Technical Explanation PDF

TECHNICAL EXPLANATION OF U.S. - BELGIUM INCOME TAX CONVENTION,
SIGNED JULY 9, 1970
(DEPARTMENT OF THE TREASURY)
GENERAL EFFECTIVE DATE UNDER ARTICLE 30: 1 JANUARY 1970
TABLE OF ARTICLES
Article 1----------------------------------Personal Scope
Article 2----------------------------------Taxes Covered
Article 3----------------------------------General Definitions
Article 4----------------------------------Fiscal Domicile
Article 5----------------------------------Permanent Establishment
Article 6----------------------------------Income from Real Property
Article 7----------------------------------Business Profits
Article 8----------------------------------Shipping and Air Transport
Article 9----------------------------------Associated Enterprises
Article 10---------------------------------Dividends
Article 11---------------------------------Interest
Article 12---------------------------------Royalties
Article 13---------------------------------Capital Gains
Article 14---------------------------------Independent Personal Services
Article 15---------------------------------Dependent Personal Services
Article 16---------------------------------Director’s Fees
Article 17---------------------------------Social Security Payments
Article 18---------------------------------Private Pensions and Annuities
Article 19---------------------------------Governmental Functions
Article 20---------------------------------Teachers
Article 21---------------------------------Students and Trainees
Article 22---------------------------------Income Not Expressly Mentioned
Article 23---------------------------------Relief from Double Taxation
Article 24---------------------------------Nondiscrimination
Article 25---------------------------------Mutual Agreement Procedure
Article 26---------------------------------Exchange of Information
Article 27---------------------------------Assistance in Collection
Article 28---------------------------------Miscellaneous
Article 29---------------------------------Extension to Territories
Article 30---------------------------------Entry into Force
Article 31---------------------------------Termination
Protocol ----------------------------------of 31 December, 1987
Exchange of Notes----------------------of 31 December, 1987
ARTICLE 1

Personal Scope
This Article, which is not found in other United States tax treaties, is similar to Article 1
of the Draft Double Taxation Convention on Income and Capital developed by the Fiscal
Committee of the Organization for Economic Cooperation and Development and published in
1963 (hereinafter referred to as the OECD Model Convention). The Article does not have
substantive importance. Its purpose is to generally delineate the persons who come within the
scope of the Convention. The Article is not complete in its delineation of persons covered in that
persons who are residents of one or both of the Contracting States are sometimes not covered in
the Convention and that other persons who are not residents of either of the Contracting States
are covered by this Convention. For example, Article 19 (Governmental Functions) applies to
citizens of a third State who come to one of the Contracting States expressly for the purpose of
being employed by the other Contracting State. While the title of Article 1 is “Personal Scope,”
the Convention, of course, is applicable to corporations and other entities as well as to
individuals.
ARTICLE 2
Taxes Covered
This Article designates the taxes of the respective States which are the subject of the
proposed Convention. With respect to the United States, the taxes included are the United States
Federal income taxes imposed by the Internal Revenue Code. This includes, for example, the
surtax and would also include such taxes as the temporary surcharge which was in force from
1968 to 1970. However, the Convention is not intended to apply to taxes which are in the nature
of a penalty such as the taxes imposed under section 531 (accumulated earnings tax) and section
541 (personal holding company tax) of the Internal Revenue Code.
With respect to Belgium, the taxes included are
(1) the individual income tax;
(2) the corporate income tax;
(3) the income tax on legal entities;
(4) the income tax on nonresidents;
(5) the prepayments and additional prepayments; and
(6) surcharges on any of the taxes referred to in (1) through (5), including the communal
supplement to the individual income tax.
The Belgian individual income tax is payable by resident individuals on income from all
sources but with reduced rates for foreign source income.
The Belgian corporate income tax is payable by resident Belgian companies on income
from all sources but with reduced rates for foreign source income.
The Belgian income tax on legal entities is a tax payable in lieu of the corporate income
tax and is imposed upon the political subdivisions of Belgium and those resident legal entities

which are not engaged in business activity. This tax is levied solely on income from movable
capital (generally dividend and interest income) and real property.
The Belgian income tax on nonresidents is payable by nonresident individuals,
corporations, and other legal entities on income earned or received in Belgium.
In addition to the above-enumerated taxes, prepayment of tax in the form of withholding
by the payor is required by Belgian law in the case of income from movable capital (generally
dividend and interest income) and income from real property. There is also a standard
professional prepayment (withholding) which applies to wages and salaries, remuneration paid
by a corporation to managers, directors and persons with similar functions, and to pensions,
certain prizes and subsidies, and in the case of a nonresident recipient, alimony. These taxes are
known as “les précomptes.” While Articles 2 also lists “additional prepayments” (compléments
de précomptes), that tax, which was an additional 15 percent prepayment on income from
movable capital, has not been in force since January 1, 1967. It was included at the request of
Belgium in the case such tax is reestablished, although even in the absence of an express
reference, a new or reestablished tax would be covered by paragraph (2) of this Article. In the
case of income from real property, Belgian law provides for an additional advance payment in the
case of taxpayers subject to the income tax on nonresidents whose fiscal domicile is in a country
with whom Belgium has concluded a double taxation agreement giving Belgium exclusive right
to tax real property situated in her territory. Since, under the proposed Convention, Belgium does
not have an exclusive right to tax United States residents on income from real property, there is
no additional advance payment on such income paid to United States residents.
Pursuant to paragraph (2) of this Article the proposed Convention would also apply to
taxes substantially similar to those enumerated which are imposed in addition to or in place of
the existing income taxes, after the date of a signature of this Convention (July 9, 1970).
This Article also provides that the competent authorities of the Contracting States are to
notify each other of any amendments of the laws imposing the enumerated taxes and of the
adoption of any taxes which are subsequently imposed by transmitting the text of any
amendments or new statutes at least once a year. Further, the competent authorities are to notify
each other of the publication by their respective States of any material concerning the application
of this Convention, whether in the form of regulations, rulings, or judicial decisions, by
transmitting the text of any such material at least once a year.
ARTICLE 3
General Definitions
This Article sets out definitions of certain of the basic terms used in the proposed
Convention. A number of important terms, however, are defined elsewhere in the Convention.
Any term used in this Convention which is not defined therein shall, unless the context
otherwise requires, have the meaning which it has under the laws of the State which is imposing

