Recent decisions and rulings relating to international tax Kees van Raad Professor of international tax law (Leiden, NYU, PKU) Chairman International Tax Center Leiden Of counsel Loyens & Loeff

1. Canada pending case: Prevost > beneficial ownership 2. United States US Ct of Appeal 15 Jan 2008 NatWest > treaty interpretation 3. Netherlands Supr Ct decisions 8 December 2006 > economic employer (15.2.b OECD)

Canada Tax Court pending case: Prevost > beneficial ownership

P Henly’s Group PLC Volvo Bus Corporation Prevost Holding BV Prevost Car Inc. CAN NL UK SWE 49%51% 100%

NL UK 51% 100% CAN SWE 49% dividend

NL UK 51% 100% CAN SWE 49% 5% dividend 10% wht15%

United States US Ct of Appeal 15 Jan 2008 NatWest > apportionment of interest expenses, capital of a PE, properly maintained accounts > treaty interpretation > deemed separate enterprise notion

treaty interpretation > status of OECD Commentary > relevance of consistently held positions by tax agency of one treaty country > other issues

deemed separate enterprise notion > like an independent corporation > or: something less ?

Netherlands Supr Ct decisions 1 December 2006 > economic employer (15.2.b OECD)

Art. 15 OECD: employment income Employee, resident of residence state, works in work state -- para. 1: work state has taxing right -- para. 2: provided the employee has a `strong link´ with that work state: link a: more than 183 days spent in work state link b: salary paid by employer who is resident of work state link c: salary borne by a work state permanent establishment of the employer (wherever resident) >> in absence of any such link: taxation in residence state

Link b: salary paid by employer who is resident of work state `The remuneration is paid by, or on behalf of, an employer who is … a resident of the other State´ Dutch Supreme Court 1 December 2006 : A person is an employer for Art b purposes if: 1. (effective) authority to instruct the employee and 2. employment activities are rendered for the account and risk of that person:

2. employment activities are rendered for the account and risk of that person: a. risk : all benefits and damages / losses / costs / risks regarding the employee are for the account of that person b. account : that person bears the expense of the salary paid to the employee for the activities Re b: When the salary is paid by the legal employer who charges the salary to the person/company for whom the employee works, the latter person/company is considered to be the economic employer only if the employee’s salary is individually charged (i.e., not as part of lump sum charge) to that latter person (it is permitted to base the charge on the average salary paid to employees in same category as the employee concerned).

OECD 2007 proposed clarification of term `employer´ The nature of the services rendered by the individual will be an important factor since it is logical to assume that an employee provides services which are an integral part of the business activities carried on by his employer. … [A] key consideration will be which enterprise who bears the responsibility or risk for results produced by the individual’s work. … … The following additional factors may be relevant to determine whether this is the case: [ cf. para. 18 of 1992 OECD Commentary – abuse ] - who has the authority to instruct the individual regarding the manner in which the work has to be performed ; - who controls and has responsibility for the place at which the work is performed; - the remuneration of the individual is directly charged by the formal employer to the enterprise to which the services are provided … ; - who puts the tools and materials necessary for the work at the individual’s disposal; - who determines number and qualifications of the individuals performing the work.

OECD 2007 proposed clarification of term `employer´ R Co and its employee E-R are residents of State R. S Co is a resident of State S. 1. R Co is in business of providing training services, and sends E-R to S Co to train S Co’s staff >> S Co is not employer for purposes of Art b 2. R Co is parent of S Co and sends E-R over to S Co to ensure that S Co correctly implements the group’s marketing strategy: >> S Co is not employer 3. R Co sends E-R over to its foreign sister company S Co that has a temporary shortage of staff with foreign language skills: >> S Co is employer 4. R Co is an employment agency for highly specialized personnel. At the request of S Co it recruits an engineer for 5 months and makes him available to S Co on a cost-plus basis: >> S Co is employer 5. R Co is an engineering firm, which makes one of its engineers who is temporarily idle available to another engineering firm that badly needs an engineer for 5 months: >> S Co is employer