONVENTIONSIN BELGIUM ------

2.1.2. The first Belgian treaties concerning taxes on income: the agreements regarding shipping companies

8. As reg~u-ds incon1e taxcs, however, Belgimn camlot be considenod as a pre­cursor in the condusion ofbibteul tax creaties (the first DTC was signcd in the 1930s), but rather foliowed the international practice, started by Germ~my and Gennan States 27 l\!loreover, Belgiun1 tlrst concluded conventions aimed at t:~ckling specific phenomena of double taxation befare more general instru­n1Cnts that we :~re used to calling iJKome tax creaties tod::ty. 2'

9. The first agreements entered into by Belgium with respect to incorne taxes regarded shipping companies, which at the time were certainly the most affected by the economie bm-den that constituted double, and even multiple, taxation. Betyveen the end of 1928 and the end of 1929, Belgium signed seven bibteral conventions, respectively with N or-vvay (29 October 1928), Denmark and Ie e­land (21 December 1928), Finl::tnd (19 FebrUJry I 929), Ecuador (2 l\!lay 1929), Sweden (31 May 1929) md France (7 October 1929).

10. These vvere very simple agreements (four articles) providing tor the exemption from taxcs on profits ;md iJKome of the shipping undertakings of one Contr:Jcting State in the othcr Contclcting State (both for goods ~me! pas­scngers).A basic dcfinition of"shipping undertaking" is provided ("undertaking nnnaged by ::t shipping charter"). Emplusis is pbced on the principle of reei­procity In thc memorandum ~1tt:1ched to the biJl of approval submitted to the p,1rli~1ment, Belgi~m Govcrnment first providcd a brief definition of double tax~1tion. According to the Government, "the legisbtion concerning taxes on income is basedon the principlcs 'origin of the income' and 'tïscal residence of the taxpayers'. As a result, the in co me e:1rned abroad by Belgian undertakings cm undergo taxation both in Belgium and in the country where this income is generated; likewise, the protlts earned in Belgium by foreign undertakings are subject to tax in our country, while bcing, on the whole, part of the taxable income in the country of which thèy have the nnionality" .2''

58

properry, and on!y the donatîons and I egades above € 25,000 must be "spontaneously" communicated to

the administracion of che ether coumry. See "Arrangement encre les auroricés compétences de la Belgique

et de laFrance en matière d'échange de renseignements et de coopéracion administrative en vue de luner conere l'évasion et la fraude fiscal es", signed in Pa ris on 10 July 2002, MB. 25 October 2002.

See the tax creaties between Prussia and Saxony of 14 April 1869 and between Austria-Hungary and

Germany of2l June 1899. Nor is Belgium a particularly innovarive country as co muitdateral convencions, given the 1922 precedent of Austria, Hungary, ltaly, Po land, Romania and the Balkan Kingdom. See Conven­eion of 6 April 1922 for che Purpose of Avoiding Double Taxacion between Austria, Hungary, ltaly, Poland,

Romania and the l<ingdom of the Serbs, Croats and Sloven es, reprimed in League of Nations Doe. C. 345 M.

102, 1928, I!, p. 73. Th is convention was only rarified by ltaly and Ausrria, and thus never entered into force as a multilateral treaty.

See also the provisions relating to taxation (national trearmem) in more general commerce and establish­

ment agreements, like, for instanee Artiele 8 of the Establishment Conveneion between France and Belgîum, signed in Paris on 6 Ocrober 1927.

Explanatory memoranda of the bill submitted to the House of Representatives, 21 january 1930, Doe. par/., 1930-1931, No. 74, available on www.lachambre.be ( translation by the aurhors).

.·\NlllhV\!S

ISABELLE RICHELLE AND EDOARDO TRAVERSA -------

11 _ Interestinglv enough, rderence is nudc' in the p~1rliamentary documems to thè works undertaken by the Societ\· of Nations :md to the dnfts conven­tions recbcted by experts. l\!loreover, these sectorial agreements are se en as a tïrst step towards general double tax_ c~)JNentions. It also ,~;ppears that these a~ree­mènts on thè tax:1t10n of shippmg compamcs were strongly supported. ~md "èasy to achieve".This point of view is reflccted in the words ofthe pres1dent ofthè Foreign Affaires' Scnatè Committee:_·.

"Ir is by rhc appliwtion of a principle <7doptcd 7Jy thc Society of Nations, tlmlllg!J t!Jc interJJention of au experts Wlllllliltee especially COIII!Ililted to this tos/.:, tlwt r!Jcse C0/1/}C/1-

rions have seen tl1c lig!Jt.

T1Vc cannol but rc;~rcl rlwt n llllllrilarcml COIIJ'Cnlion hos nol been conrluded and rl1ol t/Jc

011 tdared uwe/Janislil cif bilarcrol oud ,pcc!fic convmrions !l!ls to bc applicd as lo double taxario u [. . .].

TVc eau imaoiw r!JC tlwusauds of diplonwric acts that will have lo bc n1;~oriatcd, rcducrcd, si,~ucd and ;~r!ficd in order to cover all thcfields of double tm::ario11s 011 ÎIICO!IIC [. .. }"-'"

The Parliament gave its approval in 1930, and even ;mthorized the Government to concluded simibr conventions with other foreign countries.~ 1

2.1.3. The first general double taxation conventions on direct taxes

12. One year bter, Belgium signed- for the first time in its history- three DTCs "with the aim of avoiding double t~1xation as to direct taxes and to ;~ddress othcr issues in the area oftaxation", with Luxembourg (9 March 1931), France (16l\!lay 1931) and Italy (11 July 1931).'" In comparison with the prec­edent direct tax agreèments, these thrce conventions are relatively long (bètween 14 and 17 articles) and det:lilcd. Moreover, although they seem to follow a sim.ilar patto-n, they diffo- in certain aspects. In the Explanatory memoranda, the government gives :mother- more accurate- ddinition of double taxation than in the previous agreements: "t!Jc npplirario11 of direct taxcs iu di[Jcrclll C0/11/Iries, on rhe san1c i!IWIIIC a11d i11 tl1c ha11ds of til(' S(IJ!IC taxpaycr", and express an intnesting statement in rehtion to the evolution (at tlut time yet to come) of European tax law: "[. .. } do!lblc to.cario11 of t/1c S(IJIIC items '!{ iiiCOI/le u;i/1 o11ly he toralfy <111rl practically aJ>oided if fox IJ;~islatio11s ,if thc Co!ITmctiiiX Partics are obsolurcly idwriml, both in tl1cir prilleipies a11d i11 tl1cir illlplcuJc!ITotio!l":13

13. Concerning the person~1l scope of the DTC (article 1), thè notion of tïscal residence is dd!ned (permanent dwelling for individuals and effective seat

Report of the Foreign Affaires' Senate Committee on the bil I of a ppraval of the abovementioned bilaceral

convemions, Doe. pari., Sen a te, 1930-1931, No. 192, available on www.senate.be ( translation by the authors).

