UNITED STATES TREASURY DEPARTMENT TECHNICAL EXPLANATION OF CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE KINGDOM OF BELGIUM FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME（三） ARTICLE 19 Governmental Functions 　　The existing Convention exempts compensation including pensions and annuities paid by one of the States or a political subdivision or territory thereof to a citizen of that State residing in the other State (whether or not also a citizen of the other State) from taxation by that other State. The proposed Convention continues the exemption but adds a specification that the compensation must be paid in connection with the discharge of functions of a governmental nature. Compensation paid in connection with industrial or commercial activity is treated the same as compensation received from a private employer. The provisions relating to dependent personal services, private pensions and annuities, and social security payments would apply in such a case. The proposed Convention extends the category of individuals who are eligible for the exemption to citizens of a third State who come to a State expressly for the purpose of being employed by the other State, a political subdivision, or a local authority thereof. ARTICLE 20 Teachers The existing Convention provides that teachers who are citizens of one State and who, pursuant to agreements between the States or teaching establishments in the States, accept a teaching position at an educational institution in the other State shall be exempt from taxation in such other State on remuneration received for such teaching, for a maximum period of two years. The proposed Convention continues and broadens the 2-year exemption period for visiting teachers. This exemption applies to an individual who is a resident of one State at the time he is invited by the other State or by a recognized educational institution of the other State to teach or do research in the other State and temporarily comes to such other State in order to engage in such teaching or research. Invitation may be by the Government or a university or other recognized educational institution and research or teaching must be done at such university or other recognized educational institution. For purposes of the United States, the term "recognized" will be construed to mean accredited. However, the exemption does not apply to income from research undertaken not in the public interest but primarily for private benefit of a specific person or persons. If the individual's visit exceeds a period of 2 years from the date of arrival, the exemption applies to the income received by the individual before the expiration of such 2-year period. ARTICLE 21 Students and Trainees Under the existing Convention remittances received from within one State by citizens of that State residing in the other State for the purpose of study are exempt from tax by the other State. The OECD Model Convention includes a similar provision. The proposed Convention expands the exemption available to students by providing that an individual who is a resident of one State at the time he becomes temporarily present in the other State for the purpose of studying at a university or other recognized institution. of securing training for qualification in a profession or of studying or doing research as recipient of a grant, allowance, or award from a governmental, religious, charitable, scientific, literary, or educational institution is exempt from tax in the host State on: (1) Gifts from abroad for his maintenance and study; (2) The grant, allowance, or award; (3) Income from personal services performed in the host State not in excess of $2.000 (or　its equivalent in Belgium francs) for any taxable year. 　　These exemptions continue for such period of time as may be reasonably or customarily required to effectuate the purpose of his visit but in no event may an individual have the benefit of this Article and Article 20 (Teachers) for more than a total of 5 taxable years from the date of arrival. In addition, a resident of one State employed by or under contract with a resident of that State who, at the time he is a resident of that State, becomes temporarily present in the other State for the purpose of studying, or acquiring technical, professional, or business experience from a person other than a resident of the first-mentioned State or a person related to such resident, is exempt from tax in the host State on income not in excess of $5,000 (or its equivalent in Belgian francs) from personal services rendered in the host. The individual is exempt for a period of 12 consecutive months which period commences with the first month in which he begins working or receiving compensation. 　　Also an individual who is a resident of one State and who is temporarily present in the host State as a participant in a government program of the host State for the primary purpose of training, research, or study is entitled to an exemption by the host State with respect to his income from personal services relating to such training, research, or study performed in the host State in an amount not in excess of $10,000 (or its equivalent in Belgium francs). To be entitled to this exemption the program must be a program which does not exceed 1 year in duration. If this qualification is met, then the income from personal services received with respect to such program is exempt. 　　