handbook-tb

Taxation of non-residents’ capital gainsdebtors? 64 Since whatever is not immovable property will be regardedmovable property, unless there is a subsequent paragraph in Article13 that prescribes a specific rule (for example, for ships, aircraft andshares), one might infer that capital gains taxation (without PE) is precludedby paragraph 2. If under the same treaty, interest on loans (andrent or royalty from leases, licences and other agreements covered bythe “Royalties” article) remain taxable in the source country, a sharpinconsistency between the treatment of income and of gain from thesame asset would result.As discussed below, this difficulty is not necessarily resolvedeven when the contracting States agree to retain residual taxing rightsfor the source State over gains not otherwise enumerated in Article 13.5.3 Entities holding immovable property directly orindirectlyArticle 13 (4) of the United Nations Model Convention provides taxingrights over “gains from the alienation of shares of the capital stock ofa company, or of an interest in a partnership, trust or estate, the propertyof which consists directly or indirectly principally of immovableproperty situated in a Contracting State” to that State. 65 The UnitedNations Commentary notes that the provision:is designed to prevent the avoidance of taxes on the gains fromthe sale of immovable property. Since it is often relatively easyto avoid taxes on such gains through the incorporation of acompany to hold such property, it is necessary to tax the saleof shares in such a company … In order to achieve its objective,paragraph 4 would have to apply regardless of whether the companyis a resident of the Contracting State in which the immovableproperty is situated or a resident of another State … In64Similar questions can be raised for transfers of lease contracts withdomestic lessees, or of licences with domestic licensees, and so on, where thelessor, licensor, etc., has no PE in the source country.65Article 13 4 (b) defines “principally” in relation to ownership ofimmovable property to mean “the value of such immovable property exceeding50 per cent of the aggregate value of all assets owned by the company,partnership, trust or estate.”137