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“The avoidance of tax may be lawful, but it is not yet a virtue .”

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News

United States and Belgium Sign Income Tax Treaty and Protocol

Date:
27 November 2006

On 27 November the Belgian Finance Minister and the U.S. Ambassador to Belgium, signed a new Income Tax Treaty and Protocol to replace the existing bilateral income tax treaty, concluded in 1970, as amended in 1987, between the two countries.

The most important aspect of the Treaty and Protocol is the taxation of cross-border dividend payments. Withholding tax on dividends will be zero rated if received by a US parent company holding 10 percent of the voting rights. However, for a Belgian parent company, the threshold is put at 80 percent. The source-country withholding tax on dividends is also eliminated on dividends paid to pension funds.  The withholding tax on interest will also be zero rated.

Resident employees paying into the pension funds of the other State may be entitled to tax deductions in the same way as residents of the other State.

The Treatywill also introduce a procedure for mandatory arbitration of certain cases that cannot be resolved by the competent authorities within a specified period of time. The mandatory binding arbitration provision, long advocated by the U.S. business community, has only one precedent in U.S. tax treaty practice, that is in the protocol signed on 1 June 2006 with Germany.

In addition, the Treaty and Protocol also strengthen the Treaty's provisions preventing so-called treaty shopping, which is the inappropriate use of a tax treaty by third-country residents. The Treaty and Protocol will also serve to improve the exchange of information between the two countries, including bank information.


 

 

 

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