Tax Treaty Case Law around the Globe 2020

S. 315Chapter 27 Bolivia: Tax Treaty Benefits Conditional on the Proof of Effective Taxation in the Country of Domicile

Alvaro Villegas Aldazosa

27.1. Introduction

This case is about the denial of double taxation relief on income from shipping services provided by a Peruvian company and paid by a Bolivian soy export company, IASA. Based on the domicile of the parties involved therein, the controversy deals with the application of article 8 of the Bolivia-Colombia-Ecuador-Peru Income and Capital Tax Treaty (2004) (Andean Tax Treaty (2004)).

Indeed, the Bolivian tax administration (Servicio de Impuestos Nacionales, or SIN) refused to grant treaty benefits to the Peruvian shipping company and ordered the Bolivian company to pay a tax of 12.5% on the gross income that was not withheld at the time of income remittance, based on the assumption that the taxpayer should demonstrate not only the residence of the shipping company, but the actual taxation in the country where it was domiciled.

Although the Andean Tax Treaty (2004) is substantially different from the 2003 OECD Model Tax Convention (OECD Model (2003)) when it comes to distributing the taxing rights between the source and residence states,...