LOB: When Tax Treaty Derivative Benefits Provisions Don't Apply

You find in Article 22 of the US 1996 Model Treaty of most tax treaties entered into by the United States a limitation on benefits clause (LOB). This clause, which has the purpose to prevent the application of the benefits of the treaties to treaty shopping structures, added a certain degree of complexity to the application of treaties in intricate corporate structures. It is interesting to note that the 2003 changes in the OECD Commentaries on Art. 1 of the OECD Model include already a number of similar clauses to those provided under the US Model. Therefore it can be said that the interest of any analysis of the practical issues arising from the application of the LOB clause goes well beyond the treaties signed with the US.

In that regard, I would like to call upon the attention of Ruth Mason (Associate Professor of Law of Connecticut Law School) recent article When Tax Treaty Derivative Benefits Provisions Don't Apply. Here is an abstract:

The U.S.-U.K tax treaty¸ like several other recent treaties, has a limitations on benefits (LOB) clause that contains a derivative benefits provision. Under derivative benefits, a company that qualifies as a resident under Article 4 of the Treaty - but fails to qualify under the LOB clause due to its foreign ownership - may nevertheless be entitled to treaty benefits if the foreign owner is an “equivalent beneficiary.”
An equivalent beneficiary is a beneficial owner that is resident in a third country with which the United States also has a tax treaty. However, for certain items of income, a beneficial owner does not automatically qualify as an equivalent beneficiary simply because its country has a tax treaty with the United States. For those items of income (dividends, interest and royalties), the third country’s treaty must offer withholding rates “at least as low” as the rate available under the claimed treaty.
What happens when the equivalent beneficiary’s treaty with the United States provides higher withholding rates than does the claimed treaty? What withholding rate applies? There are two choices. The United States could apply: (1) the higher of the two treaty withholding rates or (2) the statutory withholding rate. This article describes the derivative benefits problem in detail and considers which rate should apply.

Comment:
According to the author there seems to be disagreement about the correct withholding tax rate to be applied in cases where a company fails the third test of a derivative benefits provision (LOB clause). The author seems to defend, instead of the domestic withholding tax (30% in the case of US), the application of the rate under the equivalent beneficiary’s treaty (5% in the example given). This result is said to be the “right” result, as a matter of policy and from an interpretive perspective. Nevertheless, the author acknowledges that the issue is far from clear and assert that the US Treasury should clarify, which of the withholding taxes apply.

Allow me to make a side comment. First of all, taking into account that tax treaties are bilateral by nature it is difficult from the outset to conceive a fallback to a rate included in a third treaty when a particular treaty provision is said to be non-applicable. Tax treaties restrict domestic law and therefore if for any reason they are inapplicable (such as by the application of the LOB clause), domestic law should apply (irrespective of the final result).

Secondly, it is also difficult to conceive the application of a rate included in a third treaty, in a situation when you even fail to have a resident under Art. 1 of such treaty. In the given example, the UK company (even though controlled by French shareholders) cannot be said to be a resident of France for the purposes of the treaty between US and France and therefore the treaty (and rates therein) do not apply.

Finally, I would like to recall the (recently changed) US position in cases of dual resident companies and make an analogy with the issue at stake. Ignoring for now specific rules contained in the US-UK treaty for dual resident companies, according to Rev. Ruling 2004-76, a dual resident company, resident for example both in the UK and France under the domestic laws of those countries, is not entitled to claim benefits under the U.S. treaty with the UK, if under the tie-breaker rule of the UK-France treaty it is treated as a resident of France and not of UK.

The US tax authorities arrived to such result by (restrictively) construing the term “liable to tax by reason of residence” of Art. 4(1), as excluding the possibility of a dual resident company to gain access to the treaty network of the “loser” state (in this case UK). Although this interpretation may be criticised (*), in the case under discussion (LOB) it reinforces the argument that unless the UK company is a also considered a resident of France (for example by having there the place of effective management) the rate included in the treaty between US and France should not apply.

In the end, I agree that 1the result of applying the domestic rate when derivative benefits provisions don’t apply is quite harsh. Nevertheless, such “inadequate” result should be corrected by amending the provision itself and not by any interpretative construction.

(*) Interesting to note that the same result (as regards dual resident companies) was achieved by the Supreme Court of the Netherlands (BNB 2001/295)

Who said tax was not funny?