the tax. However, in a case where a term has a different meaning under the laws of Belgium and
the United States or where the meaning under the laws of one or both of the States is not clear,
the competent authorities may agree on a uniform definition. See Article 25 (Mutual Agreement
Procedure). While treaties in the past did not specify the power of the competent authorities to
resolve such differences in definitions, this power is nevertheless inherent in the authority set
forth in the mutual agreement article of these treaties to resolve "difficulties or doubts."
This Article defines geographical Belgium and geographical United States to include their
respective continental shelves. The addition of a definition of the continental shelf is intended to
clarify what the Contracting States consider to be included within their respective jurisdictions to
tax. The United States continental shelf is defined as the seabed and subsoil of the adjacent
submarine areas beyond the territorial sea over which the United States exercises exclusive rights
in accordance with international law for the purpose of exploration and exploitation of the natural
resources of such area, but only to the extent that the person, property, or activity to which this
Convention is being applied is connected with such exploration or exploitation. For example the
income earned by a ship and its employees engaged in taking seismograph soundings on the
United States continental shelf will be treated for tax purposes the same as the income from a
comparable activity on the land of one of the States of the United States. A comparable definition
is used in the case of Belgium. The definition of the continental shelf in the case of the United
States only includes the continental shelf surrounding the 50 States. Thus, for example, the
continental shelf surrounding Puerto Rico is not included. If the treaty were extended beyond the
50 States and the District of Columbia (see Article 29 - Extension to Territories) the continental
shelf of the extended areas could also be covered. The defined continental shelf is only part of the
United States or Belgium, as the case may be in limited situations. It is included only to the
extent that a person or property or activity to which the Convention is being applied is connected
with exploration or exploitation of the continental shelf. The phrase “connected with” does not
require physical attachment to the continental shelf to be within the scope of the definition.
The Article also defines "United States corporation" and “Belgian corporation.” Because
of the difference in concept, an entity could under Belgian law be considered to be a Belgian
corporation and under United States law to be a United States corporation. For purposes of the
proposed Convention, such a corporation would be treated as a corporation of neither State
because of the provisions in the definitions of a corporation of the United States, and a
corporation of Belgium, that an entity may not be considered a corporation of the United States,
or Belgium, if it is a corporation of the other State under domestic law of that other State. While
the benefits of the Convention would generally be unavailable in such cases, it is relatively easy
for taxpayers to avoid dual residency.
ARTICLE 4
Fiscal Domicile
This Article sets forth rules for determining "fiscal domicile" or residence of individuals,
corporations and other persons for purposes of the proposed Convention. Residence is important
because, in general, only a resident of one of the Contracting States may qualify for the benefits

of the Convention. This Article is patterned generally after the fiscal domicile article of the
OECD Model Convention.
The term "a resident of Belgium" means a corporation of Belgium as defined in Article 3
(General Definitions) and any person (other than a corporation) who is a resident of Belgium for
purposes of its tax. The term "a resident of the United States" means a United States corporation
as defined In Article 3 (General Definitions) and any person (except a corporation or any other
entity treated as a corporation for United States tax purposes) resident in the United States for
purposes of its tax. The language in parentheses is intended to deal with the problem of dual
residency of a corporation. An entity which would be considered a Belgian corporation under
Belgian law and a United States corporation under United States law would, under Article 3
(General Definitions) of the Convention, be neither a Belgium corporation nor a United States
corporation. Therefore, it was necessary to make clear that such an entity is not included within
the term "any person" for purposes of the second part of the definitions. In addition, the
parenthetical language in the definition of a resident of the United States is intended to make
clear that a foreign corporation, or other entity treated as a foreign corporation for United States
tax purposes, which is a resident of the United States for certain purposes of its income tax law is
not, under the Convention, a resident of the United States.
In the case of the United States, the definition provides that a partnership, estate, or trust
is treated as a resident only to the extent that the income derived by such person is subject to
United States tax as the income of a resident. This language, although different from the Income
Tax Convention between the United States and France, signed July 28, 1967, is intended to
achieve the same result. Under United States law, a partnership is never, and an estate or trust is
often not, taxed as such. Under the proposed Convention, in the case of the United States,
income received by a partnership, estate, or trust will not qualify for the benefits of the
Convention unless such income is subject to tax in the United States. Thus, in effect, the status of
income which is subject to tax only in the hands of the partners or beneficiaries, will be
determined by the residence of such partners or beneficiaries. With respect to income taxed in the
hands of the estate or trust, the residence of the estate or trust is determinative. This provision is
nonreciprocal because of the absence of a similar problem under Belgian law.
An individual who is a resident of both States under the rules of domestic law employed
by such States for determining residence will be deemed to be a resident of the State in which he
has his permanent home, his center of vital interests (closest economic and personal relations),
his habitual abode, or his citizenship, in the order listed. If the issue is not settled by these tests,
the competent authorities will decide by mutual agreement the one State of which he will be
considered to be a resident. Thus for purposes of the Convention, including the savings clause of
Article 23(1), an individual can be resident in Belgium or the United States, but not both.
ARTICLE 5
Permanent Establishment
This Article defines the term "permanent establishment." The existence of a permanent