Law of 14 July 1930, i\118, 6 September 1930, No. 249. 3' The three conventions were ratified by a law dated 28 December 1931 (NIB, 17 January 1932).

33 Explanatory memoranda of the bil I submitted to the House of Representatives, 2 December 1931, Doe. pari., 1931-1932, No. 36, available on www.lachambre.be ( translation by the aurhors).

AN llll·:V\IS 59

THE HlSTORy OF DOUBLE TAXATION CONVENTIONSIN BELGIUM --~~~~~--~--~~--

or pbce of mallJgement for leg~ll pc:rsons). The taxes (Jrticle 2) covered are all thè taxes on incomè for Italy, rcal (>< personal) '~ direct taxes and certain reg­istntion duties for France and certain direct taxes for Luxembourg (t::t."\:es on income from capita! and municip~1l taxes are not covered).

14. The distributive rules c;m be summarized as follows:

As to the taxation of immovable property·, che conventions ( artiele 3) allo­ca te the power to tax to the country where the property is locatecl.

Concerning elivielenels and interests (noc covered by the DTC with Luxem­bourg), the competent State is generally the State of r-esiclence of the clebtor or the clistributing company. In thè French DTC, however, the income is also taxabk in the country of thè bèndiciary a nel a simplitîed credit mech~mism is fa reseen.

Businèss income (industrial, commcrci~ll ancl agricultunl undertakinas) is tJxed in rebtion to the incomc ~1ttribut~1ble to p~rm~ment establishmen~s in c~1ch Contracting State.The term "pcrm:mcnt esublishment" rcfers to any fixcel pbce of business, including the effcctivc pbcc of management. An c:-.:ception is 111~1de forshipping companies.'" Like·wise, incomc from "non-commercial pro­tèssions" (othcr independem economie :1ctivities) are taxccl where a pcrson possesses a permanent pbcc of~1ctivity, or apportioned whcn a person owns two or more establishments in both St:1tes, income is raxed in each Contracting State.

Directors' fees are taxablc in the country where the comp:my h~1s its effec­tive seat.

Sabries, wages and other simibr remuneration ~n-e taxabie in the Statewhere the employment is exercised. Regarding Fcmce ~md Luxembourg, a speci~1l rule attributes the power to tax to thc St:Jte of residence for fi-ontier workers. Remu­ne:·ations pJicl to civil serv~mts are ahvays tax~1ble by the State tlut remunerates them.

Pensions (public and private) are taxabie in thc State of the dcbtor.

15. The conventions also contain provisions on administrativc cooperation, in partienlar as to the recovery of tax claims (m~mlbtory for Fnnce ~md Luxem­bourg DTCs, discretional for It:dy). It is :1lso noteworthy tlut the Belgium-It~1ly DTC contains a non-discrimination eb u se (in the Protocol).

16. Following this breakthrough, Bclgium signed a convention with the Netherlands on 20 February 1933, ~1pp:n-cntly based on the same League of N"Hions !Vlodd."' However, this convention is also applied to wealth taxes

y,

60

Real direct taxes are chose Jevied on certain items or categoriesof in co me separacely, while personal direct

taxes are chose levied on global income, or chose caking into account the personal situation ofthe taxpayer.

On the history of the norion of permanent establishment, see T. WusTENBERGHS, De vaste inrichting op de helling PhD Dissertation, Brussels, La rei er. 2005, pp. 24 ff. Th is convention was ratified by a law dated 2June 1934 (MB. 26 and 27 August 1935).

.-\NIIIh\-I!S

ISABELLE RICHELLE AND EDOARDO TRAVERSA

-------------------·-- --~----~ ~---- ---

. _1, 1 ~) Moreover it contains J provision ven· simibr to artiele 9!) of the (artrc e .J · ' . . . . , _ · · · "

T Jl-0 ]1ibitina discnnunator>: mternal taxatwn on goous ongmatrns EC reaty, f ::-. . · . _ . • fr the other Contract1ng State. 3

· om ..

Tl · Belaim-Dutch 1933 co~vention also settkd the fa te of the imlivid-17- US " . . I . . . :\ b > 0 110 110[-mally hved a board theu· boatand w 10 nclvrgJtec etween u:ll baatmen w : . · · . . , . . , . , .

· . d Dutch terntonal w:1ters: the1r tax was to be pad m both St,Jtes 111 Belaran ,m ;:::. ' . _):-; ..

rebtion ro therr mcome.

Afi - 19~J3 no convention was COlKludeel by Belgium in the area of direct 18- ter - , . . . , . . til tl1 , end of the 1940s for obv10us polrtlcal re~1sons. In the rmmedrate ta..'.:es, un e , . . . . . I - 1-1-od t"xes on cmiol had been levred rn Belgmm and m the nerg 1-post-war pe , "" , t , , , _ _ . . _,

b · a countries in order to meet the neecis of the reconstructJon. double ounn"' . · 1 h.

ta:-.: conventions we re signecl by thc Governn1cnt m order to cope wlt "l t 1s evolution.·"'

2.2. Pedoa's/stages and goals ofta.x treaües polides

19. The post-war perioei was a time of rcncwcd activity from ~m international tax bw perspective. In the 1950s, various DTCs wcre s1gned by Belgmm, hke the Convention with the United Staces of 28 October 1948, w1th the Umted Kinadom of 27 M~nch 1953, with Svveden of 1 April 1953, With Fmland of 11 February 1954 and with Canada of 10 April 1958. Convennons that armed -1t coverina other taxes, such as inheritances duties, were signed wrth France and Sweden (s~e also the Belgium-USA Convention of 1953, never ratified).

