Article 13: Capital Gains
Learning Objectives: You should
1.Know how to identify immovable property and real property
Key Concepts
Capital Investment
Source-based taxation
Immovable property
What is immovable property (including what is direct use, letting, or use)?
Capital Gains
What is a capital gain (including what is alienation and what is wholly or principally)?
Relationship between capital gains and other treaty articles
Case studies
United Nations Model Double Taxation Convention between Developed and Developing Countries (2017 Update)
Article 13
Capital Gains
Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
Gains that an enterprise of a Contracting State that operates ships or aircraft in international traffic derives from the alienation of such ships or aircraft, or of movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.
Gains derived by a resident of a Contracting State from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting State if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from immovable property, as defined in Article 6, situated in that other State.
Gains, other than those to which paragraph 4 applies, derived by a resident of a Contracting State from the alienation of shares of a company, or comparable interests, such as interests in a partnership or trust, which is a resident of the other Contracting State, may be taxed in that other State if the alienator, at any time during the 365 days preceding such alienation, held directly or indirectly at least ___ per cent (the percentage is to be established through bilateral negotiations) of the capital of that company
Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3, 4 and 5 shall be taxable only in the Contracting State of which the alienator is a resident.
OECD Model Tax Convention on Income and on Capital (2017 Update)
Article 13
Capital Gains
Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise), may be taxed in that other State.
Gains that an enterprise of a Contracting State that operates ships or aircraft in international traffic derives from the alienation of such ships or aircraft, or from movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.
Gains derived by a resident of a Contracting State from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting State if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from immovable property, as defined in Article 6, situated in that State.
Gains from the alienation of any property, other than that referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a resident.
Article 13 Bibliography
Donqmei Qui, "China's Capital Gains Taxation of Nonresidents and the Legitimate Use of Tax Treaties" (2010) Tax Notes International <https://perma.cc/224X-SRKB>
Duff, David G. “Canada: Capital Gains Realized by an Austrian Private Foundation: Sommerer v The Queen” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2013 (Vienna: Linde, 2014) 241 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2013>
Elliffe, Craig. “Key Issues in the Design of Capital Gains Tax Regimes: Taxing Non-Residents” (2015) 21:1 NZ J Tax L & Pol’y 90, online: <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2630473>
Elliffe, Craig. “Taxing Non-Residents on Capital Gains” in Capital Gains Taxation: A Comparative Analysis of Key Issues (Cheltenham: Edward Elgar Publishing, 2015).
Elliffe, Craig Macfarlane, Tax Treaty Interpretation: Whether 'Income Tax' Includes Tax on Capital Gains (March 2, 2010). New Zealand Journal of Taxation Law and Policy, Vol. 15, No. 4, December 2009. Available at SSRN: https://ssrn.com/abstract=1562343
G. Suffiotti; C. Masihy, "Chile - Recent Developments in the Taxation of Indirect Share Transfers in South America: Lessons and Challenges from Chile, Colombia, Peru and Uruguay" (2019) 73:9 Bulletin for International Taxation https://www.ibfd.org/IBFD-Products/Journal-Articles/Bulletin-for-International-Taxation/collections/bit/html/bit_2019_09_cl_1.html
Hansen, Søren Friis. “Denmark: Capital Gains; Permanent Establishment; Article 7 of the Denmark-Germany Tax Treaty” in Michael Lang et a, eds, Tax Treaty Case Law Around the Globe 2015 (Vienna: Linde, 2016) 159 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2015>
Kaka, Porus F. “India: Capital Gains and Tax Avoidance” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law around the Globe 2012 (Vienna: Linde, 2013) 137 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2012>
Krever, Richard. “Tax Treaties and the Taxation of Non-Residents’ Capital Gains” in A Cockfield, ed, Globalization and its Tax Discontents: Tax Policy and International Investments (Toronto: University of Toronto Press, 2010) 212, online: <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1669118>
Krever, Richard and Sadiq, Kerrie, Non-Residents and Capital Gains Tax in Australia (April 23, 2019). Canadian Tax Journal/Revue fiscale canadienne, Vol. 67, No. 1, 2019. Available at SSRN: https://ssrn.com/abstract=3362899
Lang, Michael. “Income Allocation Issues Under Tax Treaties” (2014) 74:3 Tax Notes Intl 285, online: <https://www.wu.ac.at/fileadmin/wu/d/i/taxlaw/institute/staff/publications/lang_taxnotesinternational_042014.pdf>