The term “tax humor” is no doubt an oxymoron to many people; to the more cynical, it is an apt description of the entire tax code. (by John F. Iekel)

See below some examples of funny tax language (taken from the US Tax code)!

Section 509(a)
For purposes of paragraph (3), an organization described in paragraph (2) shall be deemed to include an organization described in section 501(c)(4), (5), or (6) which would be described in paragraph (2) if it were an organization described in section 501(c)(3).

Section 168(i)(2)(B)
(B) COMPUTER OR PERIPHERAL EQUIPMENT DEFINED. -- For purposes of this paragraph--
(i) IN GENERAL. -- The term "computer or peripheral equipment" means--
(I) any computer, and
(II) any related peripheral equipment.

For more examples see http://nersp.nerdc.ufl.edu/~acadian/humor.htm

ECJ Annual report 2005 made available

The 2005 Annual Report of the ECJ can already be downloaded here. The document titled “The Court of Justice in 2005: changes and proceedings”, prepared by Vassilios Skouris (President of the Court of Justice) mentions 3 tax cases amongst the most relevant cases of 2005. The referred cases are the unavoidable Marks & Spencer (UK), the non-less controversial D case (Netherlands) and the less-known Schemp case (Germany). This reference to 3 cases dealing with tax matters demonstrates ultimatly the impact of these 3 tax cases on the overall “development” of the jurisprudence of the ECJ.

Not a while ago, the whispers in the corridors of conferences was that ECJ jurisprudence was leading to some sort of tax harmonization through the backdoor, by forcing member states to adjust their direct tax systems. But these rumours have recently vanished and were even substituted with claims of a “change of hart” by the ECJ on direct tax issues. These claims are apparently supported by recent victories of tax authorities on landmark cases such as Marks & Spencer and the D case. No wonder that the joke is “please remain seated until this area of turbulence has passed”!

The choice of those 3 cases to appear in the Annual Report does not seem to be coincidence. If the denial of the MFN concept in the "D case" took some tax advisors by surprise, the outcome of the Marks & Spencer case can be said to lay a shadow on future cases. The significance of Marks & Spencer case is said to rest on the use of a new justification, which apparently is already being used by Member States to defend other infringements of EU Law. Below I summarize very briefly the cases mentioned by the ECJ report.

Case C-446/03 Marks & Spencer
In the Marks & Spencer case the ECJ had to deal with a claim by M&S to the UK tax authorities for group tax relief in respect of the losses incurred by its German, Belgian and French subsidiaries. The problem lied in the fact that UK tax legislation, which allowed, under certain circumstances, the parent company of a group to effectively offset profits and losses incurred by its subsidiaries, denied that same group relief to subsidiaries not resident or trading in the UK (foreign subsidiaries). The ECJ surprisingly held that the UK legislation constitutes a restriction on freedom of establishment since it applied a different treatment for tax purposes to losses incurred by a resident subsidiary and losses incurred by a non-resident subsidiary. Nevertheless, the story was far from the end and the ECJ acknowledged that such a restriction may be justified. In that regard, the Court set out objective criteria that demonstrate that such legislation pursues legitimate objectives that are compatible with the EC Treaty. The ECJ considered that the fact that the UK legislation (I) protects the balanced allocation of the power to impose taxation between the various Member States; (ii) provides for avoidance of the risk of double use of losses; and (iii) limits the risk of tax avoidance, results in such legislation being compatible with the EC Treaty. But the ECJ was still not truly satisfied in complicating the mater (with the above 3 justifications) and further added that UK legislation did not comply with the principle of proportionality if there would be no more possibility for the foreign subsidiary’s losses to be taken into account in its State of residence. This means that only if M&S would demonstrate to the UK tax authorities that all possibilities to take into account the losses in Germany, Belgium and France were exhausted then the loss would be taken into account! But this, as you imagine, is very difficult to prove… In my humble opinion this mess could have been simply avoided by saying that since UK does not tax the non-resident company such losses should not be taken into account by the parent company (i.e. there is no difference in treatment or restriction if the first place).

