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Triangulation Schemes for dividends, interest and royalties
Art. 24(3)
1) Situation of a PE in the same member State of the payer
Facts
ACo distributes dividend/interest/royalty to BCo (attributable to a PE in State A)
BCo is the beneficial owner of the income (dividend, interest or royalty)
Situation treated in ph. 62-66 of Commentary on Art. 24
DTC – tax treaty rules
Perspective of the Source State (A)
DTC between A-B applicable (Art. 1 and 4 fulfilled + Art. 2)
NO limits to impose WHT (ph. 63 on Art. 24), in case of…
Dividends - Art. 10(4) overrides the WHT limits of Art. 10(2) - ph. 31 on Art. 10
Interest – Art. 11(4) overrides the WHT limits of Art. 11(2) – ph. 24 on Art. 11
Royalties – Art. 12(4) overrides the rule of Art. 12(1) – ph. 20 on Art. 12
Perspective of the Residence State (B)
Following the throwback rules of Art. 10(4), Art. 11(4), Art. 12(4) – Art. 7 applies!
Following Art. 7(2) of the DTC between A-B:
Dividend/interest/royalty shall not be taxed by B (since are attributable to
the PE in State A)
Income of BCo in the PE State (including the div/int/roy) should be taxable
by A – double taxation?!
The residence state provides relief under Art. 23A/B
Application of Art. 24(3)
WHT shall be creditable against the taxes due by PE in A (if there is a domestic
WHT)
No credit? Infringement of Art. 24(3)!
EU Directives
PSD -> does NOT apply because the PE is not a ‘Parent Company’ under Art. 3
IRD -> does NOT apply because the scope of Art. 1 is not met
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