Liability vs tax-exemption: interpreting residence provisions in Tax Treaties

1. IATJ 7th Assembly – September 2016 Liability vs tax-exemption: interpreting residence provisions in Tax Treaties CE, 9th November 2015, Santander Pensiones SA EGFP, n° 371132 CE, 9th November 2015, min. vs Landesärztekammer Hessen Versorgungswerk (LVH), n° 370054 CE, 20th May 2016, min. vs Sté Easyvista, n° 389994 Emilie Bokdam-Tognetti (FRA, Conseil d’Etat)

2. Facts and proceedings of the Santander and LVH Cases Santander Santander Santander Santander Santander Santander Santander Santander Dividends Dividends Dividends Dividends Dividends Dividends Dividends Dividends Dividends Dividends Dividends Corporate entities Corporate entities Corporate entities Corporate entities Corporate entities Corporate entities Corporate entities Corporate entities Corporate entities Corporate entities Corporate entities LVH LVH LVH LVH LVH Dividends Dividends Dividends Dividends Dividends Dividends Dividends Dividends Dividends 25% Withholding Tax Pension funds and org. Pension funds and org. But we are Spanish and German residents! No, as you are tax-exempt there…

3. Facts and proceedings of the Easyvista Case Corporate entity Easyvista Royalties Offshore company 33,33% Withholding Tax I am a Lebanese Resident ! I am subject to a special tax there No, as you are exempt from Lebanese corporation tax

4. Issue “ For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature (…).”

5. Issue Can a tax-exempt entity be considered as a tax resident for Treaty purposes ?

6. Treaties Interpretation principles • Vienna Convention of 23rd May 1969 on the Law of Treaties : not ratified by France • Priority given by the Judge to the literal interpretation method => Plain meaning + context • Other subsidiary interpretation tools => Object and purposes of the Treaty, intention of the Contracting Parties, …

7. The reasoning of the Conseil d’Etat (I) • “Liable to tax” = ? • Principle : interpretation “in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” • Object of the Treaty : avoiding double taxation

8. The reasoning of the Conseil d’Etat (II) • Consequence: persons who are tax-exempt because of their activity or status are not resident for tax treaty purposes ! • 0 % corporate tax rate = tax exemption • The issue of offshore companies subject to a lump-sum annual tax

9. Questions and criticisms raised by these Case-Laws (I) • Confusion of object and purposes? • Intermediate approach which coincides with none of the meanings ordinarily given to the words « assujetti à »

10. Questions and criticisms raised by these Case-Laws (II) • Under which conditions may a tax exempt entity be deprived of tax treaty benefits? • Loss-making companies? • Persons paying no tax in an income tax scale system? • Temporarily tax-exempt companies? • Exporting companies • Innovative firms • New firms settled in urban free zones…

11. Thank you for your attention!