establishment is, under the terms of the proposed Convention, a prerequisite for one State to tax
the industrial or commercial profits of a resident of the other State. The concept is also
significant in determining the applicability of other provisions of the Convention, such as Article
10 (Dividends), Article 11 (Interest), Article 12 (Royalties), and Article 13 (Capital Gains). The
definition of "permanent establishment" is a modernized version of the definition found in some
of our older treaties including the 1948 Convention with Belgium. The new definition is similar
to the definition found in our French Convention.
The term "permanent establishment" means "a fixed place of business through which a
resident of one of the Contracting States engages in industrial or commercial activity."
Illustrations of the concept of a fixed place of business include a seat of management, a branch,
an office, a factory, a workshop, a warehouse, a place of extraction of natural resources, or a
building site or construction or installation project which exists for more than 12 months. As a
general rule, any fixed facility through which an individual, corporation or other person conducts
industrial or commercial activity will be treated as its permanent establishment unless it falls in
one of the specific exceptions described below. The proposed Convention uses the term "a seat of
management" which was the term used in our Convention with France. The technical explanation
of our French Convention explains the definition of the term "a seat of management" and its
difference in meaning from the term "a place of management" as follows:
It should be noted that this convention uses the term "seat of management" where the
OECD Model Convention and prior agreements to which the United States is a party used
the term "place of management"; both terms are translations of the French term "un siege
de direction" and it is believed the translation found in this convention is the more
accurate. Prior agreements in which the term "place of management" appears will be
interpreted therefore as if the words "seat of management" had been used.
That explanation is applicable to the proposed Belgian Convention.
This Article specifically provides that a permanent establishment does not include a fixed
place of business of a resident of one of the Contracting States which is located in the other
Contracting State if it is used only for one or more of the following -
(1) the use of facilities for the purpose of storage, display, or delivery of goods or
merchandise belonging to the resident;
(2) the maintenance of a stock of goods or merchandise belonging to the resident for the
purpose of storage, display, or delivery;
(3) the maintenance of a stock of goods or merchandise belonging to the resident for the
purpose of processing by another person;
(4) the maintenance of a fixed place of business for the purpose of purchasing goods or
merchandise, or for collecting information, for the resident;
(5) the maintenance of a fixed place of business for the purpose of advertising, or the
supplying of information, for scientific research, or for similar activities which have a
preparatory or auxiliary character, for the resident; or
(6) the maintenance of a building site or construction or installation project which does
not exist for more than 12 months.

The building site or construction or installation project exception is merely a clarification of the
rule that such an activity for more than 12 months is a permanent establishment and, accordingly,
such an activity for 12 months or less is not a permanent establishment. These exceptions are
cumulative and a site or facility used solely for more than one of these purposes will not be
considered a permanent establishment under the proposed Convention. The 12-month
construction project rule is a physical test under which the resident must be actively engaged in
the project during that 12-month period.
This Article also provides that notwithstanding the provisions described in the preceding
paragraph if three conditions are met, a resident of one State will have a permanent establishment
in the other State. The conditions are:
1. The resident has a fixed place of business in that other State
(a) which consists of facilities for the storage, display or delivery of goods or
merchandise belonging to the resident;
(b) which consists of a stock of goods or merchandise belonging to the resident
which is held for processing by another person; or
(c) which is used for the purpose of purchasing goods or merchandise for the
resident;
2. The goods or merchandise described in paragraph 1 above are either subject to
substantial processing in that State (whether or not purchased there) or are purchased in that other
State (and are not thereafter subject to substantial processing in another State); and
3. All or part of such goods or merchandise is sold by the resident or his agent for use,
consumption, or disposition in that other State.
Under this rule, the taxpayer will have a permanent establishment whether or not he
maintains a sales office in the other State.
Thus, for example, if an independent agent acting for a United States corporation arranges
the sales of the corporation's goods in Belgium the United States corporation will, nevertheless,
be deemed to have a permanent establishment in Belgium if those goods were purchased in
Belgium through a fixed place of business of the corporation (ordinarily a purchasing office
would not constitute a permanent establishment) and then resold therein without having been
subjected to processing outside Belgium prior to such resale.
Notwithstanding the other provisions of this Article, a person will be considered to have a
permanent establishment if he engages in business through an agent, other than an independent
agent, who has and regularly exercises authority to conclude contracts in the name of such person
unless the agent only exercises such authority to purchase goods or merchandise.
With respect to an independent agent, the proposed Convention also provides that a
resident of one State will not be deemed to have a permanent establishment in the other State if
such resident engages in industrial or commercial activity in such other State through an
independent agent, such as a broker or general commission agent, if such agent is acting in the
ordinary course of his business. This rule does not apply with respect to a broker or agent acting