If an individual qualifies for the benefits of more than one of the provisions of the personal services articles, he may choose the provision most favorable to him, but he may not claim the benefits of more than one provision in any taxable year as a means of avoiding the limitations provided. ARTICLE 22 Income Not Expressly Mentioned 　　This Article of the proposed Convention contains a general rule that items of income of a resident of one of the States which are not expressly mentioned in the foregoing articles of the proposed Convention shall be taxable only in that State except that, if such income is derived from sources within the other State, that other State may also tax such income. This rule provides for the same result as found in paragraph (1) of Article 22 (General Rules of Taxation) of our French Convention which provides that any income from sources within a State to which the Convention is not expressly applicable will be taxable by that State in accordance with its own law. For example, because income from prizes or awards is not generally covered by the Convention, such income will ordinarily be taxed in accordance with the internal law of the State from which such income is derived. However, this Article does not apply to industrial and commercial profits attributable to a permanent establishment since such income is expressly covered in Article 7 (Business Profits). The existing Convention does not contain an express statement of this general rule. The OECD Model Convention differs on this point and provides that income which is not expressly mentioned will be taxable only in the State of residence. In any event it should be noted that the proposed Convention specifically covers most types of income. ARTICLE 23 Relief from Double Taxation 　　Under the existing Convention the United States provides relief from double taxation by allowing a credit for Belgian tax which credit shall not exceed that proportion of the United States tax which the net income from sources within Belgium bears to the total net income of such citizen or resident. 　　The proposed Convention employs the same method of avoiding double taxation. It provides that subject to the provisions of United States law applicable for the taxable years, a credit against United States tax will be allowed to a citizen or resident of the United States for Belgian tax paid. The credit is based upon the amount of tax paid to Belgium but may not exceed the amount of United States tax attributable to such income. Except for the special source rules provided by the Convention, this provision does not add to the rights which a United States citizen or resident has to the foreign tax credit. but is for the purpose of giving treaty recognition to such rights. Modifications in United States law after the effective date of the Convention which concern the foreign tax credit will be applicable with respect to Belgian source income if such modifications do not contravene the general principle of the Convention. The proposed Convention also contains the traditional savings clause under which the United States reserves the right to tax its citizens and residents as if the Convention had not come into effect. However, the savings clause does not apply in several cases in which its application would contravene policies reflected in the Convention. Thus, the savings clause does not affect the provisions with respect to the foreign tax credit, social security payments, nondiscrimination, or mutual agreement procedure. Moreover, the savings clause will not deny the benefits of the Convention to governmental employees or teachers or students unless such individuals are citizens of the United States or have immigrant status in the United States. 　　In the case of Belgium the Article provides a detailed procedure for the avoidance of double taxation. Generally, the method used is the exemption method but in some circumstances, it is the credit method. This system of avoidance of double taxation is similar to that found in the existing Convention. The provisions are based upon the law of Belgium relating to the imposition of tax on Belgians receiving income from outside Belgium. However, under this Article, present Belgian statutory law is liberalized with respect to (1) United States source dividends received by a Belgian corporation. (2) United States source business and personal services income, and (3) certain items of United States source income received by a citizen of the United States who is a resident of Belgium. These provisions are contained in paragraph (3) of Article 23 of the proposed Convention. Subparagraph (a) of paragraph (3) corresponds to subparagraph (f) of paragraph (3) of Article 12 of the existing Convention. Under this provision, items of income which are not subject to the provisions of subparagraphs (b) through (d) and which have been taxed by the United States in accordance with the provisions of Articles 6 through 21, are exempt by Belgium from tax. But, Belgium may take such items of income into account for the purpose of determining the rate of tax which is to be applied against the remaining income. The items of income included in this provision are (1) industrial and commercial profits subject to United States tax by reason of