20. During the same period, Belgium entered European organisations (Benelux :md the European Community), which had and still have a strong impact on the Iutional tax systcm. The Benelux Treaty of 1958, replaced b;' .a treaty signed on 17 June 2008, resulted from a process mrt1ated as early as 1944. It establishes an economie union between Belgmm, the Netherlands and Lu:-.:emboura based on a custom union and the principles of free movem.ent. The 1948 T;eaty contained several t~1x provisions, quite similar to those of the former EEC Treaty. 4

"

11 See also artiele 14, exempcing a resident of one Contracting State From cycling w work in the och:r Contraning Stare, from the taxon bicycles, provided that they provethar they have paid the tax due In

their country of residence. . . Convention of 20 February 1933; see Doe. pari., House of Representarives, 1932-1933, N~. 142. A Simdar

apportionment was provided for farmers in proportion totheir land in the state of non-reSidence. .

The Convention between Belgium and rhe Netherlands, signed on 25 September 1948 and the Conven.rron

between Belgium and Luxembourg of 9 Ocrober 1948.1t seemshowever rhat they have never been rat1fied

by the Parliament. .

The interpretatîon of the Benelux Treacy fa !Is within che purview of the Benelux Court of Jusctce: for an

illusuation in tax matters, see Benelux Court, 19 March 2007, case A 2006/2, www.courbeneluxhof.info/fr/

texres/egalite~trairemem.htm. Fora comment, 0. GARABEDtAN and E. TRA VERSA, "Ba~es .minimales d:imp~~

sirion pour les non-résidents et interdiction des discriminations et entraves dans la JOUtssa~ce_des l!berres

de ei reulation garanties par l'ordre juridique de I'Union européenne", nare sous Cour de JUStJee Benelux,

ANTI!bV\1:;; 61

THE HlSTORY OF DOUBLE TAXATION CONVENTIONSIN BELGIUiv\

21. In the 1960s, ~mother six DTCs vv·ere concluded, most of them basedon tbe first OECD Model of 1963, like the Fr:mce-Belgium DTC (196-t), the Sweden-Belgium DTC (2 July 1965)~ 1 or the Germany-Belgium DTC (11 Aprill967).~2 However,itwas only after 1970 thata very significmtincrease in the numbc:r of DTC signed by Belgium conlel be observed. Betvveen 1970 and 1977, 21 DTCs we re signed, some of them with non-OE CD countries, namely Singapore (8 Febru~u-y 1 972), Morocco ( 4 May 1972), BraziJ (23 June 1972) and the Ivory Coast (25 November 1977).

As of2013, the bilareral DTC network ofBelgium concerning taxes on iJKome ex tenels to 90 countries: Albania, Algeria, Argentina, Armenia,Australia, Austria, Azerbaijan, Bangladesh, Bebrus, Bosni~1 Herzegovina, Brazil, Bulgaria, Canada, Chile, China, Congo, Croatia, Cyprus, Czech Republic, Denmark, Ecuador, Egypt, Estoni~1, Finland, France, G~1bon, Georgia, GenTtany, Gh~ma, Greece, I-long Kong, Hungary, Iceland, India, !ndonesia, Ireland, Isnd, It:lly, Ivory Coast, Japan, Kazakhst:m, Kuw~üt, Kyrgyzstan, Latvia, Lit!mania, Luxembourg, M~Kedoni:1, l\lblaysi~1, l\lblta, M.auritius, Mexico, l\lloldov~1, Mongolia, l\l[orocco, the Netherlands, Nigeria, New Ze~1land, Norw~1y, l'~1kistan, Philippines, Poland, Portugal, Rom:mia, Russia, San Marino, Seneg:ll, Serbia and l\llontenegro, Rwanda, Singapore, Slovaki:1, Slovenia, South Africa, South Korea, Sp:Ün, Sri Lanb, Sweden, SwitzerLmd, Taiwan, T:1jikist:m, ThaiLmd, Tunisia, Tmkey, Turkmenist:m, Uknine, the Unieed Ar:1b Emir:1tes, the Uniteel IZingdom, the Unieed States, Uzbekistan,Venezueb,Vietn:mL~J Morcover,Bclgium is prescntly negociating with more or less 30 countries (either for an initi~ll DTC or a mod­ification of an existing DTC), among which are Botswana, Colombia, India, Russia, UruguayH

22. As for multibteral tax creaties, Belgium is :1lso a party to European Multi­bter:ll Tax Arbitration Convention (90/-1-36/CE)~-' as well ~1s to several agree­ments on adm.inistrative cooperation in the field of taxation.

23. Bdgimn also COlKludeel income u x conventions limited to certain Clte­gories of undertakings, such JS maritime or :1eri:ll navig:1tion agreements (sce

62

19 mars 2007, Mecabouw, et Cour de justice des Communautês européennes, 22 mars 2007, Talotra, RC)B, 2011/3, pp. 291 to 328. Fora comment, see J. WILMART, "Convention du 2 juillet 1965 enue la Belgique et la Suède rendant à éviter

les doubles impositions':JPOF, 1967, pp. 97 to 168.

Fora comment, see J. W!LMART, "Convention du 11 Avril 1967 emre la Belgique et la République fédérale

d'Al\emagne rendant à évirer les doubles impositions':JPOF, 1970, pp. 5 co 62 and 81 co 142.

The DTCs which have been signed and have nor been encered in co force concern Belgium and the following

coumries: Bahrain (4 November 2007), ltaly (Add.- 11 Ocwber 2004), Macao (19 June 2006), Uganda

(26 july 2007), Qatar (6 November 2007), China (7 October 2009), lsle of Man (16 july 2009, Malaysia

(18 December 2009), Macedonia (6 July 2010), Moldavia (4 December 2008), New Zealand (7 December

2009), Oman (16 December 2008), Tajikistan (10 February 2009), Unired Kingdom (24 September 2009).

Up-co-dare information on the existing DTCs and on the negotiations ondertaken by Belgium can be

consuleed on the Mi nistry of Finance database FISCON ET (www.fisconet.fgov.be).

Conveneion 90/436/CE of23july 1990, 0), L 225,20 August 1990, p. 10.

