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China; Netherlands: Renegotiated Double-Tax Treaty in Force

(Oct. 10, 2014) On August 31, 2014, a new income tax treaty and a protocol signed by China and the Netherlands on May 31, 2013, entered into force. The two instruments apply to income received on or after January 1, 2015. (China and Netherlands Ratify New Tax Treaty and Protocol, TAX ALERT (Aug. 27, 2014).) The agreements update and improve the former treaty of 1987 in a number of provisions, according to Dutch officials. (New Tax Treaty Signed with China (May 31, 2013), Government of the Netherlands website.)

Some highlights of the agreement are:

  • Reduction of the withholding tax rate on dividends “from the current 10% to 5% if a corporate beneficial owner directly holds at least 25% of equity interest in the distributing company,” a provision that reportedly reflects “the general trend of other tax treaties recently renegotiated by China.” (China and Netherlands Ratify New Tax Treaty and Protocol, supra; Agreement, art. 10(2) ¶ 1(a).)
  • Reduction of the effective withholding tax rate on royalties involving “the use of, or the right to use, any industrial, commercial or scientific equipment,” to 6%.; the 10% effective rate in all other cases is maintained. (Id.; Agreement, art. 12.)
  • Relief from capital gains tax, if a share transfer from a company represents, directly or indirectly, less than 50% of the shares’ value attributable to immovable property and if the share transferor holds, directly or indirectly, less than 25% of equity interest in the company for the 12-month period preceding the transfer. (China and Netherlands Ratify New Tax Treaty and Protocol, supra; Agreement, art. 13(4) & (5).)
  • Inclusion of a new rule protecting the right of each party to apply its domestic laws and measures on the prevention of tax evasion and avoidance insofar as they do not result in taxation that contravenes the Agreement. (Agreement, art. 23.)

Among other newly negotiated double-tax avoidance treaties, China’s renegotiated 1984 double tax treaty with the United Kingdom, signed on June 27, 2011, entered into force on December 13, 2013, and its renegotiated 1985 double-tax treaty with Belgium, signed on October 7, 2009, entered into force on January 4, 2014. China’s renegotiated 1985 treaty with France, signed on November 26, 2013, and China’s renegotiated 1985 treaty with Germany, signed on March 28, 2014, are pending entry into force. (Entry into Force of the UK/China Double Taxation Agreement and Protocol, HM Revenue & Customs website (Dec. 2013); Jan Bogaert, Thierry Denayer, & Jan Albrecht Jost, New Tax Treaty Between Belgium and China Enters into Force Today, STIBBE (Jan. 3, 2014); Charlie Sun, China and France Signed New Double Taxation Treaty, CMS (Jan. 13, 2014); China and Germany Signed a New Tax Treaty, 8 CHINA TAX AND BUSINESS ADVISORY (Apr. 2014); & for former tax treaty texts between China and other countries, including the one with the Netherlands, see Effective Tax Treaties, State Administration of Taxation of the People’s Republic of China website (last visited Oct. 9, 2014).)