on behalf of an insurance company if such broker or agent has, and habitually exercises, an
authority to conclude contracts in the name of that company. It was agreed, however, that an
insurance company of one State writing reinsurance contracts in the other State would not for
that reason be treated as having a permanent establishment, but since it was understood that
foreign companies writing reinsurance on Belgian risks do not authorize Belgian brokers or
agents to conclude reinsurance contracts in the name of the foreign reinsurance company, it was
not necessary to specifically exclude reinsurance contracts from the exception.
The determination of whether a resident of one State has a permanent establishment in the
other State is to be made without regard to any control relationship of such resident with respect
to a resident of the other State or with respect to a person which engages in industrial or
commercial activity in that other State (whether through a permanent establishment or
otherwise).
Although this Article is generally drafted with reference to a resident of one of the States
engaging in industrial or commercial activity in the other State, for certain purposes the proposed
Convention deals with a nonresident engaging in industrial or commercial activity in one of the
States or a resident of one of the States engaging in industrial or commercial activity in a third
State. For these purposes, the principles set forth in Article 5 are to be applied in determining
whether there is a permanent establishment.
ARTICLE 6
Income from Real Property
This Article which is similar to an article in the existing treaty provides that a resident of
one State may be subject to tax in the other State on income from real property and royalties in
respect of natural resources if the property or natural resource is located in such other State. This
Article does not, as do the existing treaty and the 1967 treaty between the United States and
France, provide for an election by the resident to compute his tax on such income on a net basis
since under the internal laws of Belgium and, since 1967, the United States this can be done. The
income referred to in this Article includes gain from the sale or exchange of such property or
such natural resource rights, but does not include interest on mortgages and similar instruments.
The latter type of income is covered by Article 11 (Interest).
ARTICLE 7
Business Profits
This Article sets forth the typical treaty rule that industrial or commercial profits of a
resident of one State are taxable in the other State only if the resident has a permanent
establishment in that other State. Where there is a permanent establishment only the profits
attributable to the permanent establishment can be taxed by that other State. For purposes of
Article 23 (Relief From Double Taxation) which, among other things, provides that a foreign tax
credit will be allowed by the United States, such profits are considered to be from sources within

the State in which the permanent establishment is located.
While under the existing Belgian Convention, as under the old French Convention,
industrial or commercial profits are not taxed in the absence of a permanent establishment once
there is a permanent establishment the existing Convention, as did the old French Convention,
provides that the provisions reducing the tax rates on interest and dividends and exempting
royalties are not applicable. This rule is known as the “force of attraction “ principle and is
replaced in the proposed Convention, as in our new treaty with France, with the effectively
connected concept. Under the new approach, only those interest, dividends and royalties which
are effectively connected with the permanent establishment are taxable as part of the industrial or
commercial profits and do not benefit from the reduced rate or exemption.
In determining the proper attribution of industrial or commercial profits under the
proposed treaty, the permanent establishment is generally to be treated as an independent entity
and considered as realizing the profits which would be realized if the permanent establishment
dealt with the resident of which it is a permanent establishment on an arm’s-length basis.
Expenses, wherever incurred, which are reasonably connected with profits attributable to the
permanent establishment, including executive and general administrative expenses, will be
allowed as deductions by the State in which the permanent establishment is located in computing
the tax due to such State. However, it is not necessary to allow a profit to the head office for
ancillary services furnished to the permanent establishment as long as the permanent
establishment is allowed to deduct the allocable costs incurred by the head office.
The mere purchase of goods or merchandise in a State by the permanent establishment, or
by the resident of which it is a permanent establishment, for the account of such resident will not
cause attribution of profits to such permanent establishment
While some of our more recent conventions attempt a broad definition of “industrial or
commercial profits” by setting forth examples of activities which will be considered as giving
rise to such profits, this Convention is limited to setting forth three rules of inclusion and
exclusion. In spite of the difference in approach, the term “industrial or commercial profits” has a
meaning generally similar to that in our other recent treaties. It includes income derived from
manufacturing, mercantile, agricultural, fishing, or mining activities, from the operation of ships
or aircraft, from the furnishing of personal services of others, from the rental of tangible personal
property, and from insurance activities.
This Article specifically provides that the term “industrial or commercial profits” includes
rents or royalties derived from motion picture films or films or tapes used for radio or television
broadcasting or from copyrights thereof and rents derived from the leasing of tangible personal
property.
The Article further provides that the term does not include items of income specifically
dealt within other articles of this Convention except as provided in such articles. Thus, income
derived from real property and natural resources and dividends, interest, royalties (as defined in
paragraph (2) of Article 12 (Royalties)), capital gains, and income described in Article 22

(Income Not Expressly Mentioned) constitute industrial or commercial profits only if the right or
property giving rise to such amounts is effectively connected with a permanent establishment
which the recipient, being a resident of one of the States, has in the other State. Where such
amounts do not constitute industrial or commercial profits, they may be taxed separately or
together with industrial or commercial profits in accordance with the laws of the State whose tax
is being determined, but the limits on the rate of taxation to which such amounts may be subject
must be observed.
For example, if a Belgian bank without a permanent establishment in the United States
loaned money to a United States manufacturer in the United States, the interest paid by the
United States manufacturer to the Belgian bank would be treated as interest and not as industrial
or commercial profits and would be governed by Article 11 (Interest) of the proposed Convention
which provides for either an exemption or a 15-percent withholding rate.
In the reverse situation where a United States bank with a branch in Belgium derives
interest from Belgium which is not effectively connected with its Belgian branch, Belgium could
tax the interest together with the income of the permanent establishment as long as the rate of tax
on the gross amount of the interest did not exceed the 15-percent limitation.
Income from independent and dependent personal services are specifically dealt within
Articles 14 (Independent Personal Services) and 15 (Dependent Personal Services) and,
therefore, are not treated as business profits. It is noted that in some of our other recent
conventions, there is an express provision excluding such services from the terms "industrial or
commercial profits." While there is no such provision in the Belgian Convention, the result is the
same.
ARTICLE 8
Shipping and Air Transport
This Article provides that, notwithstanding the rules of Article 7 (Business Profits) and
Article 13 (Capital Gains), income which a resident of one of the States derives from the
operation in international traffic of ships registered in that State and gains which a resident of one
of the States derives from the sale, exchange, or other disposition of ships operated in
international traffic by such residents and registered in that State shall be exempt from tax by the
other State.
A resident of one of the States will also be exempt from tax in the other State on income
derived from the operation in international traffic of aircraft registered in either State or In a State
with which the other State has an income tax convention exempting such income. Gains which a
resident of one of the States derives from the sale, exchange, or other disposition of aircraft are
accorded the same treatment. An exchange of notes specifically exempting income from the
operation of aircraft from tax in the respective States is not considered as an income tax
convention exempting such income.

