On August 30, 2016 the Dutch Government announced that the Convention between the Kingdom of the Netherlands and the Federal Democratic Republic of Ethiopia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes and income, which was signed on August 10, 2012 (Hereafter: the DTA) will enter into force on September 1, 2016. Furthermore the Dutch Government announced that the Protocol amending the Convention between the Kingdom of the Netherlands and the Federal Democratic Republic of Ethiopia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, which was signed on August 18, 2014 (Hereafter: the Protocol) will enter into force on September 30, 2016 with retroactive force to September 1, 2016.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
The Netherlands
Article 3, Paragraph 1, sub b of the DTA (“General definitions”) arranges that the term “the Netherlands” means:
(i) the European part of the Netherlands, including its territorial sea, and any area beyond its territorial sea within which the Kingdom of the Netherlands, in accordance with international law, exercises jurisdiction or sovereign rights; and
(ii) the Caribbean part of the Netherlands, which consists of the island territories of Bonaire, Sint Eustatius and Saba, including its territorial sea, and any area beyond its territorial sea within which the Kingdom of the Netherlands in accordance with international law, exercises jurisdiction or sovereign rights.
Entry into force
Based on Article 28, Paragraph 2 of the DTA (“Entry into force”), the fact that the DTA will enter into force on September 1, 2016 means that the provisions of the DTA shall thereupon have effect:
a) in Ethiopia:
(i) with regard to taxes withheld at source, in respect of amounts paid on or after July 8, 2017;
(ii) with regard to other taxes, in respect of any tax year beginning on or after July 8, 2017;
b) in the Netherlands: for any tax year and period beginning, and taxable events occurring, on or after January 1, 2017.
Article 28, Paragraph 3 subsequently arranges that notwithstanding the provision of Article 28, Paragraph 2, the provisions of Article 26 (“Assistance in the collection of taxes”) shall only apply if, after the signing of the Convention, Ethiopia is capable of fulfilling the obligations of that Article. In such case, Ethiopia shall inform the Netherlands of the date from which Ethiopia is capable of fulfilling the obligations of Article 26 through diplomatic channels.
Taxes covered
Based on Article 2, Paragraph 3 of the DTA (“Taxes covered”), the existing taxes to which the Convention shall apply are in particular:
a) in the European part of the Netherlands:
(i) de inkomstenbelasting (income tax);
(ii) de loonbelasting (wages tax);
(iii) de vennootschapsbelasting (company tax) including the Government share in the net profits of the exploitation of natural resources levied pursuant to the Mijnbouwwet (the Mining Act);
(iv) de dividendbelasting (dividend tax), and
in the Caribbean part of the Netherlands:
(i) de inkomstenbelasting (income tax);
(ii) de loonbelasting (wages tax);
(iii) de vastgoedbelasting (property tax);
(iv) de opbrengstbelasting (revenue tax);
(v) het aandeel van de Regering in de nettowinsten behaald met de exploitatie van natuurlijke rijkdommen geheven krachtens de Mijnwet BES, het Mijnbesluit BES of de Petroleumwet Saba Bank BES (Government share in the net profits of the exploitation of natural resources pursuant to the Mining Act BES, the Mining decree BES or Petroleum Act Saba Bank BES);
b) In the case of Ethiopia:
(i) the tax on income and profit imposed by the Income Tax Proclamation No. 286/2002; and
(ii) the tax on income from mining, petroleum and agricultural activities imposed by respective proclamations;
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes, which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes.
Permanent establishment
Article 5, Paragraph 3 of the DTA (“Permanent establishment”) arranges that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than six months.
Article 5, Paragraph 4 subsequently arranges that notwithstanding the provisions of Article 5, Paragraphs 1, 2 and 3, an enterprise of a Contracting State which carries on activities in the territorial sea, and any area beyond the territorial sea within which the other Contracting State, in accordance with international law, exercises jurisdiction or sovereign rights (offshore activities), shall be deemed to carry on, in respect of those activities except as regards paragraph 2 of Article 15, business in that other State through a permanent establishment situated therein, unless the activities in question are carried on in the other State for a period or periods of less than in the aggregate 30 days in any twelve month period.
Article 5, Paragraph 5 arranges that for the purposes of Article 5, Paragraph 4, offshore activities shall be deemed not to include:
a) one or any combination of the activities mentioned in paragraph 7;
b) towing or anchor handling by ships primarily designed for that purpose and any other activities performed by such ships;
c) the transport of supplies or personnel by ships or aircraft in international traffic.
Article 5, Paragraph 6 arranges that for the purposes of determining the duration of the offshore activities under Article 5, Paragraph 4 in connection with Article 5, Paragraph 5, where an enterprise carrying on offshore activities in the other Contracting State is associated with another enterprise and that other enterprise continues, as part of the same project, the same offshore activities that are or were being carried on by the first-mentioned enterprise, and the aforementioned activities carried on by both enterprises – when added together – constitute a period of at least 30 days, each enterprise shall be deemed to carry on its activities for a period of at least 30 days in any twelve month period. An enterprise shall be regarded as associated with another enterprise if one enterprise holds directly or indirectly at least one third of the capital of the other enterprise or if a person holds directly or indirectly at least one third of the capital of both enterprises.
Immovable property
Article 6, Paragraph 1 of the DTA (“Income from immovable property”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 13, Paragraph 1 of the DTA (“Capital gains”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 3 subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares, other than shares which are traded on a recognised stock exchange, 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, other than immovable property in which that company or the holders of those interests carry on their business, may be taxed in that other Contracting State. However, such gains shall be taxable only in the first-mentioned State where:
a) the resident owned less than 50 per cent of the shares or other comparable interests prior to the first alienation;
b) the gains are derived in the course of a corporate reorganization, amalgamation, division or similar transaction.
Associated enterprises
Article 9, Paragraph 2 of the DTA (“Associated Enterprises”) contains a so-called appropriate adjustment clause.
Dividends
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the DTA (“Dividends”) maximizes the withholding tax a Source State is allowed to withhold over dividend distributions to:
a) 10 per cent of the gross amount of the dividends in case the company paying the dividends is a resident of Ethiopia;
b) 15 per cent of the gross amount of the dividends in case the company paying the dividends is a resident of the Netherlands;
c) 5 per cent of the gross amount of the dividends, if the beneficial owner of the dividends is:
(i) 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; or
(ii) a pension fund.
Interest
If the beneficial owner of the interest is a resident of the other Contracting State, Article 11, Paragraph 2 of the DTA (“Interest”) maximizes the withholding tax a Source State is allowed to withhold over interest payments to 5 per cent of the gross amount of the interest.
Royalties
Article 12, Paragraph 2 of the DTA (“Royalties”) maximizes the withholding tax that a Source State is allowed to withhold over royalties to 5 per cent of the gross amount of the royalties.
Limitation on benefits
Via the Protocol of August 18, 2014 a new Article 21A (“Limitations on benefits”) was inserted into the DTA.
Other
Furthermore the DTA contains provisions regarding a Mutual Agreement Procedure (Article 24), regarding the Exchange of Information (Article 25) and regarding the Assistance in the Collection of Taxes (Article 26).
Click here to be forwarded to the text of the DTA as available on the website of the Tractatenblad van het Koninkrijk der Nederlanden.
Click here to be forwarded to the text of the Protocol as available on the website of the Tractatenblad van het Koninkrijk der Nederlanden.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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