Branch income remitted to foreign head taxation

[Marzio]

Here i am again with a branch taxation question.

In all double tax treaties article 7 says that " The business profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment"

I asked a tax planner if based on that sentence, once branch profits are remitted to the foreign head company, those will be exempt from CIT (since it was already taxed at the branch level) but the guy couldn't confirm this because doesn't have a clue.

Does anyone know if that's the case?

It's not a country specific question since all tax treaties contain that line.

 

[Martin Everson]

Sorry but the countries involved does matter here. EU for example has EU parent-subsidiary directive. So you don't get taxed if the dividend qualifies under that directive and has already been taxed.

https://europa.eu/youreurope/busine...es-parent-companies-subsidiaries/index_en.htm

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Marzio]

Martin, i'm not talking about subsidiaries. I'm talking about branches of the same company.

 

[Martin Everson]

I don't mean to be rude by why are you using a branch? Whats your logic for this?

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[Marzio]

Because i need to access a particular treaty that i would need be able to access with a subsidiary

 

[Martin Everson]

Does not make sense what you wrote.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Marzio]

Martin Everson said:
Does not make sense what you wrote.
Click to expand...

It's called triangular PE

Country A has a favorable treaty with country B.

I have a company in country B

Country B has unfavorable tax rate.

Country B has a treaty with country C

Country C has lower tax rate but doesn't have treaty with country A

By establishing a branch in country C i have access to country B treaty with country A because the branch is part of the same company and at the same time favorable taxation of country C.

Article 7 of the treaty between country B and country C says that business profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.

Having said all that my question is if branch profits remitted from country C to country B will be taxed in country B or not. I would say that those profits will not be taxed in country B because they were already taxed in country C.