This Article also will apply to income derived from the leasing, to a person engaged in
the operation of ships or aircraft, of a ship or aircraft under a full or bareboat charter, where the
lessor is engaged in the operation of ships or aircraft if such lease is ancillary to the lessor's other
operations. For example, if an airline of one of the Contracting States which has excess
equipment in the winter months leases several aircraft which are excess during that period to an
airline in the other Contracting State, the lessor is not subject to tax by that other Contracting
State.
The exemption provided by this Article is also applicable to profits derived from any
activities incidental to the operation of ships or aircraft in international traffic. Thus, for example,
commissions derived by a Belgian international air carrier from the sale of passenger tickets in
the United States as agent for other persons operating ships or aircraft, if incidental to its own
international operations, will be exempt from United States tax under Article 8. Further, a
Belgian airline company might have facilities at an international airport in the United States
which are used to service and maintain its own aircraft in order to make maximum use of the
facilities, the company might also service and maintain aircraft of other companies. The profits
derived from the furnishing of such services to others would be exempt under Article 8 unless
such activity ceased to be only an incidental activity. However, income derived by a Belgian
airline company from the operation of a hotel in the United States would not be incidental to the
operation of aircraft and would not be exempt.
ARTICLE 9
Associated Enterprises
This Article complements section 482 of the Internal Revenue Code of 1954 and
confirms the power of each government to allocate items of income, deduction, credit, or
allowance in cases in which a resident of one State is related to a resident of the other State if
such related persons impose conditions between themselves which are different from conditions
which would be imposed between independent persons. This provision is similar to the provision
contained in the OECD Model Convention.
Provision is made in Article 25 (Mutual Agreement Procedure) for consultation and
agreement between the two States where an allocation by either State results or would result in
double taxation.
ARTICLE 10
Dividends
The existing Convention provides that dividends derived from sources within one State
by a resident of the other State not having a permanent establishment in the former State will be
subject to tax in the former State at a rate not in excess of 15 percent. The proposed Convention
continues the 15 percent rate on dividends.

As indicated above, the proposed Convention abandons the "force of attraction" concept
in the existing Convention by providing that the reduced rate of tax on dividends is denied only if
the shares with respect to which the dividends are paid are effectively connected with a
permanent establishment which the recipient has in the State of source. The elimination of the
"force of attraction" principle will make uniform the rate of tax levied on dividend income by a
resident of one State from sources within the other State unless such income is effectively
connected to a permanent establishment in the State of source. In those cases where the shares
with respect to which the dividends are paid are so effectively connected, the dividends may be
taxed as industrial and commercial profits under Article 7 (Business Profits). Income which is so
effectively connected may be taxed at the normal rates applicable to such income in the State of
source. This does not prevent Belgium from imposing its movable property prepayment in
accordance with Belgian law, and this would be credited against the tax owed by the permanent
establishment.
The dividend Article of the proposed Convention is patterned generally after the OECD
Model Convention. However, the proposed Convention additionally provides that the term
"dividends" includes income from invested capital received by members of Belgian companies
other than companies with share capital where, under Belgian law, such income is taxable in the
same way as dividends. These are companies whose shareholders are restricted to individuals and
are generally similar to partnerships. Such companies are not entitled to an interest deduction on
a loan made by a shareholder to the company. Interest payments by such a company to a
shareholder are treated similarly to dividends for purposes of Belgian law and are treated as
dividends under the proposed treaty. The companies covered by this latter rule are Sociétiés de
Personnes à Responsabilité Limiteé, Sociétés en nom Collectif, Sociétés en Commandite Simple,
and Sociétés Coopératives.
Under Belgian law dividends paid to an individual from sources outside of Belgium
which are received within Belgium are subject to a 20-percent précompte mobiliere. The
précompte is used by Belgium as a collection device since most securities are in bearer form and
the residency of the owner is not readily determinable. Belgium has agreed under this Article to
waive collection of the précompte on dividends paid by United States corporations to an
individual who is a resident or citizen of the United States and not a resident of Belgium. Such
individual when he goes to a Belgian bank to collect on a dividend will have to substantiate his
citizenship (where applicable) and residency and it is anticipated that the Belgian Government
will verify the fact that such person is the proper recipient of the dividend by submitting their
names to the Internal Revenue Service.
In other cases, dividends paid by a corporation of one of the States to a person other than
a resident of the other State are exempt from tax by the other Slate unless the dividends are
effectively connected with a permanent establishment of the recipient maintained in the other
State or the dividends are paid by a United States corporation and are received within Belgium by
a person other than a citizen or resident of the United States.
ARTICLE 11