AN!I!Uv\lS

ISABELLE RICHELLE AND EDOARDO TRAVERSA

above), nuinly in order to grant exemption umler reciprocity tor certain nuri­time or aerial enterprises tî·om the concracting p:1rties.~'' I-!owever, it is worth rnentioning th:1t n1mt of these conven ti ons are suspeneled due to the condusion of a more gener;~) DTC with thc coi·ltr~1cting country containing specifîc pm­visions forthese enterprises (see Jrticle 8 OECD Model).~7 Furthermore, some of the aerial conventions only grant :m exemption for :1 single (national) under­taking per country, to be design~1ted by the,Gontracting it is question­able whether such clauses are comp;1tible vvith non-discrimination provisions, be it constituti01ul or supranational (TFEU). Anyway, even in the absence of such a treaty, a provision of intern a] law ( artiele 231, § 1, 3 CIR 92) grants such an exemption (under the condition of reciprocity).

24. In the area of inheritance taxes, the two conven ti ons with Sweden :md France signed in the 1950's (sce above) remain in force, but no ochers have been signed sincc thcn.

2.3. Belgfan DTC po!icy jn its present instHutÏonal framewon'<

25. Belgium is :1 feder;ll State witb tluce Regions (and tlu-ee Communities). Up to now, tbc federallcvcl still lus lcgislative authority as reprds the most import:mt taxes, such as incomc taxes - individual and corporate - and VAT However, the Regions, besides a consticutional power to levy taxes on matters not already covered by federal tax:1tion, have been granted significant legisbtive powersin the area of inheritance and registration duties, as wellas envirorunen­tal taxation. 4

'' Moreover, a recent institutional reform will signifîcantly increase the autonomy of the Regions to set surcharges to the pers01ul income tax, as wellas gr:mting tax credits, butshall notaffect the tax base.

2.3.1. Treaty-making power in Belgium

26. The exercise of treaty-making power is divided between the federal and the regional level :md follows thc internal elivision of legisbtive powers. This peculiarity of the Belgian system is not always recognisecl at the interna­tional level, which implies that the fecleral level, before concluding an inter­national agreement tlut affects the exercise of constitutional powers given to the Regions or the Communities, has to be given express consent by those

The compatibilitX of some of these conventions with non~discrimination principlesis doubtful.

See for example the Conveneion of 31 May 1929 with Sweden (MB, 6 September 1930) suspended by artiele 30, § 3, of the Conveneion of 15 February 1969.

See for example the Agreement signed on 26 April 1993 with Mauritius as regards aerial transpor(ation

according to which "each Contracting State sha/1 exempt, on basis af reciprocity, the undertaking of aeria/ transportation designated by the other Cantmeting State ... " (Article 15.3).

For more details, see M. BouRGEOIS, "Constitutional [see: generall framework of the different typ_es of

income" in B. PEETERS, WB. BARKER, P. HERRERA and K. VAN RAAD, The Concept ofTax, EATLP lnterna~~nal Tax Law Series, VoL 3, IBFD, 2008, No.1.43.

AN'l!-ll'.i\t!JS 63

THE HlSTORY OF OOUBLE TAXATION CONVENTIONSIN BELGIUM

en ti ties. However, the negotiation, the condusion and thc: ratification of tre<lties fall within the rem.it of the Government- :md not of the Parliament -,\\ hether "the K..ing" (the federal Government) or the Governments of the Regions or the Comn1unities.'" Most of the incomc creaties were negotiated, signed and ratified by the fedeol authority alone. However, in 2011, the Belgian "inter-gov­enutive" conference on foreign policy decided that double taxa ti on conventions in the area ofincome taxes were "mixed treaties", i.e. tre:nies which concerned areas ofbocll. federal and regio11al competence51 Therefore, the new treaties wiJl be subject co a specific negoti~1tion and ratiftcation procedure, bid down in a 1994 Cooperation Agreement between the federal State and the Regions ancl Communities. 32 The Regions could thus in the future play a bigger rok than before in the framing of the Belgian international tax policy.

27. The implementation of imernation:ll conventions \Vithin the damestic kgal system reguires assent from the Parhament or the Regional or Commu-

Parli~lments, depending on thcir competcnce. In practicc, a kgisbtivc: act of elpproval is :!dop teel before ratifiotion, in order to avoiel conflicts. Thc Pariia­ment h:1s no authority to modif)r thc tre:1cy. Thus it m:1y only asscnt or dissent to the bill of :1pproval. In case of dissen t, thc: Governmcnt is invited to renego­tiare the treJty. The assenting bw lus no nornutive content. The trcaty is appli­cJble in Belgium when publisbed in the Offici:1l Journcll (1HB).

28. In practice, in most c1ses, the assenting law contains only a single artiele ~1ssenting to the DTC. Sometimes, howcver, as is thc case of the assenting bw reg,nding the new Belgium-United St~ltes of An1erica DTC, the assenting Llw a lso contains provisions modif)ring artiel es of Bdgian legisbtion, as required by the DTC (whosc provisions cmdd noc biè consickred as having direct effect).

29. As such the treaty lus suprenncy over damestic bw: "a colj'lict betwem <1

trcory provision ond n provision of o loter /,ut; is nor a co!if/ict between two laws", so tlut "w!Jen suc/1 o Ctnif/ict exists betu;een an intemal pun;ision and a prot;isiou of inrcmorional law l!at;ing direct ~(lï:ct r!lir!Jin tlfC' ndiioual order, r!Je tremy pro1;isiou lias

... Sllclf prinwcy resulting_/i"onr rl1e n1Ufllc" irse{(ofrlfc ifltcn/111ioJ/IJI law cont1C'If­

tion ". Primacy is therefore recognised by the Courts as regards double tax agreen1en ts. s.+

30. As cl ruk, there is no need for parliamentary authorisc1tion in order for thc Government to conclude internationcd tre~1ties, including DTCs. Once

ll

'"

64

Artiele 167, § 3, of the Belgian Constitution. See Com. Conv., "lncroduction': No. 14 and 15, available on http://fiscus.fgov.be/interfafznl/fr/downloads/ comConvlntro.pdf.

See "Accord de coopération du 8 mars 1994 entre I'État fédéral, les Communautés et les Régions relatif aux modalirés de conclusion des traités mixtes", MB, 17 December 1996. Belgian Supreme Court, 27 May 1971. Pas., I. 886. case Le Ski ( translation by the authors).

