The Ghent Court of Appeal has held that no professional withholding tax was due on payments made to a German company for its performance in Belgium (decision of 21 March 2006, not yet published).
The facts were as follows:
– In 1993 a Belgian company hired German artists, through an artiste company, for a performance in Belgium.
– Contrary to the guidelines of the Belgian tax authorities, the organizer did not withhold any tax on the amounts paid to the German company.
– The Belgian tax authorities imposed tax on the Belgian organizer.
– The organizer stated that, in accordance with Article 7 of the double tax convention between Belgium and Germany (DTC), no withholding tax was due since the German artiste company did not have a permanent establishment in Belgium.
– In the tax authorities? opinion Article 17 of the DTC should have been applied instead of Article 7. According to Article 17 Belgium has the right to tax the income a German artist receives for his “personal independent activities” in Belgium.
The Court stated that the DTC between Belgium and Germany did not contain an anti-avoidance rule similar to that in Article 17(2) of the OECD-model convention. Based on this paragraph the state of performance could levy taxes on payments to a foreign company for performances rendered in that state, even in the absence of a permanent establishment. Since the German company had no permanent establishment in Belgium, the Court held that no professional withholding tax was due. Note that in the judgment no reference is made to the “look-through”-approach as included in the amended OECD commentary on Article 17.