Interest
The existing Convention provides that interest derived from sources within one State by a
resident of the other State not having a permanent establishment in the former State will be
subject to tax in the former State at a rate not in excess of 15 percent.
The proposed Convention retains the 15 percent rate on interest replacing the "force of
attraction" principle by the effectively connected approach. In four important cases, however, the
proposed Convention provides for exemption in the State of source. First, interest is exempt at
source if it arises out of commercial credit - including credit which is represented by commercial
paper - resulting from deferred payments for goods or merchandise or services supplied by a
resident of one of the States to a resident of the other State. This exception would apply to
interest derived by a bank or other financial institution which purchases paper which arose out of
commercial credit which the seller of goods or services discounted at such bank or financial
institution. It would also apply to interest derived by a finance company which is a subsidiary of
a selling company and which is used by the parent to finance its sales. Second, interest paid
between banks is exempt except on loans represented by bearer instruments. Under this
provision, interest on advances between banks would be exempt as would interest on a loan from
a United States bank to a Belgian bank, assuming that there was not a bearer instrument
representing the indebtedness. Third, an exception is provided for interest arising from deposits,
not represented by bearer instruments made in banks or other financial institutions. Fourth,
interest beneficially derived by one of the States, or by an instrumentality of that State, not
subject to tax by that State on its income, would be exempt from tax by the other State. Under
this rule, interest income derived by the Export-Import Bank of the United States on loans made
to Belgian residents would be exempt from tax in Belgium. This would still be the case if the
Export-Import Bank sold interest-participation certificates on such a loan. On the other hand, this
rule would not apply if the Export-Import Bank discounted or sell the instrument representing the
loan. However, in such a case the exception for interest arising out of commercial credit may be
applicable.
As noted above, the proposed Convention abandons the "force of attraction" principle.
Thus, the reduced rates of tax applicable to interest apply unless the recipient has a permanent
establishment in the State of source and the indebtedness giving rise to the interest is effectively
connected with such permanent establishment. In such a case, the interest may be taxed as
industrial or commercial profits.
Interest is defined generally as income from any kind of debt-claim or any income treated
as interest under the tax law of the State of source. In cases in which excessive interest is paid by
reason of a special relationships between the payor and the recipient, the provisions of the
interest Article do not apply to the excess part of the payments. Excess interest payments may be
taxed according to the law of the State from which the interest is derived. In the case of excess
interest derived from the United States, the excess interest may be taxed as dividend. Under
Belgian law, the excess interest is disallowed as a deduction, but, in the hands of the recipient,
continues to retain its character as interest. However, the recipient is not entitled to the benefits
of this Article with respect to such excess.

Thus, for example, in the case of the United States the rules provided in section 482 of
the Internal Revenue Code would be applicable if excess interest is paid between related persons.
On the other hand, if a Belgian resident pays excess interest to a United States related person, the
Belgian tax authorities would disallow such excess as a deduction to the Belgian resident. and
would continue to treat such excess as interest, and subject such excess to the 20-percent rate of
withholding, as provided under Belgian domestic law. since such excess is not entitled to treaty
benefits.
The term "interest" does not include amounts which are considered as dividends as
discussed above in connection with Article 10 (Dividends). In the case of Belgium, the term
"interest" includes prizes on lottery bonds.
Interest is from sources within a State when the payer is that State, a political subdivision,
a local authority thereof or a resident of that State. However, if the payor has a permanent
establishment in one of the States and the indebtedness on which the interest is paid is effectively
connected with such permanent establishment and the interest is borne by such permanent
establishment, such interest shall be deemed to be sourced within the State in which the
permanent establishment is located. In addition, if a permanent establishment which a resident of
one of the Contracting States has in a third State borrows money from a resident of the other
Contracting State, for purposes of the treaty, the interest paid by the permanent establishment
will be treated as from sources within the third State if the loan is effectively connected with, and
interest is borne by, such permanent establishment.
In other cases, interest paid by a resident of one of the States to a person other than a
resident of the other State is exempt from tax by the other State unless the interest is effectively
connected with a permanent establishment of the recipient maintained in the other State or the
interest is paid by a United States corporation and is received within Belgium by a person other
than a citizen or resident of the United States.
As in the case of dividends, the interest Article also contains a special rule dealing with
interest from sources within the United States which is received within Belgium by a resident of
the United States or a citizen of the United States who is not a resident of Belgium. In such a case
Belgium has agreed to waive its withholding tax.
ARTICLE 12
Royalties
The existing Convention provides that royalties derived from sources within one of the
States by a resident of the other State shall be exempt from tax by the former State. The proposed
Convention continues this exemption for royalties.
The term “royalties” is defined to include
(a) payments of any kind made as consideration for the use of, or the right to use,

copyrights of literary, artistic, or scientific works (but not including copyrights of motion
picture films or films or tapes used for radio or television broadcasting), patents, designs,
models, plans, secret processes or formulae, trademarks, or other like property or rights,
or knowledge, experience, or skill (know-how) and
(b) gains derived from the sale, exchange or other disposition of such rights or
property, but only if payment is contingent on productivity, use, or disposition of the
property. If the payments are not so contingent, the capital gains Article applies.
The provisions of this Article do not apply if the recipient of a royalty has a permanent
establishment in the State of source and the rights or property giving rise to the royalty is
effectively connected to such permanent establishment. In such a case, the royalty may be taxed
as industrial or commercial profits under Article 7 (Business Profits). Thus, the “force of
attraction” principle is also abandoned with respect to royalties.
The source rule on royalties is different front the source rule found in most of our recent
treaties and the rule in Section 861(a)(4) of the Internal Revenue Code. The proposed Convention
provides that royalties shall be treated as income from sources within one of the States if paid by
such State, a political subdivision, or a local authority thereof, or by a resident of that State.
However,
(a) if the person paying the royalty has a permanent establishment in one of the
States with which the right or property giving rise to the royalty is effectively connected
and such royalties are borne by such permanent establishment, or
(b) if the person paying the royalty is a resident of one of the Contracting States
and has a permanent establishment in a third State with which the right or property giving
rise to the royalty is effectively connected and such royalties are borne by such permanent
establishment
such royalties are deemed to be from sources within the State in which the permanent
establishment is located. This source rule is similar to the interest source rule found in Article 11
(Interest) of the proposed Convention and to the source rule for royalties under Belgian domestic
law. On the United States side, since royalties are exempt at source, the source rule on royalties is
relatively unimportant. However, on the Belgian side, because of the treatment given under
Belgian law for excessive royalty payments, the source of royalty has importance. Under the
proposed Convention, if excessive royalties are paid because the payor and the recipient are
related, the provisions of the royalty Article apply only to so much of the royalty as would have
been paid to an unrelated person. The excess payment may be taxed according to its own law by
the State from which the royalty is derived. In the case of Belgium, Belgium would deny a
deduction for the excess royalty payments, but, in the hands of the recipient, the payment would
still be considered to be a royalty under Belgian domestic law. However, the recipient is not
entitled to the benefits of this Article with respect to such excess.
If a nonresident has a permanent establishment in Belgium or the United States, royalties
attributable to effectively connected with such permanent establishment are not subject to
withholding but are subject to tax in Belgium or the United States at the rates normally
applicable to industrial or commercial profits.

