223

Example

The taxpayer, a collective investment vehicle established in Luxembourg, was registered with the Belgian financial market regulator and thus was subject to the relevant “annual tax on collective investment vehicles” or “net asset tax” (hereafter ‘NAT’) in Belgium. The taxable basis for the NAT is the net asset value of the outstanding shares/units in Belgium (i.e. the total value of the assets of the fund minus expenses and liabilities). The taxpayer objected against the NAT assessment arguing that the NAT was a tax on capital within the meaning of Art. 22(4) of the treaty, which provided that taxes on capital could only be levied in the taxpayer’s state of residence. Consequently, Belgium was not allowed to subject a Luxembourg resident to such a tax. Before the Brussels Court of First Instance, the Belgian tax authorities argued that the NAT could not be regarded as a ‘tax on capital’, since it was not a tax on a taxpayer’s total capital, but rather a specific tax. The Brussels Court of First Instance (decision of 23 November 2011, No. 2008/16347/A) decided in favour of the taxpayer and concluded that, given the definition of Art. 2(2) of the treaty, the NAT should be considered as a tax on capital. S. 57The tax authorities appealed and the case was referred to the Court of Appeal of Brussels. By its decision 2012/AR/906 of 29 November 2018, the Court of Appeal of Brussels upheld the decision by the Court of First Instance concerning the material scope of the treaty (i.e. Art. 2 ‘taxes covered’) with regard to the NAT. The Court of Appeal observed that the text of Art. 2 of the treaty was corresponding to Art. 2 OECD Model and that the treaty in question had been assigned as an OECD confirmed treaty in the Belgian administrative guidelines on tax treaties (‘Com.Conv.’). With regard to the application of Art. 2(1) of the treaty, the Court of Appeal observed that the tax authorities’ argued that the term ‘capital tax’ (‘impôt sur la fortune’) was not defined in the treaty and had to be interpreted by application of Art. 3(2). Because no capital taxes were mentioned in the list of Belgian taxes in Art. 2(3) and because the concept of ‘capital tax’ did not exist in Belgian tax law, the tax authorities argued one had to rely on the meaning of the term under Luxembourg domestic tax law. The Court dismissed the argument: Art. 2(1) and (2) did provide for a definition of the terms ‘taxes on income and on capital’. In line with the doctrine and the OECD Commentary, this definition had to be understood as giving these terms an autonomous meaning for the purpose of the treaty. The Court of Appeal then observed that the tax authorities denied that the NAT was a capital tax because the taxable event of the tax was the placement of shares of the undertakings for collective investment with Belgian investors. The tax was due however on the first of January of the next year and only if and to the extent the conditions of the share placement were still fulfilled at that date. The NAT tax base consisted only of the amounts invested by Belgian investors and represented in the capital of the undertakings for collective investments and not the assets held by the collective investment. This amount was said to be determined by taking into consideration the amount of the subscribed shares, the amount of shares repurchased, the amount of debts incurred by the collective investment, the evolution of the value of its assets, its income (income on assets, i.e. dividends and interests etc. received on its investments) and its expenses. The Court observed in conclusion that the NAT was levied annually on the collective investment's net assets and not merely on the basis of the amount subscribed to by Belgian shareholders of the foreign undertaking for collective investment. As such, the NAT was levied on elements of capital assets (‘une portion du patrimoine’) of the undertaking for collective investment and was within the material scope of the treaty as determined by Art. 2(2) of the treaty.

225

Example

In 2003, a Swiss resident taxpayer disposed of a number of shares in a company incorporated and resident in Australia. Under Art. 7(1) of the Australia–Switzerland DTC, Australia did not have any taxing rights in respect of that gain. Nevertheless, the Australian tax authorities argued that such gain was subject to the Capital Gains Tax (CGT), a tax that was introduced in 1985 after the treaty was concluded (1980). The Australian S. 58tax authorities argued CGT was not covered by treaties concluded before its introduction and Australia was therefore not restricted by the treaty between Australia and Switzerland. The Court noted that CGT was not a separate tax but merely a part of the Australian income tax under the relevant Income Tax Assessment Act and ruled that CGT was “substantially similar, if not identical, to the income tax” for the purposes of Art. 2(2) of the Treaty (AU, FCA 10 Oct. 2008, Virgin Holdings SA v. Federal Commissioner of Taxation.