Details of the income tax treaty between the Netherlands and Hong Kong, signed on 22 Match 2010, have become available. The treaty was concluded in the English language. The treaty generally follows the OECD Model Convention.
The maximum rates of withholding tax are:
Dividends – 10% on dividends. However, dividends are exempt if the dividends are received by:
|-||a company owning directly at least 10% of the capital of the company paying the dividends and:|
|-||the shares of the company receiving the dividends are regularly traded on a recognized stock exchange; or|
|-||at least 50% of the shares of the company receiving the dividends is owned by a company whose shares are regularly traded on a recognized stock exchange and (i) last-mentioned company is a resident of a contracting party; or (ii) a resident of an EU Member State if it would be entitled to similar or more favourable benefits as provided by the dividends article pursuant to a tax treaty between its state of residence and the contracting party from which the benefits of the dividends article are claimed or pursuant to a multilateral agreement to which its residence state and contracting party from which the benefits of the dividends article are claimed are a party;|
|-||a bank or insurance company established and regulated under the laws of a contracting party of which it is a resident;|
|-||a contracting party, or a political subdivision or local authority thereof;|
|-||an institution created by the government of a contracting party, or a political subdivision or local authority thereof, which is recognized as an integral part of that government to be agreed by mutual agreement of the competent authorities of the contracting parties;|
|-||a headquarter of a multinational group if it provides a substantial portion of the overall supervision and administration of the group and if it has and exercises, independent discretionary authority to carry out these functions;|
|-||a pension fund or scheme; or|
|-||another company if the competent authority of the contracting party which has to grant the benefits determines that the establishment, acquisition or maintenance of the company does not have as its main purpose to obtain the benefits of the dividends article.|
Interest – 0% on interest.
Royalties – 3% on royalties.
Deviations from the OECD Model include that:
|-||a building site, a construction, assembly, installation, or dredging project in connection therewith constitutes a PE if such site, project or activities last more than six months (Art. 5(3)).|
|-||an enterprise performing services in the other contracting party is deemed to have a PE if the services are provided: (i) through an individual who is present in the other contracting party for a period or periods exceeding 183 days in any 12-month period, and more than 50% of the gross revenues attributable to active business activities of the enterprise during this period or periods are derived from the services performed in that other contracting party through that individual; or (ii) for a period or periods exceeding 183 days in any 12-month period, and these services are performed for the same project or for connected projects through one or more individuals who are present and performing such services in that other contracting party.|
|-||, a PE does not exist if the services as such do not constitute a PE if performed through a fixed place of business because it concerns an activity deemed to be a PE under Art. 5(5). Furthermore, services performed by an individual on behalf of an enterprise will not be considered to be performed by another enterprise through that individual unless the other enterprise supervises, directs or controls the manner in which these services are performed by the individual (Art. 5(4)).|
|-||dividends paid by company resident in one of the contracting parties to an individual resident in the other contracting party may be taxed in the source state if that individual, alone or with his or her spouse, or one of their relations in the direct line directly or indirectly owns at least 5% of the issued capital of a particular class of shares in that company (Art. 10(9)).|
|-||the term "royalties" includes films or tapes used for radio or television broadcasting and the use or the right to use industrial, commercial or scientific equipment (Art. 12(3)).|
|-||the Netherlands has preserved its taxing rights with respect to gains derived from the alienation of a substantial shareholding (Art. 13(6)).|
|-||pensions and similar remuneration (including a lump sum payment) and annuities (including a lump sum payment) may be taxed in the source state (Art. 17(1)).|
|-||pensions paid under the social security legislation of a contracting party may be taxed in the source state (Art. 17(2)).|
|-||the transfer of a pension or similar remuneration or annuity from a pension fund or an insurance company of a contracting party to a pension fund or insurance company established outside that contracting party will not restrict the taxing rights of the source state (Art. 17(3)).|
|-||an offshore provision under which a company is deemed to have a PE unless the offshore activities are carried on in the other contracting party for a period or periods of less than 30 days in any 12-month period (Art. 22(3)).|
|-||the treaty does not contain a provision on assistance in the collection of taxes.|
|-||each contracting party may apply its domestic anti-abuse provisions (Art. 27)).|
The Netherlands applies the exemption-with-progression method for the avoidance of double taxation (Art. 28(1)). Further, the exemption method applies to income from immovable property, PE income, employment income which is not only taxable in the source state and employment income derived from an employment exercised aboard a ship or aircraft operated in international traffic (Art. 21(2) and (3). The credit method applies with respect to dividends, royalties, capital gains, director fees, income of entertainers and sportsmen and pensions, government pensions and other income (Art. 21(4)). Hong Kong applies the credit method to all foreign source income for the avoidance of double taxation (Art. 21(5).
The treaty will be effective on 1 January 2011 in the Netherlands and on 1 April 2011 in Hong Kong (Art. 29(2)(a) and (b)), if the exchange of ratification instruments takes place in 2010.
Neither contracting party can terminate this treaty during a period of 5 years starting from the date of its entry into force (Art. 30).
Art. I(1) of the protocol provides that the OECD Model Commentary and subsequent clarifying modifications will be used for the interpretation of the treaty.
When the treaty enters into force, it will terminate the Sea Transport Agreement between the Netherlands and Hong Kong of 2 November 2000 and the Air Transport Agreement between the Netherlands and Hong Kong of 16 December 1996 (Arts, VI and VII protocol).
A company is regard as a headquarter if (Art. VII Protocol):
|-||the corporate group exists of companies resident in, and engaged in an active business in, at least 5 countries and the business activities carried on in each of the 5 countries generate at least 10% of the gross income of the group; and|
|-||not more than 50% of its gross income is derived from the contracting party of which the company paying the dividends is a resident.|
The contracting parties are not obliged to automatic or spontaneous exchange of information (Art. XI protocol).
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