ARTICLE 13
Capital Gains
The existing Convention provides no special rules for gains derived in one State from the
sale or exchange of stock securities, commodities, or other capital assets by a resident of the
other State. The proposed Convention provides that such gains shall be exempt from tax by the
State of source. However, the exemption does not apply if
(1) the gain derived by a resident of one State arises out of the sale or exchange of
property described in Article 6 (Income from Real Property) which is situated within the other
State,
(2) the recipient of the gain has a permanent establishment or maintains a fixed base, or
(3) the recipient of the gain being an individual resident of the first State is present in that
other State for a period or periods aggregating 183 days or more in the taxable year.
Gains which are effectively connected with a permanent establishment may be taxed as
industrial or commercial profits under Article 7 (Business Profits). Gains on real property are
subject to the provisions of Article 6 (Income from Real Property) which permits taxation of such
gains by the State in which the real property is situated. The Belgians do not tax capital gains of
individuals arising from a casual sale of nonbusiness assets.
ARTICLE 14
Independent Personal Services
The existing Convention provides that an individual resident of one State shall be exempt
from tax by the other State if he meets either of two conditions:
(a) he is present in that other State for not more than 183 days and his
compensation is for services performed as a worker or employee of, or under contract
with, a resident of the first State who bears the actual burden of the remuneration or
(b) he is temporarily present within that other State for a period or periods not
exceeding 90 days during the calendar year and the compensation received for such
services does not exceed $3,000 in the aggregate.
The 90-day, $3,000 rule under the existing Convention does not apply to remuneration of
"administrateurs," "commissaires," or "liquidateurs" of,. or of other individuals exercising similar
functions in, corporations created or organized in Belgium, nor to remuneration of officers and
directors of United States corporations.
The proposed Convention generally deals with personal services in two articles and
creates a distinction based upon whether the services are independent or dependent personal
services. The proposed Convention also provides a special rule for independent individuals who
are artists or athletes, and a separate Article dealing with directors' fees. Thus, for example, a
doctor or lawyer typically renders independent personal services. Also an entertainer who under
common law concepts is an independent contractor is considered as rendering independent

personal services.
Generally, under Article 14 of the proposed Convention, income earned by an individual
resident of one State from independent personal services performed in the other State may not be
taxed in that other State. However, such income will be subject to tax in the State of source (i.e.,
where the services are performed) if the recipient is present in that State for a period or periods
aggregating 183 days or more in the taxable year or if the individual maintains a fixed base in
that other State for a period or periods aggregating 183 days or more in the taxable year and the
income is attributable to such fixed base.
Independent personal services means services performed by an individual for his own
account where he receives the proceeds or bears the losses arising from such services.
Commercial, industrial, or agricultural activities are not considered independent personal
services and the income therefrom is taxed as industrial or commercial profits under Article 7
(Business Profits).
Thus, for example, if a physician, resident in one State, has an office available in the
other State for a period aggregating 183 days or more during the taxable year, the income he
earns from the performance of services within the other State will be subject to tax in that other
State regardless of whether he is physically present in that other State for 183 days or more
during the taxable year and regardless of whether others make use of his office in his absence.
An individual who derives income from independent personal services as a public
entertainer is nevertheless subject to tax in the other State if his stay in such State exceeds 90
days during the taxable year or his income is in excess of $3,000 or its equivalent in Belgian
francs during the taxable year.
ARTICLE 15
Dependent Personal Services
Generally, under the proposed Convention income from labor or personal services as an
employee may be taxed in the State in which such labor or personal services are performed
(except as provided in Article 20 (Teachers) and Article 21 (Students and Trainees)). However,
such income will be exempt from tax in the State of source if
(1) the recipient, being a resident of one of the Contracting States, is present in the State
of source for a period or periods aggregating less than 183 days during the taxable year;
(2) the recipient is an employee of a resident of the State of his residence (or a permanent
establishment located in the State of his residence); and
(3) the remuneration is not borne as such by a permanent establishment which the
employer has in the State of source. Thus, the rule applicable to dependent personal services is
similar to that contained in the existing Convention.
However, income from personal services performed in Belgium by a United States resident who
is employed by a Belgian permanent establishment maintained by a United States corporation