their being attributable to the maintenance by the taxpayer of a permanent establishment in the United States; (2) income from real property situated in the United States; (3) salaries. pensions, and annuities paid by the United States or by any political subdivision thereof to United States citizens or other individuals who qualify for the governmental exemption and reside in Belgium; (4) compensation for labor or personal services performed in the United States and taxed by the United States in accordance with the dependent or independent personal services Articles, and (5) any other business or personal service income which may be taxed by the United States in accordance with the Convention. Also included within the scope of subparagraph (a) are items of income that are covered by subparagraph (g) of the existing Convention. These items are interest, dividends, and royalties which are taxed by the United States by reason of the fact that they are effectively connected with a permanent establishment in the United States maintained by a Belgian taxpayer. Subparagraph (b) conforms generally to subparagraphs (c) and (d) of the existing Convention. Subparagraph (b) grants a credit based upon existing Belgian law subject to any subsequent modification thereof which, however, may not affect the principles of existing law, for dividends received by an individual and interest and royalties received by any resident of Belgium. The credit is allowed against the tax imposed on the net amount of dividends from corporations in the United States as well as of interest and royalties from sources in the United States which have been taxed there. At the present time the credit is an amount equal to 15 percent. This is fixed by Belgian law regardless of the amount of tax paid. 　　Subparagraph (c) is a new provision dealing with income not expressly mentioned which is taxable by the State of source under Article 22 (Income Not Expressly Mentioned). Under this provision where a resident of Belgium receives income which has been taxed by the United States under Article 22 (Income Not Expressly Mentioned) the amount of Belgian tax proportionately attributable to such income shall not exceed the amount which would be imposed in accordance with Belgian law if such income were taxed as earned income derived from sources outside Belgium and subject to foreign tax. In the case of corporations, the rate would be one-fourth the normal rate. In the case of individuals, the rate would be one-half the normal rate. 　　Subparagraph (d) corresponds to subparagraph (a) of the existing Convention. This provision has the effect of incorporating into the Convention the present statutory treatment of corporations or other entities. It provides that dividends taxed by the United States under paragraph (2) of Article 10 (Dividends) of the Convention at the reduced 15-percent rate shall be exempt from Belgian corporate income tax to the extent that such exemption would be granted under Belgian law if both corporations were Belgian corporations subject to the Belgian corporate income tax. The Belgian law to be applied is the Belgian law applicable at the time the dividends were received by the Belgian corporation. Under present Belgian law the amount of the exemption is 95 percent (90 percent in the case of portfolio holding companies) of the amount of the dividend after reduction for all taxes including the United States withholding tax and the Belgian personal property prepayment (précompte mobilier). This provision does not prohibit the withholding from these dividends of such précompte as imposed by Belgian law. The present rate of tax is 10 percent of the amount of the dividend actually received by the Belgian corporation. Subparagraph (e) corresponds generally to subparagraph (b) of the existing Convention and provides an exception in favor of United States source dividends to the rules provided in subparagraph (d) dealing with the imposition by Belgium of the tax on dividends (précompte mobilier) received by a Belgian corporation or other entity subject to Belgian corporate tax. This exception is in addition to the exemption provided in subparagraph (d). Under this provision a Belgian corporation which receives dividends from a United States corporation on stock which has been directly owned by that Belgian corporation during the whole of the accounting period of the United States corporation which is subject in the United States to tax on its profits may elect to have such dividends exempted from the Belgian personal property prepayment (précompte mobilier) ordinarily applicable to such dividends. A Belgian corporation may elect this treatment by making a written request for such exemption when filing its annual tax return or before the expiration of the period allowed for the filing of such return. Under this provision the Belgian corporation deriving a dividend from a United States corporation (after the withholding of United States tax at the source at the 15-percent treaty rate) 　　(1) will not be required to pay the personal property prepayment otherwise due on receipt, and 　　(2) will be permitted to calculate its statutory corporate income tax exemption (as provided in subparagraph (d)) on the full dividend received. This permits the qualified Belgian corporation receiving dividends from United States　