We have not written about the development in double taxation treaties in our newsletter for some time. At the very beginning, I would like to point out that our political representative have been relatively prolific regarding the updating of existing treaties and entering into new ones, and it will thus be necessary to divide the article into several parts. Let us now take a look at the first novelties in this area together. We will go through the contracts according to the individual countries, and for every country I will state an overview of the most frequently used parameters in a synoptic table. These tables need to be seen as a very simplified tool, however, which does not contain any further detailed information that may be needed when assessing specific cases of taxation.

Liechtenstein

On September 25, 2014, a treaty with the Principality of Liechtenstein on prevention of double taxation and prevention of income tax and property tax evasion (further referred to as double tax treaty) and a Protocol accompanying it were signed in Prague. The Treaty and the Protocol came into force on December 22, 2015 and are effective as of January 1, 2016. The double tax treaty has been published in the International Treaties Collection under the number 8/2016.

The double tax treaty with Liechtenstein is relatively specific in several respects. The specifics ensue from its special political position, especially its neutrality and low taxes. It is specified in the Protocol, for example, who is considered a resident of Liechtenstein, especially in relation to entities with tax advantages. The double tax treaty also enables for example taxing revenues from sale of stakes in trade corporations in countries, where they are seated.  Another specific aspect is article no. 28, which enables the authorities of both countries to deny advantages ensuing from the double tax treaty to any person, if it would mean misuse of this treaty according to these authorities. An overview of selected stipulations of the treaty is presented in the following table:

Pakistan

On May 2, 2014, a double tax treaty with the Islamic Republic of Pakistan was signed in Prague. The treaty entered into force on October 30, 2015 and is effective as of January 1, 2016. The double tax treaty was published in the International Treaties Collection under the number 58/2015. The double tax treaty also enables taxing revenues from sale of stakes in trade corporations in the countries, where they are seated. In article 27, the treaty also enables the authorities of both countries to deny advantages ensuing from the double tax treaty to any person, if it would mean misuse of this treaty according to these authorities. An overview of selected stipulations of the treaty is presented in the following table: 

Colombia

On March 22, 2012 a double tax treaty with the Republic of Colombia was signed in Bogota. The treaty entered into force on May 6, 2015 and is effective as of January 1, 2016. The double tax treaty was published in the International Treaties Collection under the number 39/2015. No treaty on tax relations existed previously between the two countries. The treaty was prepared based on models of the OECD and the UN and its formation is intended to increase legal certainty of taxpayers of the two countries. In article 25, the treaty contain a limitation of advantages, which enables the authorities of the two countries to deny the advantages ensuing from the double tax treaty to companies, if their aim is to gain advantages from this contract, which would otherwise not be accessible to them, and to any person, if it would mean misuse of this treaty according to these authorities. The double tax treaty also enables taxing revenues from sale of stakes in trade corporations in the countries, where they are seated. A specific of this treaty is also the taxation of dividends paid by a Colombian company, the profits of which are not taxed in Colombia according to Colombian laws. In case of payment of dividend to a Czech tax resident, such a company then has to deduct 25 % from the gross sum of the dividend. An overview of selected stipulations of the treaty is presented in the following table:

Belgium

ON March 15, 2010, the finance ministers of the two countries signed a Protocol accompanying the double tax treaty in Brussels, which has been in force since July 24, 2000 (published under no. 95/2000). One Protocol was already negotiated upon the signing of the treaty. In the year 2009, the Belgian side proposed that a new Protocol be negotiated, which would reflect the new trends in mutual exchange of information (article 26 of the Treaty). Ratification of this Protocol brought, among other things, a breach pf banking secrecy, when the Belgian side received the authorisation to find out information necessary for the exchange of tax information for its tax administration from banks and other financial institutions. The Protocol came into force on January 13, 2015 and is effective as of January 1, 2016.

Kazakhstan

On November 24, 2014, a Protocol for the double tax treaty was signed in Astana, which has been in force since October 29, 1999 (published under no. 3/2000). One Protocol was already negotiated upon the signing of the treaty. The initiative for negotiating the Protocol came from the Czech finance ministry, because it did not correspond to the current trends anymore. The Protocol updates the list of taxes, which the double tax treaty relates to, some definitions are being added and some terms used by the double tax treaty are being altered, for example the term place of management in article 4 of the treaty is replaced by the term place of actual management. Some rules for the establishment of permanent premises in article 5 of the double tax treaty are also being specified. The Protocol has also widened the exchange of information in relation to taxes of all kinds and the naming and ensuring of internationally acknowledged standards for this area, which is very topical at present, for example the bank secrecy is being broken. The Protocol came into force on June 28, 2016 and is effective as of January 1, 2017.

We will focus on other treaties in one of the upcoming issues of the newsletter. In case you are interested in this topic and you are interested in consultation, do not hesitate to contact us.

Author: Daniela Císařovská
Revised by: Štěpán Osička