Tax Treaty Case Law around the Globe 2021

S. 210I. Introduction

This chapter looks at a decision by the Bulgarian Supreme Administrative Court (SAC) that concerns the right to claim credit in the residence state for withholding taxes that were levied in the source state despite the fact that the applicable double tax treaty (DTT) provides for exclusive taxing rights of the residence state. The DTTs, in this case, were between Bulgaria, on the one side, and Italy and Spain on the other.

They key question of this case was whether the Bulgarian resident company had the right to claim the credit for the withholding taxes paid in Spain and Italy. In order to address this issue, however, a number of sub-questions needed special attention. Were the WHTs levied not in accordance with the applicable DTTs? Are countries free to impose their domestic withholding tax (WHT) rates even if double tax treaties grant exclusive taxing rights to the residence state and then rely on the refund mechanism? In other words – what are the limits to the autonomy of contracting states regarding procedural matters? Finally, is a private party free to decide whether to rely on the refund procedure in the state of source (on the basis of the DTT) or on the cre...