Article 10: Dividends
Learning Objectives: You should
- understand what the term dividends refers to
Key Concepts
Passive Investment
Dividends
Beneficial Ownership
Rate of withholding
Case studies
United Nations Model Double Taxation Convention between Developed and Developing Countries (2017 Update)
Article 10
Dividends
Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
(a) ___ per cent (the percentage is to be established through bilateral negotiations) of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends throughout a 365 day period that includes the day of the payment of the dividend (for the purpose of computing that period, no account shall be taken of changes of ownership that would directly result from a corporate reorganisation, such as a merger or divisive reorganisation, of the company that holds the shares or that pays the dividend);
(b) ___ per cent (the percentage is to be established through bilateral negotiations) of the gross amount of the dividends in all other cases.
The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of these limitations.
This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.
3 The term "dividends" as used in this article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders’ shares or other rights, not being debt claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.
4 The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of article 7 or article 14, as the case may be, shall apply.
5 Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except in so far as such dividends are paid to a resident of that other State or in so far as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.
OECD Model Tax Convention on Income and on Capital (2017 Update)
Article 10
Dividends
Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
However, dividends paid by a company which is a resident of a Contracting State may also be taxed in that State according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 per cent of the capital of the company paying the dividends throughout a 365 day period that includes the day of the payment of the dividend (for the purpose of computing that period, no account shall be taken of changes of ownership that would directly result from a corporate reorganisation, such as a merger or divisive reorganisation, of the company that holds the shares or that pays the dividend);
b) 15 per cent of the gross amount of the dividends in all other cases.
The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of these limitations. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.
3 The term "dividends" as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.
4 The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident through a permanent establishment situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.
5 Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.
Article 10 Bibliography
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Article 10 Cases
8 Afs 34/2015-71 decided on 7.6.2016 (Czech Republik).
Bundesfinanzhof (Federal Fiscal Court), I R 39/07, 20 August 2008, Internationales Steuerrecht, 2008, 849 (Germany).
Bundesfinanzhof (Federal Fiscal Court), I R 48/12, 26 June 2013 (Germany).
Bundesfinanzhof (Federal Fiscal Court), I R 69/93, 6 October 1993, Bundessteuerblatt, 1994, II, 318 (Germany).
Bundesfinanzhof [Federal Tax Court], 22 June 2013, No I R 48/12, IStR 2013, 881 (Germany).
Canada v. MIL (Investments) S.A., 2007 FCA 236 (CanLII)
Central Tax Board of Finland, 1 February 2012, No 2/2012 (Finland).
Conseil d’État [Supreme Administrative Court], 29 December 2006, Ministre de l’Economie, des Finance et de l’Industrie c Societe Bank of Scotland, [2006] 9 ITLR 683 (France).
Conseil d’État (Supreme Administrative Court), 356878, 10 October 2014, Droit fiscal, 2014, 668 (France).
Corte Suprema di Cassazione (Supreme Court of Cassation), 6583, 22 March 2011 (Italy).
Corte di Cassazione, Judgment 25 May 2016, n 10792 (Italy).
Council of State, Third Chamber, 17 January 2011, Bosch Industrial and Commercial Corporation v Turkish Revenue Administration, No 2011/13 (Turkey).
Decision No 1201-001.382, 2nd Chamber (Brazil).
Deutsche Asia Pacific Finance Inc v Commissioner of Taxation (No 2), [2008] FCA 1570 (Australia).
Federal Administrative Court, 20 January 2011, No A-6053/2010 (BVGE 2011/6), (Switzerland).
Federal Administrative Court, 7 March 2012, No A-6537/2010 (Switzerland).
Finanzgericht Nordrhein-Westfalen (Koln), 2 K 2100/03, 16 February 2006, Entscheidungen der Finanzgerichte, 2006, 746 (Germany).
Fletcher v MNR, [1977] CTC 2256 (TRB).
Florsheim Inc v Her Majesty the Queen, 22 July 1994, CarswellNat, 1994, 1072, [1994] 2 CTC 2290.
Framatome Connectors USA Inc and Subsidiaries v Commissioner of Internal Revenue, 5030-98, 9160-99, 16 January 2002, 118 TC 32 (2002) (United States).
Hoge Raad der Nederlanden (Supreme Court), 38.191, 6 February 2004, V-N 2004/11.7, Beslissingen Nederlandse Belasting Rechtspraak, 004,267c* (Netherlands).
Hoge Raadder Nederlanden [Supreme Court of the Netherlands], 23 May 2014, No 134/02237 (Netherlands).
Hunter Douglas Ltd v R,[1979] CTC 424 (FCTD).
II FSK 3666/13 (Poland).
Indofood International Finance Ltd v JP Morgan Chase Bank, [2006] EWCA Civ 158 (Eng CA).
Memec plc v Commissioners of Inland Revenue, 9 June 1998, Simon’s Tax Cases, 1998, 754 (United Kingdom).
Molinos Rio de la Plata v DGI, National Court of Appeals, Chamber I, 19 May 2016 (Argentina).
National Tax Court, Chamber D, 14 August 2013, Molinos Rio de la Plata SA (Argentina).
No Afs 106/2009-12 (Czech Republic).
ØstreLandsret [Eastern High Court], 20 December 2011, No SKM2012.121ØLR (Denmark)
Océ Van Der Grinten NV v Inland Revenue [2000] UKSC SPC00231 (25 January 2000)
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Supreme AdministrativeCourt, 10 June 2011, No 2 Afs 86/2010-141 (Czech Republic).
Supreme Administrative Court, 14 January 2014, No II FSK 187/12 (Poland).
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Supreme Court, 24 February 2016, rec 3976/2014, rec 416/2016, 948/14 (Spain).
The Queen v Prévost Car Inc,2009 FCA 57.
UBS AG v Revenue and Customs [2005] UKSPC SPC00480 (07 June 2005)
Velcro Canada Inc v The Queen, 2012 TCC 57 (CanLII)
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