See e.g. Court of Appeal Gene, 21 March 2006, available on www.fisconer.fgov.be; Cass .• 5 December 2003,

F)F, 2004/64 and Fiscon et. directly applying artiele 19.A.2 of the Belgium-France DTC; Trib. Liège. 14 October

2003. F)F 2004/285 and Fisconet; Co ure of Appeal of Brussels, 26 june 2003 (Fisconet), on the primacy of

artiele 21 of rhe Belgium·Luxembourg DTC.

i\NI"IJIMIS

iSABELLE RICHELLE AND EDOARDO TRAVERSA

concludè:d, the Gm·ernm.ent communieaces the text of tht: DTC to thc: Parlia­ment'S, even beforc the biJl of arrroYal is derosited bcfül·c the brliament.

31. The Parliament hc1s thcrefore 1~0 official power to intervene in the treaty

11eaoti<Jtion process. Thc Parliame1Ït onlv has thc possibility to put guestions to th; Government, ancl especially to the Nlinister ofFinance, on the treaty policy, che status of thc treaty process"' or technjcal guestions. As an ex~1mple, the House of Representatives lus recently submieeed a propos~ll for a resolution reguesting the Belgian Revcnue Court t~ lead an inguiry on the interstate aclm.inistrative cooperation in the field of taxation. 57 As another example of the weakness of the P~1rliamcnt, a 1\llember of Parliament sought information on the international double taxa ti on which resulted from the merger of J Belgian and J French company (~1s a conseguence of which the Belgi;m sharebolders of the former Belgian company bccnne sharcholders ofthc absorbing French compa­nies and thereforc reccivc elivielenels from a Frcnch source) and the Minister of Finance simply stared that thc provisions of thc DTC had to be respectcd, so tlnt double taxation was not fully avoidcd, and that "ir is nor inrmrful ar r/1c mon1c111 ro rcvisc thc DTCs in orrfcr to uwdifi' t!IC' regime of prevcnrion of dou!J/c foxo­

tion appliwb/c lO diiJideuds".'' This Jack of effcctive power bas been highlighteet by some Members of ParliJment who have submittcd draft resolutions aiming at eneauraging periadie exchange of views between thc tax administration and tb.e Parhament on tbc Belgian DTC policy.'''

2.3.2. Treaty negotiations

32. Information as to the practice ofthe tax authorities for the negotiation of tax treaties is not casily avaibble.''" Most of the laws of approbation are limited to assenring to a convention, and therefore very little information are to be found in the explanatory memoranda. However, the following cm be noted:

Most of the DTCs concluded by Bdgium follow the OECD Model or to the UN Model, cicpending on the Contracting Parties; this is confîrmcd in the explanatory memoranda rebting to the approbation of the ncw DTC with tht: Uniteel Sutes.

59

See, for example, rhe ·In forma! communicacion of a treaty "Communication informelle d'un traicé", Annales Sénat, 13 December 2007, pp. 4 to 8; the communicadon is made befare the dra ft convention is published

on che websîde of che Mi nistry of Finance. Recencly, rhe Minister has been invited to clarify rhe negotiation status of new DTCs: question No. 4-79 of

14 February 2008 of Senator Vandenberghe, Annales Sénat, pp. 4 ro 16.

Proposal of 28 November 2007. Doe. par/., Chambre, No. 52·447 /1.

Parliamentary Question No. 3·3678 of9 November 2005 of Sen. Vandermeersch. Buil. Q&R. Senate, pp. 3 to

56. 2005-2006 ( translation by the authors).

Proposal of resolution. Chamber of Represencatives, Doe. pari., No. 51-2313/1 of23 February 2006; Doe. pari .. No. 52·448/1 of 28 November 2007.

Th is is pointed out in the abovementioned parliamentary proposal of Resolution: lobbies probably know

more a bout negariadons than Members of Par!iament.

ANIJ!IóMJ:. 65

THE HlSTORY OF DOUBLE TAXATION CONVENTIO~IS IN BELGiUM

The New Belgüm Modd Convention published in 2010 is based on the OECD Model.

33. Nevertheless, this situation cannot be interprered ~1s the consequence of a cicliberare intent of the tax administracion to conceal such negotiations ±l-om the public. Ir is more the result of a bek of interest in such matters on behalf of the media and the politica! worlel at iargc, which is ~llso in part due to the com­plexity of the subject matter. There are also technica! reasans for this situation: in the Parliament, the Committee that ex~munes the bills of approval of new double taxa ti on conventionsis the (genera!) Foreign Affairs Camnuttee and not the (Budget and) Finance Comm.ittee.

34. Undoubted.ly, the DTC policy follows the general economie (national) policy: DTCs are negotiated and concluded with countries in which Belgian individu~ds and companies have invested, in order to put them on an equal footing with local investors or investors from other councries that benefit from a DTC signed with their country of origin. Somctimcs, there ~1re also politica] reasom for negotiating a DTC, such as avoiding damaging the susceptibility of ccrtain countries. An intcresting fec1ture of such policies is that clespite Euro­pean i neegration and the OECD Works, cJch coumry's DTC policy is not only independent of the others but is cllso m competieion agclinst e~1ch others, using thc: DTC networkas cm argument in thc bc1ttle for '1ttracting direct investmcnts and proteering the local economy.

35. Si nee 2007, Belgium lus have its own Model convention, which was upd~1ted in 2010, and is to be consiclered as a starring point for negotiations and embodies the priorities of thc: Belgian internation:ll tax policyt' 1 From a tax treaty policy prospective, the Model represents a mJjor step forward towarcls greater transp~1rency of the Belgi~m authorities' position in negotiations: it could moreover foster :1 de bate on tax treaty policy with tbc: interesteel partic:s of the civil society, i.e. business community, academies and other interesteel groups (NGOs, trade unions, etc.).

