Capital gain: State Council re-affirms the possibility of taxation for the State of residence
According to Article 13 of the OECD Model Tax Convention, the state of residence has a residual right to tax the capital gain, which arises from from the alienation of property or shares in companies with a preponderance of property, and the obligation to eliminate possible double taxation. The source state has a priority right of taxation.
Real-life example (Franco-Brazilian Convention)
In this case, a taxpayer, residing in France, sold shares of a Brazilian company to a US company for a sum of 3 million euros. The taxpayer did not declare this capital gain as he believed that it was only taxable in Brazil.
The administration notified him of the additional tax and social security contributions that they believed he was liable for, since they judged that the capital gain should have been taxed in France.
The taxpayer applied for relief of the additional contributions to the Administrative Court of Lyon. The Administrative Court rejected his request but this decision was subsequently overruled by the Adminstrative Court of Appeal of Lyon.
The State Council overturned the decision of the Court of Appeal stating that Article 13 of the Franco-Brazilian Convention does not give an exclusive right to taxation in Brazil.
This judgement illustrates the complications that may arise in the application of international treaties, which require comprehensive knowledge and mastery of domestic and international tax law. Our team is at your disposal to assist you in understanding international tax treaties and their application [email protected]