corporations to accumulate or reinvest a larger portion of such dividends than would be the case under Belgian law in the absence of this treaty provision. However, dividends accorded this exemption can not be deducted for purposes of determining the personal property prepayment applicable to dividends distributed by the recipient corporation or other entity to its shareholders or members. This provision differs from the existing provision in that, if Belgian legislation ever imposed a 10-percent ownership requirement for eligibility of the 90 and 95 percent dividend exemption for intercorporate dividends, then such similar 10-percent ownership requirement would also apply in order for a Belgian corporation to obtain the benefits of this provision. Subparagraph (f) is generally comparable to subparagraph (e) of the existing Convention. 　　This provision contains special relief with respect to certain income derived by a citizen of the United States who is a resident of Belgium and thus liable to income tax in both States on a worldwide basis. The existing provision provides that the Belgian individual income tax proportionately attributable to dividends, interest, pensions, annuities, or royalties received by a citizen of the United States residing in Belgium from sources within the United States may not exceed 15 percent of that income after allowance of the lump-sum foreign tax credit. Though residence in Belgium would ordinarily entitle individuals to an exemption from, or reduction in the rate of, United States tax on specified items of income under the Convention. such benefits are not available to United States citizens. The existing and proposed provisions provide a measure of relief in these circumstances by reducing the amount of Belgian tax which can be imposed on the specified items of income. The proposed provision provides that the Belgium income tax proportionately attributable to the dividends, interest, or royalties received by a citizen of the United States residing in Belgium from sources within the United States may not exceed 20 percent of that income after allowance of the lump-sum foreign tax credit. The existing provision was based on a personal property prepayment at the rate of 15 percent, which is now 20 percent. In the case of other income concerned, the amount of tax which would be imposed is the amount which would he imposed if such income were taxed as earned income derived from sources outside Belgium and subject to a foreign tax. This provision only applies to income which is not exempt from Belgian tax under subparagraph (a) or covered by subparagraph (c) which covers items of income not expressly mentioned. Subparagraph (g) generally corresponds to subparagraph (h) of the existing Convention. 　　Proposed subparagraph (g) provides that when, in accordance with Belgian law, losses incurred by a resident of Belgium in a permanent establishment situated in the United States have been effectively deducted from the profits of that resident for purposes of his taxation in Belgium, the exemption provided in subparagraph (a) should not apply in Belgium to the profits of other taxable periods attributable to the permanent establishment to the extent that those profits have 　　also been reduced for United States tax purposes by reason of allowance of such losses. Paragraph (4) provides for relief from double taxation in accordance with the principles of paragraphs (2) and (3) in the case of a corporation which is treated as a United States corporation for United States tax purposes and a Belgian corporation for Belgian tax purposes. ARTICLE 24 Nondiscrimination 　　Paragraph (3) of Article 20 of the existing Convention provides that citizens or corporations or other juridical persons of one State will not be subjected to more burdensome taxes in the other State than are imposed on the citizens or corporations or other juridical persons of such other State. The proposed Convention substitutes a modernized nondiscrimination Article which bans discrimination by one State against the citizens of the other State or permanent establishments of residents or corporations of the other State. Thus, for example, a citizen of Belgium who is a resident of the United States and who meets the requirements specified in section 911 of the Internal Revenue Code would, under this Article of the proposed Convention, be eligible for the benefits of section 911 although he is not also a citizen of the United States. 　　This Article provides, however, that a State may accord special treatment to its own residents on the basis of civil status or family responsibility. 　　This Article also deals with the fact that Belgian domestic law provides for a lower rate on distributed earnings of a Belgian corporation (30% basic rate) than on retained earnings of a Belgian corporation (up to 35% basic rate) and applies only the higher rate to the income of a Belgian permanent establishment of a foreign corporation. This is recognized as discriminatory and the proposed Convention provides that in the case of a Belgian permanent establishment of a United States corporation the lower rate for retained earnings will apply to that part of the earnings of the permanent establishment deemed distributed. It is provided in this Convention that the permanent establishment is deemed to distribute the same percentage of its earnings as the corporation of which it is a part distributes of its earnings. The provision permits Belgium, however, to impose its surcharge on the higher rate consistent with its domestic law.The ban on discrimination extends to all taxes without regard to subject matter and whether imposed at the national, State or local level. 　　