2.3.3. Application and interpretation of DTCs

36. Concerning the application ~md the interpretation of DTCs, Belgium considers tlut a DTC does not ereare additional burdens on the taxpayer in comp~1rison with national hw, and thus does not permit a State to levy t:1xcs without a specific internal provision.''2 Usu~dly, after a convention has been

66

The Belgian Model is available in English at the following address: www.fisconet.fgov.be/interfafznl/fr/ downloads/modStand_en.pdf. For a comment, see !. RICHELLE and E. TRAVERSA, "Belgium" in M. LANG,

P. P1sTONE, J. ScHUCH, C. STARINGER, The Impact of the OECD and UN Model Conven ti ons on Bilateral Tax Treaties, Cambridge. Cambridge University Press, 2012 and I. RICHELLE and E. TRAVERSA (eds), Fiscalité inter­nationale en Belgique- Tendances récentes, Bruxelles, Larcier, 2013. See Fr. LoECKX, R. VAN DIONANT, et G. NEYENS, Eléments de la science des impóts, Brussels, Mi nistry of Finance, 1971, Vol. 11, p. 425.

t\NIIIhV\IS

ISAGELLE RICHELLE AND EDOARDO TRAVERSA

l oriries publish an Jdministntive circubr summarizing the . d Ür' t·lx autl. . hd .] .. signe , e '- DTC consrdered, but do not muc etar s on lts mter-

fthe new content 0 . 1

, '7007 Belgian Model, rcfcrence has been clearly m:Jde to thc: . S 1ce t "lt: - ' · '

pretanon. 11 l ro the OECD é.'Oimncntarv as rcgards interpretation.''·' As to M :l l nc . ' ·

OECD . oe e 1

-et~1 tion, there is also rebtivdy little ose law on the apphca-the jmhoalmtel}"ll ti on of DTCs-"~

. ~ measures 1for the a;oidance of double taxation 3. Umiatera

utlinecl abovc, in the description of the history of DTCs 37 As lT1S been ° r 1 · f 1 · ' B 1 · 1111 Belgium h:1s been aware wr a ong t1111e, o t1e neces-concluded by e gn ' ~ · , , . __ · ' '

1 :l e ·111d allevute double t,1XJt10n. sity to acknow ec g '

3. 1. Debates in 1919

to the intmductÏon of schedufar income taxes

. , . 91 9 elireet u x es wcrc mostly indicator-based taxes lcvied on a 38 Befare 1 ' - · · c · . _ ..

1 b· sis. A bw of 29 October 1919"' orgamses a ncw regune Ot

Purely terntOII,1 J · 1 · · 1 . f in1.n10V~1blc, n1ovable a nel professwna rncomc lil rep acc-scheclubr taxa twn ° · d · f fi , - hncl tax and other raxes on do01·s, wm ows, preces o ur-m'ntoftheformel' ·1. . r; -·'·)

e . . -els the schedular t:1xes, the new land tax (coutnuiii!OII JOIIUCJC mture etc.As regar . 1 J · B 1 · ,,,, D. ·d, d . ' . _ fr01n 1111n1ov:1ble property ocateu m e gnm1 . IVI en s, IS based on mcOine · ] 1 d f l b fi · · . h'- inlibr income are taxabie 111 t1c nn s o t1e ene !Cianes 111terests and ot t:l s . . fi c · 1 . · tl ·-y are p~nd by Belcnan debtors.''7 lncome rom proteSS10JU on the conelinon >e . · "'· · · · 1 1 ' 1 · . . . __ ble ·wh~1tever lts ongin.''' In addltion, t 1e sc 1euu ar rnconre actlvines are ta:c::J · 1 1 b 1 · ' . ft· --1tes is completed by a progressive taxon t1e go a mcome. with respect to ,1t 1

' · · 1 ' b·1· . . J, _ ,d as the best way of apprecratmg t 1e taxpayers a 1 rty to

Tlns was cons1w::re . . · · 1 - 1 · ]· - . , · b, , J , i te 1ts vvordmcr It IS not cle~1r whet lCl t 11s ,ltter ux rs to e

pay. 6 J However, uesp __ · -·. 0'. . _,

l . d ld vide or ter nto11almcome. evre on wor \·

~No. 19/2006, MB, 27 March 2006; J. WOUTERS and M. VI DAL, "De OESO-Mode· 63 See C.A., 1 Feb~uarY1 - d bbelbelastincrverdragen en de Belgische rechter': Liber Amicorum Frans V anisten-

I eenkomst mza <e u b · · d · over W TERS and M. VJOAL "An international !aw perspecr1ve on tax treanes and omestiC

65

doel, _Knops, 2°07; J. d ~~ax Treaties and Do~estic Law, EC and International Tax Law Series, Vol. 2, Amster­law" 111 G.IV\AISTO 1(~u·r~au of Fiscal Documentation, 2006, pp. 13 to 35;J. WouTERS, and M. VI DAL, "Non-cax dam, lncernatlo~a and creacy inrerpretadon" in G. MAJSTO (ed.), Courts and Tax Treaty Law, EC and

t" · damestiC courrs . · trea Jes.. Series, vol. 3, Amsterdam, International Bureau of F1scal Oocumentaoon, 2007, pp. 3 International Tax LaW

co 23· h Belgian Supreme Court (Cour de cassation), see Cass., 7 November 1961, Pas., 1962, For early cas~~ f;::~a~ 1967, Pas., 1., 741; Cass., 4 IV\ay 1972, Pas., 1972, 1,806;_ Cass., 27 january 1977, Pas., I, 281 • Cass. cent cases, see the yearly chronicle of Prof. L. DE BROE rn TRV. 1977 1 575 For more re MB.; ~ov~mber 1919,Pasin., 1919, p. 169.

Articles 4 to 13, law of 1919· Especially arricle 14, law of 1919·

Arricle 25, law of 1919

· 11

the 1919 reform ("Wauvermans Reporr"), Chamber of Represematives, 1918-1919, Parliamencary reporr 0

No. 320, esp. p. 11, point 17·

67 ANI!li·.MlS

THE HlSTORy OF DOUBLE TAXATiON CONVENTIONSIN BELGIUM

39. The law a dopeed by the Parhamene is quice diffaent from the initial bill submitted by the Government, which suggested a tax on "income of any kind, whatever its origin, which are realised, obtained or accrued by the taxpayer" .711

The bill w:1s also innovative- a reference was made concerning global income and the obligation to deelare the i11Come through a tax return.