Case C-376/03 D case
In the D case the ECJ scrutinized the Dutch wealth-tax regime, which only granted an allowance to non-residents if at least 90% of the non-residents wealth was in the Netherlands. But the central issue in this case was not the domestic rule but a provision in the tax treaty between the Netherlands and Belgium, which extended to Belgian nationals the said allowance, whatever the proportion of their net assets located in the Netherlands. The ECJ was called to answer whether the difference in treatment created between Belgian nationals and nationals of other Member States (arising from the said allowance included in a tax treaty) was consistent with Articles 56 and 58 of the EC Treaty. This was basically the Most Favored Nation (MFN) argument in EC Law. Again in a controversial decision, the ECJ simply preferred to refer that Member States are at liberty, in the framework of tax treaties, to determine the connecting factors for the purposes of allocating powers of taxation and that it has accepted that a difference in treatment between nationals of the two contracting States that results from that allocation cannot constitute discrimination contrary to Article 39 EC. The ECJ hided behind the reciprocity element of tax treaties to state that the fact that reciprocal rights and obligations laid down by the Tax Treaty apply only to persons resident in one of the two contracting Member States is specifically an inherent consequence of tax treaties. I found particularly unsatisfactory the fact that this allowance (included in the tax treaty) can be said to be ultimately an incentive to invest in the Netherlands given to Belgium nationals and the fact that such provision, instead of being placed in the domestic tax code, is agreed in the framework of tax treaties “cures” this evident difference in treatment!

Case C-403/03 Schempp
In the Schempp case the issue in question concerned the deductibility for tax purposes of maintenance paid to a recipient resident in another Member State. In Germany, income tax legislation provides that maintenance payments to a divorced spouse are deductible but in case of non-resident recipients the deductibility is linked to the effective taxation of the recipient’s maintenance payments in the other Member State, proved by a certificate from the foreign tax authorities. In this case, since the former spouse was resident in Austria (where such maintenance payments are exempt at the level of the recipient) the German national was refused the deduction of its maintenance payments. In this case the ECJ observed that the unfavorable treatment simply derived from the difference between the German and Austrian tax systems with regard to the taxing of maintenance payments. The ECJ Court that the ECJ treaty offers no guarantee to a citizen of the Union that transferring his activities (or the transfer of his former spouse’s residence) to a Member State other than that in which he previously resided will be neutral as regards taxation.
Although this was not a case on one of the fundamental freedoms, it cannot be minimized the effect that the Court considered that the EC treaty does not guarantee a EU-citizen that a transfer of his activity to a Member State other than the one in which previously resided will be neutral for tax purposes.

Aren’t we all part of the same (EU) boat!

Hungary applies a registration tax on motor vehicles on their first entry into circulation in Hungary whether they are new or second-hand, purchased in Hungary or imported and/or brought in from another EU Member State *apparently this rule was changed or will be in the near future). The amount of the tax depends on the engine capacity, type of fuel used and emission standards. Nevertheless, the Hungarian registration tax does not take account of the depreciation undergone by the second-hand vehicle imported from another EU Member State. According to the recently issued opinion of Advocate General Sharpston (recently nominated to replace the former Advocate General Francis Jacobs, who retired at the end of December), it is clear from the Court’s case-law [that such treatment] is in principle contrary to the first paragraph of Article 90 EC (see point 62 of AG opinion on Case C-290/05).

But what grabbed my attention in this judgment was the part concerning the issue of limitation of the temporal effects. It is important to recall that this issue is central to two landmark cases still to be decided, the German Meilicke case and the Italian IRAP case. In the Meilicke the problem concerns the lack of tax credit in Germany for dividends received from foreign companies. In that case the Advocate General suggested that the ECJ put a temporal limitation to the application of its judgment to claims for reimbursement of unduly paid taxes. In the IRAP case regarding the incompatibility of the Italian Regional Tax (IRAP) with the EU VAT Sixth Directive the Advocate General also suggested a date for temporal limitation, namely the date of release of the conclusions of Advocate Jacobs (i.e. March 17, 2005). The reason for the use of that that was based on the fact that on that date the Italian Government learnt with a degree of certainty that IRAP was incompatible with the Sixth Directive. This has major impacts because if the ECJ follows such recommendation the decision would have effects only on claims raised before March 17, 2005.

In this case concerning the Hungarian registration tax the Advocate General does not consider that the existence of a risk of serious economic repercussions for Hungary has been proved, and therefore recommends the Court not to limit the temporal effect of its decision. In this case and rather surprisingly it was Poland and not Hungary that requested that, if the registration tax was to be found incompatible with EC Law, the Court should limit the temporal effect of that judgment (the spilling effects of other pending cases). Hungary simply got the message and raised the issue in the oral hearing! But the Advocate General did not close the book without mentioning that it would be undesirable if such a limitation were to be granted at the sole request of a different Member State!