This Article is substantially similar to the nondiscrimination Article of the OECD Model Convention except that the Model includes a provision concerning Stateless persons which has been omitted from the proposed Convention. ARTICLE 25 Mutual Agreement Procedure 　　This Article modernizes the mutual agreement procedures found in the existing Convention by adopting provisions similar to those in the recent amendments to our Conventions with the Netherlands, the United Kingdom, and the Federal Republic of Germany and in our recently revised Convention with France. When a resident of one State considers that action of one or both States has resulted, or will possibly result, in taxation contrary to the provisions of the proposed Convention, such resident may present his case to the competent authority of the State of which he is a resident within 2 years from the date the resident is notified (or collection is made at the source) of the tax (or, where the problem arises from inconsistent action of both States, within two years from the date the resident is notified, or from collection at source, of the tax which has been last asserted or collected). This remedy is in addition to any remedy provided by the national laws of either State. 　　This Article contemplates that the competent authority of the two States will endeavor to settle by mutual agreement such cases of taxation not in accordance with the Convention as well as any other difficulties or doubts arising as to the application of the Convention. Some particular areas on which the competent authorities may consult and reach agreement are the amount of industrial and commercial profits to be attributed to a permanent establishment, the allocation of income, deductions, credits, or allowances between a resident and a related person, the determination of source of particular items, and the meaning of any term used in the Convention. In implementing the provisions of this Article, the competent authorities will communicate with each other directly and meet together for an exchange of oral opinions when advisable. 　　In cases in which the competent authorities reach agreement with respect to a particular matter, taxes will be adjusted and refunds or credits allowed in accordance with such agreement. 　　This provision permits the issuance of a refund or credit notwithstanding procedural barriers otherwise existing under state's law, such as the Statute of Limitations. This provision w ill apply only where agreement or partial agreement has been reached between the competent authorities and will apply in the case of any such agreement after the Convention goes into effect even though the agreement may concern taxable years prior thereto. Revenue Procedure 70-18 sets forth the procedure followed by the United States in implementing its obligations under this type of Article. ARTICLE 26 Exchange of Information 　　This Article provides for a system of administrative cooperation between the competent authorities of the two States and specifies conditions under which information may be exchanged to facilitate the administration of the Convention and to prevent fraud and the avoidance of taxes to which the Convention relates. 　　Information exchanged is treated as secret and may not be disclosed to any persons other than those (including a court or administrative body ) concerned with the assessment, collection, enforcement, or prosecution of taxes subject to the Convention, but this does not prohibit disclosure in the course of a court proceeding. In no case does this Article impose an obligation on either state to disclose trade secrets or similar information or to carry out administrative measures or supply particulars where such action would be at variance with the laws or administrative practice of that State, or contrary to public policy. In general, the standard for the exchange of information is the standard used by the States in the enforcement of their own laws by administrative and judicial authorities. 　　The mutual exchange of information called for by these provision is presently in effect in most of the conventions to which the United States is a party and is substantially similar to the provision contained in the existing Convention. ARTICLE 27 Assistance in Collection 　　This Article, substantially similar to the assistance in collection Article in the existing　Convention, provides for mutual assistance in the collection of taxes where required to avoid an abuse of the Convention. The provision is intended merely to insure that the benefits of the Convention will only be available with respect to persons entitled to such benefits; it does not in any way alter rights under other provisions of the Convention. 　　The Article provides that each State will endeavor to collect for the other State such amounts as may be necessary to insure that any exemption or reduced rate of tax granted under the proposed Convention will not be availed of by persons not entitled to those benefits. 　　