In the origilul bill, the following persons were subject to the tax:

Belgi:ms with their residence in Belgium;

foreigners residing in Belgium for at least one year (uninterrupted);

- Belgians and foreigners with a dwelling in Belgium, who have, even tem­porarily, an industry, a conm1ercial activity or anotha lucrative profession71

However, this bil! was rejected by the Parliament.A sec011d bil! suggested taxation or: immovable property located in Belgium and tbe dividends :md interests what­evcr their origin, based on the argument tlnt it was no Jonger acceptable tlut som.e- wcalthy- residcnts avoid taxatien on thcir foreign invcstments while all investmcnts in Bclgium wcre t:1xed- to thtè detriment of the lower classes. 7~

40. Thcre was :1t that time a strong opposition to the tax:1tion of foreign income derived from movablc :JSSets. However, this was considered justitîed by "t!Jc <J/Jso!utc ncccssity Jor tl1c Stille tofind JICLIJ resources [ond] to succccd in lwnourin2 tl1c dc/Jts incurrcd in tl1c world disilsrcr" (the First World \Var). 73 At the same time, income derived from foreign movablc assets invested in Belginm wonlel also be taxed, even if it were viewed as possibly hindering foreign investments in Bel­ginm: "iris coJwcuimt to cstablis/1 tl1e to.Y onJ,rc~~~~ inl;csfii!CIIfs ai a uwdcmtc mrc. VT7e sf111lf uor artmet rlll)'lllorc rhc capit<1f by prtl!llising t!J<li r/Jcy wil! nor /;e f<1.\"Cd ali)'IIIOre, lmr u;c wn rctoiu t!JCJn by dmwustruring ti1M tl1cy rl!i/1 bc fcss taxed tlwn soJIIcwhere cl sen. 74

& 1 Dnring the parliamentary dcbates, the risk tlut tax:1tion of foreign income derived from movable assets invested abroJd coulcl le:1d to tax fraud (by the :1bsence of a decbration of such income by the beneficic1ries) was put under the spotlight, :1s well as the neecl to estJblish speci:tl control mec1sm-es. In this context, the Parliamentary Commission noted thc1t some fot-eign Governments, which had also decided to ux foreign capiul invested in their territorics, were trying to coneinde agreements in order to extend their control beyond their borders. According to the Belgian IVlinister of Fin:mce, such a step towards greater internJtionJl cooperation woulel raise cert:lin adm.inistrJtive issues, the first being the neecl to improve the overall effîciency and organisation of the tutionctl tax aclministration 7

'

68

Artiele 2, dra ft law ( translation by the amhors).

Artiele 15, dra ft law.

Wauvermans Report, Chamber of Representatives, 1918·1919, No. 320. esp. p. 34, point 61.

Senace, Report of the Finance Committee, 17 October 1919, No. 256, esp. p. 42 ( translation by the authors).

Senate, Report of the Finance Committee. 17 Occober 1919, No. 256, esp. p. 42 ( translation by the authors). Ibid., p. 43, point 77.

,>\NI!IEM!S

ISAGELLE RICHELLE AND EDOARDO TRAVERSA ----- --- -----·- -----

42. At the time of the t.kbates (1919), cooper<Jtion instrumcnts between national tax administrations alreJ.dy existed. Ho\Yever, concerning the FrJnce­Belginm agreement of 12 August 1843 (see above No. 7 and 8), its scope oC application was limited and tht:refot'e· it could notbetaken as a precedent. In deed, mis agreement was (and is) lim.ited to "rf!C· cxclwugc by Li1c ngistmriou o{ficcrs iu Fm u cc aud BelgiJlJIJ of all tl1c dowi/Jc/Jis ond in(tl/"uwtion u;/1iciJ wn /Je ~(u se j(>r wrrccrly assessiux raxcs in rlwsc fll10 C0111Jtrics". Anothèr convention was mentioned, the rreaty between France and England of 15 November 1907, the sole purpose of which was to "prcl1CIII, as mnch ns possiblc,_(!-aud ns rcgnrds inhcritoncc taxcs"-"'

43. Finally, it was decided to t;Jx income from immovable or movable assets accrued in Belgium, even if their beneficiary was not resident in Belgium as well as income from the profession:1l activities of Belgian residents- whether originating from Belgium or abro:1d- and income from. professional activities in Belgium incurred by non-residents. 7"

44. In order to reduce tbc burelen of international double tax:1tion, the tax rates on foreign elivielenels and profession:ll income wen: rcduced to 2',\{, (instead of a progressive r:tte between 2 :md 10% respectivdy). 7'

45. Despite the advantages of multibter:tl tre:tties, Bdgium would prefer, from the outset, bilatenl negotiations. They not only gauge and highlight potential problems, but also nnke a det:tilcd comparison between the legisla­tion of both countries, which in turn more easily facilitates the means to fine tune such negotiations 7

'' Howevcr, in 1936, the Commission for Foreign Affairs of the Senate expressed its regret that, insteadof six DTCs, a multilateral convention had not been concluded."' In 1959, this vvish was expressed once again_s 1

3.2. 1962 Tax Reform

46. In 1962, the dual tax system was repbced by a glob:ll Ü1eome tax system based on worldwide income.'2 As to foreign income, several provisions unibt­erally lim.ited international double taxation:

- A provision was introduced providing for the reduction by half of inclividual income tax relating to foreign i11Come from immovable properties abroad and income from. perm;ment esta blishmcnts a braad. Th is provision applicd without

'" Ibid., pp. 44 and 45, poinc 78 ( translation by the authors). 77

Artiele 2, law of 1919.

'" Art.34and35,lawof1919. 79

See Fr. LOEC!<x. R. VAN ÜIONANT, and G. NEYENS, Éléments de la science des imp6ts, Brussels, lVIinistry of Finance, 1971, Vol. 11, p. 424 ( translation by the authors).

"" Senate, Anna/es, 26 June 1930, No. 192.

Doe. par/., Chambre, 1959-1969, No. 305/2, p. 1 (on the convention with Franceon inheritance taxes and regisrration duries taxes). Law of20 November 1962, IVIB, 1 December 1962.

AN'fi!EM!S 69

THE HlSTORY OF DOUBLE TAXATION CONVENTIONSIN BELGILitvl _____ _

prejudice to the applic1tion of relèv~1m DTCs. Tht: rednetion by half of thc: tac;: - with reserve: of progression - was supposed to bt: more or kss equiv·aknt to the ec;:isting advantages in favour of foreign income."' 1

Companies were also subject to a glob,ll woddwide incomc: tax. In thc: ;\bsence of a DTC, the tax r~ne applying to immovable foreign properties and to foreign inc0111e from pernunent establishments was reduced to the quarter of the nonna] tax.

Tht: "dividend receivt:d deduction" ( exemption method) was maintained. It applied to foreign dividends. A foreign tax credit (quotiré _{cnfaif<Jirc d'irupcît étrangcr) amounting to 15'/{, of thc net border foreign iJKome (interest and roy­alties) vvas ereeliteel against the incomc t~1x.

