Recent decisions and rulings

1
Recent decisions and rulings relating to
international tax Kees van Raad Professor of
international tax law (Leiden, NYU, PKU) Chairman
International Tax Center Leiden Of counsel
Loyens Loeff
2

• 1. Canada pending case Prevost
• gt beneficial ownership
• 2. United States
• US Ct of Appeal 15 Jan 2008 NatWest
• gt treaty interpretation
• 3. Netherlands
• Supr Ct decisions 8 December 2006
• gt economic employer (15.2.b OECD)

3

• Canada
• Tax Court pending case Prevost
• gt beneficial ownership

4
Henlys Group PLC
Volvo Bus Corporation
SWE
UK
P
51
49
Prevost Holding BV
NL
100
Prevost Car Inc.
CAN
5
UK
SWE
49
51

NL
100
dividend
CAN
6
UK
SWE
49
51

NL
100
5
10 wht
15
CAN
dividend
7

• United States
• US Ct of Appeal 15 Jan 2008 NatWest
• gt apportionment of interest expenses,
  capital of a PE, properly maintained
  accounts
• gt treaty interpretation
• gt deemed separate enterprise notion

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• treaty interpretation
• gt status of OECD Commentary
• gt relevance of consistently held
  positions by tax agency of one treaty
  country
• gt other issues

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• deemed separate
• enterprise notion
• gt like an independent corporation
• gt or something less ?

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• Netherlands
• Supr Ct decisions 1 December 2006
• gt economic employer (15.2.b OECD)

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• Art. 15 OECD employment income
• Employee, resident of residence state, works in
  work state
• -- para. 1 work state has taxing right
• -- para. 2 provided the employee has a strong
  link with that work state
• link a more than 183 days spent in work state
• link b salary paid by employer who is resident
  of work state
• link c salary borne by a work state permanent
  establishment of the employer
  (wherever resident)
• gtgt in absence of any such link taxation in
  residence state

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• Link b salary paid by employer who
• is resident of work state
• The remuneration is paid by, or on behalf of,
  an
• employer who is a resident of the other State
• Dutch Supreme Court 1 December 2006
• A person is an employer for Art. 15.2.b purposes
  if
• 1. (effective) authority to instruct the
  employee and
• 2. employment activities are rendered for the
  account
• and risk of that person

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• 2. employment activities are rendered for
  the account and risk of that person
• a. risk all benefits and damages / losses
  / costs / risks regarding the employee are for
  the account of that person
• b. account that person bears the expense of
  the salary paid to the employee for the
  activities
• Re b When the salary is paid by the legal
  employer who charges the salary to the
  person/company for whom the employee works, the
  latter person/company is considered to be the
  economic employer only if the employees salary
  is individually charged (i.e., not as part of
  lump sum charge) to that latter person (it is
  permitted to base the charge on the average
  salary paid to employees in same category as the
  employee concerned).

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• OECD 2007 proposed clarification of term
  employer
• 8.13. The nature of the services rendered by the
  individual will be an important factor since it
  is logical to assume that an employee provides
  services which are an integral part of the
  business activities carried on by his employer.
  A key consideration will be which enterprise
  who bears the responsibility or risk for results
  produced by the individuals work.
• 8.14. The following additional factors may be
  relevant to determine whether this is the case
  cf. para. 18 of 1992 OECD Commentary abuse
• - who has the authority to instruct the
  individual regarding the manner in which the
  work has to be performed
• - who controls and has responsibility for the
  place at which the work is performed
• - the remuneration of the individual is directly
  charged by the formal employer to the enterprise
  to which the services are provided
• - who puts the tools and materials necessary for
  the work at the individuals disposal
• - who determines number and qualifications of
  the individuals performing the work.

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• OECD 2007 proposed clarification of term
  employer
• R Co and its employee E-R are residents of State
  R.
• S Co is a resident of State S.
• 1. R Co is in business of providing training
  services, and sends E-R to S Co to train S Cos
  staff gtgt S Co is not employer for purposes of
  Art. 15.2.b
• 2. R Co is parent of S Co and sends E-R over to
  S Co to ensure that S Co correctly implements the
  groups marketing strategy gtgt S Co is not
  employer
• 3. R Co sends E-R over to its foreign sister
  company S Co that has a temporary shortage of
  staff with foreign language skills gtgt S Co is
  employer
• 4. R Co is an employment agency for highly
  specialized personnel. At the request of S Co it
  recruits an engineer for 5 months and makes him
  available to S Co on a cost-plus basis gtgt S Co
  is employer
• 5. R Co is an engineering firm, which makes one
  of its engineers who is temporarily idle
  available to another engineering firm that badly
  needs an engineer for 5 months gtgt S Co is
  employer