The Netherlands and Zambia conclude a new DTA

On July 28, 2015 the Dutch Government published the English text of the Convention between the Kingdom of the Netherlands and the Republic of Zambia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (hereafter: the DTA) and a relating Protocol, which were signed in Addis Abeba on July 15, 2015. Although signed, the DTA has not yet entered into force. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries. When entering into force, the newly signed DTA will replace the existing Convention stemming from 1977.

Below we will discuss some of the regulations included in the newly signed DTA of which we think they might interest our readers.

According to Article 2, Paragraph 3 of the DTA (“Taxes covered”) the existing taxes to which this Convention shall apply are in particular:
a) in Zambia, the income tax; and
b) in the European part of the Netherlands,
(i) the income tax (inkomstenbelasting);
(ii) the wages tax (loonbelasting);
(iii) the company tax (vennootschapsbelasting) including the Government share in the net profits of the exploitation of natural resources levied pursuant to the Mining Act (Mijnbouwwet);
(iv) the dividend tax (dividendbelasting); and
in the Caribbean part of the Netherlands,
(i) the income tax (inkomstenbelasting);
(ii) the wages tax (loonbelasting);
(iii) the property tax (vastgoedbelasting);
(iv) the revenue tax (opbrengstbelasting);
(v) the Government share in the net profits of the exploitation of natural resources levied pursuant to the Mining Act BES (Mijnwet BES), the Mining Decree BES (Mijnbesluit BES) or the Petroleum Act Saba Bank BES (Petroleumwet Saba Bank BES);

Article 2, Paragraph 4 of the DTA subsequently determines that the Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of this Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their taxation laws.

Aticle 3, Paragraph 1, sub b of the DTA (“General definitions”) defines the term “The Netherlands” as:
(i) the European part of the Netherlands, including its territorial sea and any area beyond and adjacent to its territorial sea within which the Kingdom of the Netherlands, in accordance with international law, exercises jurisdiction or sovereign rights;
and
(ii) the Caribbean part of the Netherlands which is situated in the Caribbean Sea and consists of the island territories of Bonaire, Sint Eustatius and Saba, including its territorial sea and any area beyond and adjacent to its territorial sea within which the Kingdom of the Netherlands in accordance with international law, exercises jurisdiction or sovereign rights, but excluding the part thereof relating to Aruba, Curaçao and Sint Maarten.

Article 5, Paragraph 3 of the DTA (“Permanent establishment”) arranges that the term “permanent establishment” shall be deemed to include:
a) a building site, a construction, assembly or installation project or any supervisory activity in connection with such site, project or activity, but only where such site, project or activity continues for a period of more than 183 days;
b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by an enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within the Contracting State for a period or periods exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned;
c) for an individual, the performing of services in a Contracting State by that individual, but only if the individual’s stay in that State, for the purpose of performing those services, is for a period or periods aggregating more than 183 days within any twelve month period commencing or ending in the fiscal year concerned; and
d) an installation or structure used for the exploration for natural resources other than in the area referred to in paragraph 4, provided that the installation or structure continues for a period of not less than 183 days.

Furthermore Paragraphs 4, 5 and 6 of Article 5 of the DTA (“Permanent establishment”) state the following:
4. Notwithstanding the provisions of paragraphs 1, 2 and 3, an enterprise of a Contracting State which carries on activities in the territorial sea of the other Contracting State or in any area beyond and adjacent to its territorial sea as meant in subparagraph b) of paragraph 1 of Article 3, within which that other Contracting State, in accordance with international law, exercises jurisdiction or sovereign rights (offshore activities), shall be deemed to carry on, in respect of those activities, business in that other State through a permanent establishment situated therein, unless the activities in question are carried on in the other State for a period or periods of less than in the aggregate 30 days in any twelve month period.

5. For the purposes of paragraph 4 of this Article, the term “offshore activities” shall be deemed not to include:
a) one or any combination of the activities mentioned in paragraph 7;
b) towing or anchor handling by ships primarily designed for that purpose and any other activities performed by such ships; and
c) the transport of supplies or personnel by ships or aircraft in international traffic.

6. For the purposes of determining the duration of the offshore activities under paragraph 4 in connection with paragraph 5, where an enterprise carrying on offshore activities in the other Contracting State is associated with another enterprise and that other enterprise continues, as part of the same project, the same offshore activities that are or were being carried on by the first-mentioned enterprise, and the aforementioned activities are in the aggregate carried on by both enterprises for a period of at least 30 days, each enterprise shall be deemed to carry on its activities for a period of at least 30 days in any twelve month period. For the purposes of this paragraph, an enterprise shall be regarded as associated with another enterprise if one enterprise holds directly or indirectly at least one third of the capital of the other enterprise or if a person holds directly or indirectly at least one third of the capital of both enterprises.

Paragraph 3 of Article 7 of the DTA (“Business profits”) states the following:
“In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Contracting State in which the permanent establishment is situated or elsewhere. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment.

Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or, except in the case of a banking enterprise by way of interest on moneys lent to the head office of the enterprise or any of its other offices.”

Paragraph 2 of Article 9 of the DTA (“Associated enterprises”) contains a so-called appropriate adjustment clause.

With respect to dividend withholding taxes, paragraph 2 of Article 10 of the DTA (“Dividends”) arranges the following:
“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) 5 percent of the gross amount of the dividends if the beneficial owner is a company which holds at least 10 percent* of the capital of the company paying the dividends, or if the beneficial owner is a pension fund; or
b) 15 percent of the gross amount of the dividends in all other cases.”
* This is 25% under the existing DTA

With respect to the term dividends Paragraph 3 of Article 10 of the DTA (“Dividends”) determines the following:
“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 Contracting State of which the company making the distribution is a resident.”

Paragraph 6 of Article 10 of the DTA (“Dividends”) contains the following anti-abuse clause:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.”

Paragraph 2 of Article 11 of the DTA (“Interest”) maximizes the interest withholding taxes that a Source State is allowed to withhold to 10% of the gross amount of the interest.

Paragraph 8 of Article 11 of the DTA (“Interest”) contains the following anti-abuse clause:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.”

Paragraph 2 of Article 12 of the DTA (“Royalties”) maximizes the royalty withholding taxes that a Source State is allowed to withhold to 7.5% of the gross amount of the royalties. This is 10% under the existing Convention.

Paragraph 7 of Article 12 of the DTA (“Royalties”) contains the following anti-abuse clause:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.”

The new DTA furthermore includes a new (more extensive) article on the Exchange of information (Article 25 of the DTA) and introduces an article arranging the Assistance in the collection of taxes (Article 26 of the DTA).