Tax Treaty Case Law around the Globe 2019

S. 1481. Introduction

For decades, tax treaties have been evolving in order to ensure they effectively prevent double taxation. However, there are still times when a taxpayer finds himself taxed twice because the foreign withholding tax can neither be credited against his income tax liability in his state of residence nor deducted from the taxable income in that state.

The wild withholding tax phenomenon is unfortunately not rare, especially in developing countries.

As a reminder, a wild withholding tax situation involves a taxpayer who receives income from a foreign country that has been subjected in that country to withholding tax that is in breach of the provisions of the applicable tax treaty. The country of residence may deny that company any relief if the tax authorities take the view that the foreign withholding tax was effectively wrongly levied.

The tax treatment of these wild withholding taxes had been an ongoing issue in France until the Administrative Supreme Court finally ruled in favour of the deductibility of these taxes from the taxpayer’s taxable income, in its decision in Smith International France (October 12, 2018), case 407903 (Conseil d’Etat).

2. Facts of the case

Smith I...