Why should other EU states (in similar circumstances) be restricted to raise arguments on cases that may indirectly impact their revenue? After all aren’t we all part of the same (EU) boat! The conditions for budgetary instability, which can result from an ECJ decision cannot be said to affect only the State that is addressed in a particular case (in this case Hungary). Court cases in the area of tax have demonstrated in several instances that their consequences may easily spillover to other EU countries (e.g. Manninen). In addition, while Member States of the euro-zone are bound to the stability and growth pact (EMU) other States outside the euro-zone, are making an enormous effort to meet in the future those goals. Therefore, I see no problem in other countries (such as Poland) raising the issue of serious budgetary impact. The Advocate General simply needs to address whether there is serious budgetary impact or not.

Tax Treaty Moot Court

As I mentioned in my earlier post, the first IBFD Tax Day consisted of a moot court hearing before a distinguished panel of judges – Justice Arijit Pasayat (Indian Supreme Court), Philippe Martin (Franch Supreme Court) and John Avery Jones (UK Special Commissioner). The case before the court was a dispute between two states concerning the interaction between treaties and domestic law, the scope of the royalties article in treaties and timing issues and at the end of the day, the honourable judges delivered a very balanced judgment.

(a) Interaction between treaties and domestic law and the eventual treaty override issue

The first issue was basically whether the Circular issued and applied by the tax authorities of Appalaria goes beyond mere interpretation of the Treaty by unjustifiably broadening the concept of know-how and amounts to treaty override.

In their submission, the Applicant stated that Appalaria abused its discretion of developing domestic terminology for tax purposes by artificially construing a term (which is not even found in their domestic law) with the aim and effect of altering the equitable distribution of tax revenue. By this action, the applicant contended that Appalaria failed to perform the Treaty in good faith.

The applicant did not dispute whether Appalaria could have issue a definition of a term used in Section 111 but whether such changes was compatible with the context of the treaty. In the applicant’s view it was clear from the case, that the end result of the circular was the qualify items of income under Art 12 which would otherwise fall under Art 13 (technical services article) or art. 7 (business profits). By doing so, the applicant contended that Appalaria was simply draining out any purpose of Art. 13 of the treaty.

The applicant, enquiring why Appalaria acted in such a manner, alerted to the fact that the Circular was published in the same year (2002) when Pearonia signed a treaty with the Tangerine Republic. In that treaty, Peronia had relinquished source taxation on technical services and due to the MFN clause included in the Treaty between Appalaria and Pearonia, the reduced rate on royalties and the elimination of withholding tax on technical fees were to be extended to Pearonian residents investing in Appalaria.

The Applicant therefore submitted that by indirectly extending the domestic scope of know-how, Appalaria not only ignored the context of the treaty but also attempted to minimise the effects of the MFN clause. This is well demonstrated in the test case of Securobits.

Unanimously, the judges decided that a circular such as that in this case, which represented a mere opinion of the tax administration, could not as such constitute treaty override.

The question of the potential binding nature of the Circular was relevant to the outcome on this point. The facts of the case were deficient on this point and the Court naturally felt the necessity to clarify this issue. As such, considering that that the Circular did not qualify as Appalaria Law(*) and therefore was not defensible under a Court of Law, the treaty override issue did not arise.

(b) Application and interpretation of the Treaty to the case of Securobits

In addition to the treaty Override issue, this was also a case about the correct interpretation of the treaty, as well demonstrated in the matter of Securobits. In fact, the issue was whether in the matter of Securobits, the correct interpretation of the treaty should determine that: (i) the payments for the lists of potential customers qualify as business profits under the Treaty; (ii) the payments for the training (including the troubleshooting support services) qualify as technical services under the Treaty; (iii) the payments for assistance with the marketing campaign qualify as technical services under the Treaty.

In the first place, the issue required to decide if Art. 3(2) of the treaty applied, with the Applicant arguing for the context otherwise requiring (referring to the OECD Commentaries), while the respondent argued for internal legislation to apply.

