(May 11, 2015)
On May 11 the English version of the Agreement between the Kingdom of the Netherlands and the Republic of Malawi for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income as signed on April 19, 2015 (the DTA) and Protocol were published on the website of the Tractatenblad van het Koninkrijk der Nederlanden. Although the DTA has been signed, it has not yet entered into force. The DTA will enter into force after both countries have completed their respective ratification procedures.
Below we will point out some of the interesting matters that are included in the DTA. One of the interesting things is that the DTA contains anti-abuse clauses in the Articles regarding Dividends (Article 10 of the DTA), Interest (Article 11 of the DTA) and Royalties (Article 12 of the DTA)
Article 5 Permanent Establishment
Paragraph 3 of Article 5 of the DTA states: “A building site or construction or assembly or installation project or supervisory activity connected therewith, where such site, project or activity continues for a period of more than 183 days.” We assume that some piece of text is missing, and we expect that the paragraph intends to state that a building site or construction or assembly or installation project or supervisory activity connected therewith, constitutes a permanent establishment where such site, project or activity continues for a period of more than 183 days.
Paragraph 4 of Article 5 of the DTA states:
“Notwithstanding the provisions of paragraph 1, 2 and 3, the term “permanent establishment” shall be deemed to include:
a) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue for the same or a connected project within the Contracting State for a period or periods exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned;
b) the performing of services in a contracting state by an individual but only if the individual is present in the other State for the purposes of performing those services, for a period or periods exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned.”
Article 10 Dividends
Paragraphs 2 and 3 of Article 10 of the DTA arrange the limitation of dividend withholding taxes to be withheld.
Paragraph 2 arranges for the following:
“However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
a) 10 per cent of the gross amount of the dividends in case the company paying the dividends is a resident of Malawi;
b) 15 per cent of the gross amount of the dividends in case the company paying the dividends is a resident of the Netherlands.”
Paragraph 3 subsequently arranges for the following:
“Notwithstanding the provisions of paragraph 2, the Contracting State of which the company is a resident shall levy a tax on dividends paid by that company not exceeding 5 per cent, if the beneficial owner of the dividends is a company (other than a partnership) which is a resident of the other Contracting State and holds directly at least 10 per cent of the capital of the company paying the dividends.”
Paragraph 10 of Article 10 of the DTA contains the following anti-abuse clause:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid, or with the establishment, acquisition or maintenance of the company that is the beneficial owner of the dividends and the conduct of its operations, to take advantage of this Article. The competent authority of the Contracting State which has to grant the benefits shall consult with the competent authority of the other Contracting State before denying the benefits under this paragraph.”
Article 11 Interest
Paragraph 2 of Article 11 of the DTA limits the interest withholding tax to be withheld by the Source State to a maximum of 10 percent of the gross amount of the interest. (NB it should be noted that the Netherlands does not withhold withholding taxes over interest payments)
Paragraph 9 of Article 11 of the DTA contains an anti-abuse clause which is similar as the one described above in the paragraph regarding Dividends. Paragraph 9 of Article 11 of the DTA states the following:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment. The competent authority of the Contracting State which has to grant the benefits shall consult with the competent authority of the other Contracting State before denying the benefits under this paragraph.”
Article 12 Royalties
Paragraph 2 of Article 12 of the DTA limits the interest withholding tax to be withheld by the Source State to a maximum of 5 percent of the gross amount of the royalties. (NB it should be noted that the Netherlands does not withhold withholding taxes over royalties)
Like the Articles on Dividends and Interest also Article 12 of the DTA contains an anti-abuse clause. Paragraph 8 of Article 12 of the DTA state the following:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment. The competent authority of the Contracting State which has to grant the benefits shall consult with the competent authority of the other Contracting State before denying the benefits under this paragraph.”
Article 13 Capital Gains
Paragraph 4 of Article 13 of the DTA arranges for how capital gains derived by the sale of shares in so-called ‘real-estate companies’ are taxed under the DTA. Paragraph 4 of Article 13 states the following:
“Gains derived by a resident of a Contracting State from the alienation of shares, or other comparable interests, deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State, may be taxed in that other State.
However, such gains shall be taxable only in the first-mentioned State where:
a) the resident owns less than 30 per cent of the shares or other comparable interests;
b) the shares or other comparable interests are traded on a recognized stock exchange;
c) the shares or other comparable interests derive their value from immovable property in which that company or the holders of those interests carry on their business;
d) the gains are derived in the course of a corporate reorganization, amalgamation, division or similar transaction; or
e) the resident is a pension fund, provided that the gains are not derived from the carrying on of a business, directly or indirectly by that pension fund.”
Other
Article 24 of the DTA arranges for a Mutual Agreement Procedure, Article 25 contains regulations regarding the Exchange of Information, whereas Article 26 of the DTA contains regulations regarding Assistance in the Collection of Taxes.
Click here to be forwarded to the text of the DTA and the Protocol as published on the website of the Tractatenblad van het Koninkrijk der Nederlanden.
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