Tax Treaty Case Law around the Globe 2012

Czech Republic: Beneficial Ownership

16.1. Introduction

Case 2 Afs 86/2010-141 can be categorized among cases dealing with the concept of beneficial ownership. Even though there are already cases on this topic, the case considered here is very significant, as the Supreme Administrative Court issued its decision on the concept of beneficial ownership within the context of tax treaties following the 1963 OECD Model Tax Convention (i.e. “old” income tax treaties concluded in the 1970s and 1980s), which do not refer to the term “beneficial owner” when setting forth treaty benefits for recipients of dividends, interest or royalties. Specifically in this case, the 1974 income tax treaty with the Netherlands (which is still applicable) provides for a withholding tax exemption if the recipient of the dividend is a company which is resident in the other contracting state, the capital of which is divided into shares and which owns directly at least 25% of the company distributing the dividends.

16.2. Facts of the case

A UK company, International Power, plc., which controlled a Czech company, International Power Opatovice a.s. (the claimant), transferred the right to receive dividends first to a ...