The Court started by referring that the "payment for information concerning industrial, commercial or scientific experience" contained in Art. 12(2) of the treaty are not defined in the treaty. The judges started by looking to the provisions on both royalties and technical fees in the domestic law of Appalaria but realised that domestic law was not of great assistance to resolve the case since, expect to the demised Circular, there was no more guidance on how to interpret the term “information concerning industrial, commercial or scientific experience”. Taking into account the Circular was not law (see point above), the Court reverted to the OECD Commentaries to assert the context of the term in question.

The Applicant submitted that the Commentaries indicate that the term “information concerning industrial, commercial or scientific experience” included in the royalty definition of Art. 12 of the Treaty refer to the concept of know-how and that such Commentaries should provide valuable assistance in resolving this interpretative question. The Applicant emphasised that the essential element of know-how is the impart-principle. Imparting, which means more than mere communication, involves that the know-how provider introduces the other party to the special, undivulged knowledge/experience it has for the purpose of allowing that other party to use the know-how for its own account independently from the provider.

Using a dynamic interpretation, the applicant submitted that imparting necessarily implies a transfer of right to use the know-how and that the correct interpretation of that definition the term “use, or right to use” has to be understood to pertain to the second half of the definition, that is to “information concerning industrial, commercial or scientific experience”.

The Court on this point did not go so far as reading the words "use or right to use" in the case of payments for know-how, but nevertheless recognized that there is perhaps a distinction to be made between information made available to someone and the use or the right to use such information.

After deciding the question of principle, the Court addressed, with referance to the OECD Commentaries, each of the payments in question, recognizing thereby that the appropriate qualification of the payments should be determined by using a “break down” method.

(i) Customer list. Based on the facts, the Court did not fully agree on the characterization of the payment for the handing over of the customer list. Although one judge considered that the payment for the customer list should constitute a royalty payment insofar as the list was prepared using the knowledge and experience of the supplier and handed over in secrecy to the client, the Court considered that the payment for the customer list did not constitute royalties or fees for technical services, but business profit. The third judge considered the payment for the customer list to constitute technical fees because of the cooperation between the two companies.

(ii) Marketing campaign. The Court considered that the payment for the marketing campaign constituted technical fees because: (i) the assistance in the marketing campaign was not experience handed over but merely cooperation; (ii) the supplier kept tight control over the marketing campaign; and (iii) as a "comforting" argument, the remuneration was a lump-sum payment. A dissenting judge considered the payment for the marketing campaign should fall under the royalty article.

(iii) Training. The majority of the judges held the provision of training to constitute a service. However, a distinction was perhaps to be made (based on the facts) between the two types of training in the case; i.e. for ordinary staff and for high-level technical staff. In respect of training for high-level technical staff (who were being trained to build, operate and maintain a complex computer system), the distinction between royalties and technical fees was harder to make. The decision was taken on the grounds that the supplier did not reveal any specific secret to the client, and because the payment was based on the number of employees trained, rather than the value of any information revealed during the training. A dissenting judge considered the such payments should fall under the royalty article.

(c) Application of MFN clause

This issue of the MFN clause was less controversial and the judges held unanimously, that, Appalaria is acting manifestly in breach of the Treaty by requiring that tax be
withheld from the amounts paid to Securobits at the rate applicable in 2003 and not at the rate applicable in 2004, under the Treaty as modified from 1 January 2004 by the MFN clause.

The Court pointed out that as a general principle, negotiators could choose reciprocity or non-reciprocity in respect of the application of an MFN clause contained in a treaty. However, if the drafting of the MFN clause remains unclear, the MFN clause should be considered to be reciprocal, especially considering that, in the case in question, the treaty contained reciprocal ceilings in respect of withholding taxes.

The judges held that in respect to the timing issue, payments made in 2004 for services rendered in 2003 were subject to the rates applicable in 2004 (after the MFN clause in the case was activated) because Appalarian domestic law imposes withholding tax at the time of payment.

(*) It is important to recall that besides executive decrees and regulations, most tax administrations in continental European countries issue administrative commentaries, instructions and circular letters. Such administrative commentaries or instructions are, in some cases, binding only within the tax administration, and the interpretation contained therein is not binding externally, either on judges or on taxpayers. They are not binding on the taxpayers or the courts. For example, in France the instructions and circular letters issued by the tax administration are binding on it. In other countries, such as the UK, statements of revenue practice may be of great importance for the practical administration of the tax system, although they do not have the force of law.

How would a hypothetical International Taxation Court decide on a tax treaty issue?

This question would need a hypothetical case to arrive to such International Taxation Court. The IBFD tax day was the occasion and the result (in terms of academical exercise) exceeded the expectations of many of the participants.