3.3. Present srtuation

~-7. Today, most of the mcchanism ~md ruks bid down in 1962 are still appli­cablc:

[ncomè fro1n immovable forcign property and fiom permanent cstablish­mem is exempt by virtne of DTCs (with reserve of progression as rcg;uds indi­vidu;Üs).

In che absence of DTCs, they are taxed ,H the h;J]t' of the non11al t:1x u te, as regards individu~1ls. As to comp~mies, the lncome t:1x code uscd to provide a red u eed taxa ti on at the quarter of tbc nornnl ra te, but this measure was abro-

in 2002.

Howevcr, the foreign tc1x credit does no longer apply to individuals (in most of tht: cases) unless otherwise provided for in a DTC. Dividends, interest ancl roy­altics are subject to a fmal with.h.olding tax. As reg:uds eompanies (:md individ­u;\] businesses), the forcign tax credit only applics to interest cmd royalties (with minor exceptions). As for incoming clividends, companies benefit the "dividend received deduction" for worldwidt: dividends; the DRD was redr~1fted several times, mainly in order to limit its scope of ;1pplication, to :1Void abuse ancl eva­sion :1s well as for budgetary reasom. Nloreovc:r, a withbokling tax is due, as :1 ruleon elivielen els, interest :1ncl royJltics paid by :1 Belgian debtor.As of l Jmuary 2007, Belgium extended the withholding ux exemption for EU elivielenels to countries with which it already has a DTC.

48. For the rest, with respect to DTCs, Belgium follows international pr,lctice. This pnctice is based on che cxclusive alloenion right to tax to one Contocting State or on concurring righc to tax to both. Contracting SLnes combineet with. exen1ption or impuucion. For ex;1mple, expLnutions on the DTC with Canada mention a combination of the Lnin tr;1clitional method of exclusive taxing rights and of Anglo-S:1xon metboel of simultaneons t:-txing

Doe. por/., Chambre, 1961-1962, No. 264/1. p. 85.

70 :\N !lil ,Y\lS

__ISABE':__LE RICHELLE AND EDOARDO TRAVERSA

rights c~mbined "·ith excmrtion or lmputation.·'" As a consequence, Belgium uses bot11 exclusr\-c and concurnng allocation of rights, exen1ption or inmuta-tion depending on the element of income considered. '

49. This is contirmeel in thc 20ÜJ Belgian Moelel T~1x convention, which is vny close to the OECD Model. However, some intercsting differences are worth mennomng (sce also above, No. 32);

Reference is expressly m'1de to thc OÈCD Commentary when the Belo-ian clause rs rdent1cal or at least "in substance silnilar" to the OECD one· hovv:ver the question of the historic1l or ambubtory in terpreution is not cle:1:-]y solved:

As reg;nds shipping and air transport, tbc cbuse does not cxtend to inLmd waterway transport.

- The definition oL1SSoci:1ted enterprises is not identical to rhe OECD Model (probably rcflectmg EU practices).

-. As regarcls dividend.s, Belgium. as State of Souree rcduccs the rates tor the WJthholdmg t:1x; howevcr, sincc this model was adoptcd, Belginm has moclified 1ts IncOJne Tax Code m order to exempt from withholding tax the di vielenels p:ud to cornpames wrth a participation in the Belgian company which are res­Jdent 111 a DTC country.

- A full withholding tax exemption is grantecl tor interest, which is a real departure from the OECD Nlodcl, for, amongst others, loans granted between enterpnses; tlns JS howeve1· in linc with the priJKiples underlyino- the EU Inter-estand Roy:llties Direetive. "'

- As rcgarcls royalties, a definition of roy~llties "arisino-" is o-iven ·mc:l " r·ecer·-ence is clearly made to royalties "paid". "' . "' '' " u

Doe. pari., Chambre. 1959-1960. No. 326/2. esp. p. 2.

ANTIJUvll;;

71

GROUPEMENT BELGEDE L'IFA CENTRE D'ÉTUDE DE DROIT FISCAL

BELGISCHE !FA-AFDELING STUDIECEI\ITRUM VOOR FISCAAL RECHT

1938-2013

Caroline Docclo, ed.

tJ 2013, Antllernis s.a. PI ace Albert I, 9 B-1300 Limal

La version en ligne de eet ouvrage est d~1sponible sur la bibliothèque digitale Jurisquare à l'adresse www.jurisquare.be.

De online versie van dit boek is beschikbaar in de Jurisquare Bibliotheek op www.jurisquare.be.

Tél. 32 lOl 10 42 02 90 · info@antllernis.be · www.anthemis.be

Toutes repmcluctions ou adaptations totalesou partielles de ce livre,

par quelque procédé que ce soit et na tamment par pllotocopie, réservées pour tous pays.

Dép6t légal · D/2013/1 0.622/90 ISBN· 978-2-87455-679·1

Mise en page · MC Compo Impcession · Ciaco Imprimé en Belgique

Somma i re B ' ' eJ<nopre

Les ;mteurs- De ourcurs

Liste des ;1brtcvie1tions conm1Unes- Lijst vou rlc gongbare ajl-:ortin.~c/1

Préf:Jcc - Voorwoord

por Corolinc DoccLO

La place d·es fiscalistes be~ges dans Ie monde

De plaats van de Belgische fiscalisten in de wereld

L'Ktivité scicntifiquc bclgc JU sein de !'!FA ccntrJk

porjoCQIICS J\1,~JLJ-IERI3E

The importance of the internationJ! tJx scene for smal! in dustrial countries

by Fmus V~IN!STEJ\'O.~JEL

Les conventions intemationales

Internationale verdragen

The history of double t;lxation convemions in Belgium

hy Isobelle RJUJELLE onrl Edoorrlo Tfè~l VERS.-1

wit/1 T!Jc CtlOpcmtiou cifjocqucs GO.\IBEER

Verschillen tussen het Belgisch modelverdrag inzake belastingen en het OESO-model van belastingverdrag inz;~ke inkomen en vennogen

door Saurlro KN.·IEPeN m Aric CEcNS

Les conventions préventives de la double imposition entre pays développés et pays en développement ou en transition

par Claudiuc DEVILLET

AN!IIl:iVII:-.

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53

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