Maitrot de la Motte, Alexandre. “France: When Does a French Taxpayer Who Transfers Tax Residence to Switzerland Become a Swiss Resident under the Treaty?” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law Around the Globe 2014 (Amsterdam: International Bureau of Fiscal Documentation, 2014) 121 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2014>
Pahapill, Helen. “Estonia: ImmoEast Beteiligungs GmbH” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012) 255 <https://www.lindeverlag.at/buch/tax-treaty-case-law-around-the-globe-2011-4419>
Sasseville, Jacques. “Canada: Capital Gains” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law around the Globe 2012 (Vienna: Linde, 2013) 125 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-around-Globe-2012>
Sengupta, DP. “India: Vodafone” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012) 265 <https://www.lindeverlag.at/buch/tax-treaty-case-law-around-the-globe-2011-4419>
Simontacchi, Stefano. “Capital Gains (Article 13 OECD Model Convention)” in Michael Lang et al, eds, Source Versus Residence: Problems Arising from the Allocation of Taxing Rights in Tax Treaty Law and Possible Alternatives (Austin: Wolters Kluwer Law & Business, 2008) 129 <https://lrus.wolterskluwer.com/store/product/source-versus-residence-problems-arising-from-the-allocation-of-taxing-rights-in-tax-treaty-law-and-possible-alternatives/>
Smit, Daniël S. “Netherlands: Sale of Dutch Real Estate by Non-Resident Company, Roll-Over Relief and Recapture: Tax Treaty Override?” in Eric CCM Kemmeren et al, eds, Tax Treaty Case Law Around the Globe 2014 (Amsterdam: International Bureau of Fiscal Documentation, 2014) 109 <https://www.ibfd.org/IBFD-Products/Tax-Treaty-Case-Law-Around-Globe-2014>
Wei Cui, "Taxing Indirect Transfers: Improving an Instrument for Stemming Tax and Legal Base Erosion" (2014) 33:4 Va Tax Rev 653 https://perma.cc/K8SU-L8X3
Wiman, Bertil. “Sweden: Trailing Taxes and CFC Rules vs Tax Treaties” in Michael Lang et al, eds, Tax Treaty Case Law Around the Globe 2011 (Alphen on the Rhine: Kluwer Law International, 2012) 297 <https://www.lindeverlag.at/buch/tax-treaty-case-law-around-the-globe-2011-4419>
Article 13 Cases
Abrahamson v MNR, [1991] 1 CTC 2061 (TCC)
Alta Energy Luxembourg S.A.R.L. v. The Queen, 2018 TCC 152 https://perma.cc/U4X8-GF7M
Antle v The Queen, 2009 TCC 465
Arbitration Committee, 26 November 2013, No 154/201 (Portugal)
Bridges v MNR, [1975] CTC 2358 (TRB)
Bundesfinanzhof (Federal Fiscal Court), I R 257/78, 19 May 1982, Bundessteuerblatt, 1982, II, 768 (Germany)
Bundesfinanzhof (Federal Fiscal Court), VIII R 15/94, 19 March 1996, Bundesteuerblatt, 1997, II, 312 (Germany)
Bundesfinanzhof (Federal Fiscal Court), VIII R 44/90, 30 March 1993, Bundesfinanzhofs/NV 1993, 597 (Germany)
Canada (Attorney General) v Kubicek Estate, [1997] 3 CTC 435 (FCA)
Canada (National Revenue) v Morris, 2009 FCA 373
Canada v MIL (Investments) SA, 2007 FCA 236
Cecil B Furstenberg v Commissioner of Internal Revenue, 26 November 1984, 83 TC 755 (United States)
Conseil d’État[Supreme Administrative Court], 29 April 2013, No 357576 (France)
Davis v Her Majesty the Queen, 15 January 1980, [1980] CTC 88
Gadsen v Her Majesty the Queen, 25 January 1983, [1983] CTC 2132
Gladden Estate v MNR, [1985] 1 CTC 163 (FCTD)
Haas Estate v The Queen, [2000] 1 CTC 132 (FCA),aff’g [2000] 1 CTC 2446 (TCC)
Hoge Raad der Nederlanden [Supreme Court of the Netherlands], 22 March 2013, No 11/05599 (Netherlands)
Högsta förvaltningsdomstolen [Supreme Administrative Court], 3 April 2008, No 24 (Sweden)
Högsta förvaltningsdomstolen [Supreme Administrative Court], 14 December 2010, No 112 (Sweden)
Hurd v R, [1979] CTC 450 (FCTD)
ImmoEast Beteiligungs GmbH, No 3-10-25 (Estonia)
Inez de Amodio, John Amodio v Commissioner of Internal Revenue, 22 August 1960, (1960) 34 TC 894 (United States).
Kelley Estate v MNR, [1987] 1 CTC 2238 (TCC)
Lamesa Holdings BV v Commissioner of Taxation, 20 August 1997, [1997] FCA 785 (Australia)
Marchan v The Queen, 2008 TCC 158
Masri v MNR, [1973] CTC 448 (FCTD)
MNR v Bessemer Trust Co, [1973] CTC 12 (FCA)
R v Arnos, [1982] CTC 186 (FCA)
Smallwood v Revenue & Customs, [2009] EWHC 777 (Ch)
Sommerer v Canada, 2011 TCC 212, aff’d 2012 FCA 207
Tedd N Crow v Commissioner of Internal Revenue, 26 August 1985, 85 TC 376 (United States).
The taxpayer (not disclosed) v the Commissioner for the South African Revenue Service, 12432, 16 November 2010 (South Africa)
Tradehold Ltd v South African Revenue Service, 8 May 2012, [2012] ZAthe SCA 61 (South Africa)
Trevor Smallwood Trust v Revenue & Customs, [2008] UKSPC SPC00669 (UK)
Undershaft Ltd v Commissioner of Taxation, 3 February 2009, [2009] FCA 41 (Australia)
Virgin Holdings SA v Commissioner of Taxation, [2008] FCA 1503 (Australia)
Vodafone India Services Pvt Ltd (No 2) v Union of India(2013) (Bombay High Court, India)
Vodafone International Holdings BV v Union of India, [2012] 341 ITR 1 (Supreme Court, India)
William F Kubicek v the Attorney General of Canada, 26 September 1997, [1997] 3 CTC 435