Imagine a hypothetical dispute arising out of country responsibilities over the material breach a double taxation agreement. This hypothetical discussion was examined by an actual court dispute during the IBFD Tax Day, the first moot court on tax treaty application (which we expect in the future to be extended to universities).

Facts: Imagine that two countries (Appalaria and Pearonia) concluded a treaty. The Appalaria and Pearonia Treaty, which entered into force in 1997, generally follows the OECD Model Tax Convention. The following official statement accompanied the publishing of the Treaty in Pearonia:

“The treaty contains separate articles applying to royalties and technical service fees (Arts. 12 and 13, respectively), which allow taxation in the source state of up to 15% on royalties and 10% on technical service fees. After some discussion it was agreed to follow the definition of royalties suggested in the OECD Model Convention and to follow the definition of technical service fees that has been used in some earlier conventions signed by both countries.”

In 2002, Appalaria issued an administrative guidance, under the form of a circular letter, interpreting, inter alia, the concept of royalties (without having a definition itself in their domestic law). According to the preamble of the Circular, such guidance was aimed at clarifying uncertainties arising from several tax disputes in Appalaria, concerning the interpretation of the certain types of income subject to the withholding of tax, namely royalties.

The application of the Circular resulted in additional source taxation in Appalaria and consequently increased requests for foreign tax credits in Pearonia.

The Treaty included a most-favoured nation (MFN) clause covering amongst others royalties and fees for technical services. Accordingly, if Pearonia concludes a more beneficial treaty with another OECD member the same rate or scope as provided for in that more beneficial treaty shall also apply under the Treaty. The MFN clause is automatically activated as from the date on which the relevant Pearonia Convention or Agreement enters into force.

In 2002 Pearonia concluded a treaty with the Tangerine Republic (an OECD member), which disallows source state taxation of technical service fees, and limits source taxation of royalties to 5 %. This treaty was ratified in 2003 and entered into force on 1 January 2004.

The matter of Securobits, in which the two countries were unable to reach a mutual agreement, was selected as the test case of this dispute.

CompuTV (company resident in Appalaria) concluded a five-year agreement with Securobits (company resident in Pearonia) concerning security systems to be incorporated into the sound systems and televisions manufactured by CompuTV. According to the agreement, Securobits was required to supply various types of hardware, including hardware and software for a central control unit designed to collect and analyse customer information. In addition, Securobits was required to train CompuTV staff in several areas, namely in the installation of the control unit,
security systems and proper use by customers of the systems. Securobits was also required to assist CompuTV on a five-year marketing campaign in Appalaria and supply CompuTV with lists of potential customers. Finally, the agreement includes a license of Securobits logo, to be used in CompuTV products incorporating Securobits technology. The contract provides that payment for all goods and services supplied to CompuTV in a calendar year is to be paid within three months of the end of the year.

In March 2004, when CompuTV paid Securobits, tax was withheld at 5% from the payments for use of the Securobits brand name and logo.

Appalarian tax authorities later reassessed CompuTV and required tax to be at 15% on all the payments except for the payments for the chips, sensors software and other security apparatus.
Securobits requested Pearonia to initiate a mutual agreement procedure with Appalaria to resolve the issue of double taxation, but the two tax authorities failed to reach an agreement. Pearonia submitted a claim against Appalaria in the International Taxation Court to resolve the dispute.

Pearonia requested that the International Taxation Court to decide:
i) Whether the Circular issued and applied by the tax authorities of Appalaria goes beyond mere interpretation of the Treaty and amounts to treaty override;
ii) Whether in the matter of Securobits, the correct interpretation of the treaty should determine that:
- the payments for the lists of potential customers qualify as business profits under the Treaty;
- the payments for the training (including the troubleshooting support services) qualify as technical services under the Treaty;
- the payments for assistance with the marketing campaign qualify as technical services under the Treaty.
ii) Whether Appalaria is acting manifestly in breach of the Treaty by requiring that tax be withheld from the amounts paid to Securobits at the rate applicable in 2003 and not at the rate applicable in 2004, under the Treaty as modified from 1 January 2004.

I plan in the comming days (if time allows) to report on the almost full victory on Pearonia, (which lost only on the issue of treaty override!). In the meantime, you can read through more detailed case facts or go immediately for the winning pleadings of Pearonia!