Fiscally Transparent Entities in Double Tax Agreements

LOOK THROUGH LIECHTENSTEIN   New Swiss judgment on the taxation of Liechtenstein structures. 📌 FACTS A Liechtenstein Foundation held a Liechtenstein Anstalt. The Anstalt was a shareholder of 2 Swiss companies, from which it received dividends, and sought a refund of the Swiss withholding tax on these dividends. The Swiss tax authorities denied the request, considering both entities as tax transparent. The Anstalt appealed this decision. 🏛️ HOLDING The Federal Administrative Court upheld the decision: the Liechtenstein foundation and Anstalt were controlled structures, making them ineligible for a refund under the double tax treaty. In particular, X (the founder) had retained economic control over the foundation (acting as a board member, on the family council and on the beneficiaries’ assembly, that enjoyed authority over distributions and governance). Further, the foundation retained significant powers over the Anstalt (powers to change its board members, to amend its bylaws and to exercise the founder’s rights). Thus, both Liechtenstein entities were not the beneficial owners of the dividends, which were attributable to X as their controlling person. 💡 COMMENTS - Transparency and beer brewing in Vaduz! - Liechtenstein structures with retained control by founders are tax-transparent and cannot claim benefits under the Swiss double tax treaty. - The Anstalt could appeal this judgment before the Swiss Federal Supreme Court until April 12th, but I doubt the outcome would change. Source: https://lnkd.in/eqSrU4Ke #taxation #liechtenstein #anstalt #stiftung #withholdingtax #doubletaxtreaty #beneficialowner

📣 Tax Update for Tax Treaty eligibility of Fiscally Transparent Entities 📣 In a recent ruling pronounced by Delhi Tribunal in case of General Motors Company USA (ITA 2359/Del 2022), the Tribunal has held that US LLC is eligible for tax treaty benefits despite being fiscally transparent under the US tax laws. This will significantly help US LLCs (and other fiscally transparent entities as well) struggling with the dilemma around claiming treaty benefits. Key Takeaways from the Tribunal's Observations: ✅ A US LLC is recognized as a body corporate, with legal recognition as an entity separate from its members and a perpetual existence. ✅ US tax laws allow LLCs to choose their tax classification, affirming their status as 'liable to tax.' ✅ When an LLC opts to be disregarded for tax purposes, its tax owner's liability further substantiates the LLC's tax obligations. ✅ The Indo-US Treaty's intent prioritizes the recognition of fiscally transparent entities as 'liable to tax.' The ruling discusses various provisions of US tax laws while arriving at this conclusion. In my opinion, it is a step forward in acknowledging the evolving nature of international business structures and their tax treatment. #TaxLaw #InternationalBusiness #USLLC #IndiaUSTaxTreaty #LegalUpdate #FiscalTransparency #TaxTreatyBenefits

🧊 Brazil has just signed a bilateral tax treaty with Iceland - yes, Ísland, a country that has only one other OECD-styled tax treaty in place with a LatAm partner (Mexico since 2008, though the country has signed some treaties with Caribbean countries between 2009 and 2011). The treaty was signed on October 14, 2024. Iceland is one of the 20 founding members of the OECD - OCDE, while Brazil is a key partner of the Organization. Iceland signed and ratified the BEPS MLI - Brazil did not. Iceland is also a party to the Nordic multilateral tax treaty. Some of its signatories have been treaty partners of Brazil for many years (Denmark, Finland, Norway and Sweden). Here are some of the highlights of this treaty: ➡️ Art. 1(2) features the recommendation of BEPS Action 2 for offering treaty benefits to transparent entities (also Art. 1(2) of the 2017 OECD Model). Interestingly, however, Iceland rejected the application of Art. 3(1) of the BEPS MLI to its covered agreements (and it is the same provision - https://bit.ly/3YdLEzi). ➡️ Art. 5(3)(b) is equivalent to Art. 5(3)(b) of the 2021 United Nations Model, featuring what is known as a "services PE" clause. Brazil recently signed a protocol with China removing the same clause from their treaty, but the protocol is yet to be ratified (https://bit.ly/3UCvBtZ). ➡️ Art. 5 is compliant with BEPS Action 7 recommendations. Arts. 5(3.1) (anti-fragmentation), Art. 5(4) and (4.1) (specific activity exemptions), Art. 5(5) (commissionnaire arrangements) and Art. 5(9) (definition of "closely related") are all found in Part IV of the BEPS MLI (https://bit.ly/3UdNOxJ). Interestingly, Iceland rejected all of the four corresponding provisions of Part IV in the ratification instrument of the BEPS MLI. ➡️ Art. 9(2), the "corresponding adjustment" clause for TP purposes, appears in this treaty. Brazil used to reject the inclusion of this paragraph in its treaties prior to the modification of its TP laws (now aligned with the OECD TP Guidelines). Compare this to Art. 9 of the Brazil-UK treaty (especially Art. 9(3) and (4), absent from this treaty). ➡️ Royalties (Art. 12(2)) and fees for technical services (Art. 13(2)) are subject to a maximum WHT of 10% - Brazil's domestic law imposes a general WHT of 15% (which can reach 25% if the person is domiciled in a tax haven). ➡️ A special Art. 24 about "Offshoring activities" is included in this treaty. The (new) treaty with Norway, signed by Brazil in 2022, also features this provision (though the Norwegian Art. 23(1) starts with "Subject to [Entitlement to Benefits]..." - the Icelandic equivalent does not). ➡️ Art. 29, the "Entitlement to Benefits" clause, features both an LOB and a PPT based on BEPS Action 6. ⚠️ I have not had access to the protocol to this treaty (if it exists). Among other remarks, recent Brazilian treaties have used protocols to state that Art. 7(1) does not prevent Brazil from imposing its CFC rules on profits earned by controlled entities.