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Triangular Cases

123459883-louvre.jpgA triangular case refers to the situation whereby an enterprise, located in the Netherlands, has a foreign-based permanent establishment at its disposal. The complexity is added when the profits of this foreign-based permanent establishment are attributable to passive income, which originated from a third nation. Passive income entails dividends, interest and/or royalty payments. This effectively means that three nations claim fiscal jurisdiction: the third nation will levy withholding taxation on outbound cash flows, the permanent establishment (PE) nation will levy corporate taxation on the income as part of the PE profits, and the domicile country will tax, employing also corporate taxation, the income as part of the worldwide profits of the organization. As a result, the organization is faced in principle with triple taxation.

Bilateral treaties have the objective to prevent plural taxation, however in spite of this goal triangular cases cause nations to claim fiscal jurisdiction. The reason for this lies in the fact that bilateral treaties are written from a bilateral perspective and thus solving triangular situations is not a part of its character. Moreover, though nations agree on the prevention of double taxation and double non-taxation for that matter, since this would lead to market distortions and thereby would frustrate transnational economic activities, in practice triple taxation in a triangular case is not always reduced to singular taxation.

“My mother said to me, ‘If you are a soldier, you will become a general. If you are a monk, you will become the Pope.’ Instead, I was a painter, and became Picasso.”

Pablo Picasso (25/10/1881 – 08/04/1973), Spanish Artist

Van Clamsfield International Ltd. provides in-depth information, guidance and practical advice in reference to triangular cases, in the following manner:

  1. Effective conversion methods of potential plural taxation to singular taxation;
  2. Insight into the legal position of each nation, employing leading jurisprudence, technical explanations, EU directives, unilateral policies and bilateral tax treaty stipulations;
  3. Detailed information on the factual realization of legal requirements;
  4. Analysis of concurrence of prevention of double taxation stipulations;
  5. Presentation of fiscal options: the concurrence of tax exemption for PE profits and a tax sparing credit for third country withholding taxation.

Due to limitations of the tax sparing credit, it is possible that not all taxation is deductible in that tax year. Instead the rights to the rest of the tax sparing credit are either postponed to consecutive tax years or the rest of tax sparing credit is deemed as non-refundable with respect to the attribution of passive income to PE profits. Van Clamsfield International Ltd. assists organizations with the tools of appeal to one bilateral treaty in order to access another bilateral treaty with the objective to receive the remainder of the tax sparing credit. Furthermore, Van Clamsfield International Ltd. also advises (group) concerns on additional applicable fiscal options.

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