However, this Article will not require a State, in order to collect taxes which are imposed by the other State, to undertake any administrative measures that differ from its internal regulations or practices nor will this Article require a State to undertake any administrative or judicial measures which are contrary to that State's sovereignty, security, or public policy. ARTICLE 28 Miscellaneous This Article contains provisions normally found in other parts of tax conventions to which the United States is a party. Paragraph (1) is identical to Article 28 of the French Convention. This paragraph preserves the existing fiscal privileges of diplomatic and consular officials under the general rules of international law or under the provisions of special agreements. Paragraph (2) is substantially identical to paragraph (3) of Article 22 of the French Convention. This continues the general rule of taxation found in most tax conventions that the Convention does not affect in any manner any exclusion, exemption, deduction, credit, or other allowance now or hereafter accorded by the laws of a State in the determination of tax imposed by that State, or by any other agreement between the States. Even though the OECD Model Convention does not contain a comparable provision, this rule reflects the well-established 　　principle that the Convention will not have the effect of increasing the tax burden on residents of the signatory countries. This rule represents the position of the United States under all conventions to which it is a party except that, to the extent a Convention specifically provides, it may be necessary to waive certain rights as a condition of claiming more advantageous treaty benefits. Paragraph (3) provides that the competent authorities of the two States may communicate with each other directly for the purpose of carrying out the provisions of this Convention. ARTICLE 29 Extension to Territories 　　This Article provides a method for extending the Convention, either in whole or in part or with such modifications as may be found necessary for special application in a particular case, to all or any areas for whose international relations the United States is responsible and which area imposes taxes substantially similar in character to those which are the subject of the Convention. 　　It is limited to extension by the United States since Belgium no longer has any colonies or territories. 　　Extension to an area may be accomplished through a written notification given to　Belgium through diplomatic channels. Belgium shall indicate its acceptance by a written　communication through diplomatic channels. When the notification and communication have been ratified in accordance with the constitutional procedures of each State and instruments of ratification exchanged, the extension will take effect from the date of, and be subject to such conditions as are specified in, the notification. Without such acceptance and exchange of instruments of ratification in respect of an area, none of the provisions of the Convention shall apply to such areas. 　　Either of the States may terminate an extension with respect to any area by 6 months' prior written notice of termination given to the other State at any time after the date of entry into force of the extension. The termination will take effect for taxable years beginning on or after the first day of January next following the expiration of the 6-month period. The termination of an extension to a particular area will not affect the application of the Convention to the United States, Belgium, or any other area to which the Convention has been extended. 　　Termination of the Convention by either State in accordance with Article 31 (Termination) shall, unless otherwise expressly agreed by both States, terminate the application of the Convention to any area to which the Convention has been extended under this Article. ARTICLE 30 Entry into Force 　　This Article provides for the ratification of the proposed Convention and for the exchange of instruments of ratification. The Convention will enter into force one month after the data of exchange of such instruments. However, the provisions shall first have effect with respect to income of calendar years or taxable years beginning (or in the case of taxes payable at source, payments made) on or after January 1, 1971. 　　The entry into force of the proposed Convention will terminate the Convention of October 28.1948, the Supplementary Conventions of September 9, 1952, and August 22, 1957, as well as the Protocol of May 21, 1965. ARTICLE 31 Termination 　　The Convention will continue in effect indefinitely, but may be terminated by either State at any time after the year 1975. A State seeking to terminate the Convention must give notice at least 6-months before the end of the calendar year through diplomatic channels. If the Convention is terminated, such termination will be effective with respect to income of calendar years or taxable years beginning (or, in the case of taxes payable to source, payments made) on or after January 1 next following the expiration of the 6-month period. However, upon prior notice to be given through diplomatic channels, the provisions of Article 17 (Social Security Payments) may be terminated by either State at any time after this Convention enters into force. October 6, 1970.