would no longer be exempt from tax in Belgium (nor would there be an exemption from United
States tax in the reverse situation). In addition, the proposed Convention would eliminate the rule
in the existing Convention generally exempting a resident of one State from taxation by the other
State of compensation received for services performed in the other State where such resident is
temporarily present in the other State for a period aggregating 90 days or less during the taxable
year and the compensation received for such services is not in excess of $3,000. The proposed
Convention also adds a rule that income from personal services aboard ships or aircraft registered
in one State and operated by a resident of that State in international traffic will not be taxed in the
other State so long as the services are rendered by a member of the regular complement of the
ship or aircraft.
This Article of the proposed Convention is substantially similar to the OECD Model
Convention except that, under the proposed Convention, an individual temporarily present in one
State who is an employee of a permanent establishment located in the other State and maintained
by a corporation of the first-mentioned State will be exempt from taxation by the first-mentioned
State on wages earned while temporarily present therein if the other requirements are met.
ARTICLE 16
Director’s Fees
Under the existing Convention, compensation received by an individual who is a resident
of one State as a director of a corporation of the other State is taxable by the other State. This
result is obtained by the exclusion of such individuals from the 90-day, $3,000 rule. The
proposed Convention continues this treatment, in part, in a specific Article dealing with the
treatment of director's fees. The Article provides that a director's fee derived by an individual
who is a resident of one of the States in his capacity as a member of the board of directors of a
corporation of the other State may be taxed by the other State. This rule is limited to fees which
an individual receives as a director as contrasted to fees that he might receive as an officer or
employee of a corporation, by providing that a director's fee does not include fixed or contingent
payments derived by an individual in his capacity as an officer or employee of a corporation.
Further, to be a director's fee the payment must be of the type which cannot be taken as a
deduction by the corporation paying the fee but is treated as a distribution of profits. These types
of payments are typically made by Belgian corporations.
Director's fees taxable by Belgium under this Article are treated as Belgian source income
for purposes of the United States foreign tax credit limitation regardless of where such services
as a director are performed. This rule, which differs from the normal United States source rule, is
designed to avoid double taxation.
ARTICLE 17
Social Security Payments

This Article provides that social security payments paid by one State to an individual who
is a resident of the other State will be taxed, if at all, by the payor State. Also included under this
Article are other public pensions such as railroad retirement benefits. Neither the existing
Convention nor the OECD Model Convention contains a comparable provision.
ARTICLE 18
Private Pensions and Annuities
The existing Convention provides that private pensions and annuities derived from
sources within one State by an individual resident of the other State are exempt from tax in the
State of source. The proposed Convention continues the existing rule by providing that pensions
and other similar remuneration paid in consideration of past employment and annuities received
by a resident of a State will be taxable only in the State of residence. However, pensions coming
within the scope of Article 19 (Governmental Functions) will be taxable only by the State
making payment.
The proposed Convention also provides that alimony paid to a resident of a State will be
taxable only in the State of residence. A United States resident making alimony payments to a
Belgian resident may deduct such payments (unless section 71(d) or 682 of the United States
Internal Revenue Code applies).
The term "annuities" is defined as a stated sum paid periodically at stated times during
life. or during a specified number of years, under an obligation to make the payments in return
for adequate and full consideration (other than for services rendered). The term "pensions" is
defined as periodic payments made after retirement or death in consideration for services
rendered, or by way of compensation for injuries received in connection with past employment.
The effect of this provision is generally the same as that of the OECD Model Convention.
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.

PROTOCOL
Technical Explanation of the Supplementary Protocol Signed at Washington. D.C. on
December 31, 1987 Modifying and Supplementing the Convention Between 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, Signed at Brussels on July 9. 1970.
The Protocol signed at Washington, D.C. on December 31, 1987 (hereafter referred to as
"the Protocol") amends the Convention signed on July 9, 1970 (hereafter referred to as " the 1970
Convention"). It is an intermediate step in the renegotiation of the 1970 Convention.
The technical explanation is an official guide to the Protocol. It reflects policies behind
particular provisions and understandings reached with respect to the application and
interpretation of the Protocol.
ARTICLE 1
Article 1 of the Protocol replaces Article 10 (Dividends) of the 1970 Convention. The
principal change is to reduce to 5 percent the maximum allowable rate of tax at source on direct
investment dividends.
Paragraph 1 states that dividends paid by a company which is a resident of a Contracting
State to a resident of the other Contracting State may be taxed in that other State. This provision,
which comes from the OECD Model Draft Income Tax Convention confirms the provision of
paragraph 1 of Article 23 (Relief from Double Taxation) of the 1970 Convention that each State
reserves the right to tax its residents.
Paragraph 2 provides that such dividends may also be taxed in the Contracting State of
which the company paying the dividends is resident; but if the beneficial owner is a resident of
the other State, the tax may not exceed specified limits. The tax is limited to 5 percent of the
gross amount of the dividends if the beneficial owner is a company which directly owns at least
10 percent of the voting stock of the company paying the dividends, and to 15 percent of the
gross amount of the dividends in all other Cases. The 10 percent direct ownership test for the 5
percent rate is consistent with the requirements of section 902 of the Internal Revenue Code for
claiming an indirect foreign tax Credit. The Convention signed in 1970 limited the tax to 15
percent of the gross amount of the dividends without regard to the degree of ownership of the
shareholder.
Paragraph 3 defines the term “dividends” for purposes of this Article. The first sentence is
the same as the definition of dividends in the OECD Model Draft Income Tax Convention. The
second Sentence permits Belgium to exercise an anti-abuse provision of its law by treating as
dividends certain income with respect to capital invested by the owners of an unincorporated
Belgian Company, for example interest on loans made to a closely-held general partnership by

one or sore of its partners. A similar provision was included in the 1970 Convention.
Paragraph 4 provides that, where the beneficial owner of the dividends is a resident of
one Contracting State and the holding giving rise to the dividends is part of the assets of a
permanent establishment or fixed base through which the owner carries on business or performs
services in the other State, the dividends are not taxable in accordance with this Article, but in
accordance with the provisions of Article 7 (Business Profits) or Article 14 (Independent
Personal Services), whichever applies. This similar rule is also carried over from the 1970
Convention.
Paragraph 5 provides that dividends paid by a company which is a resident of a
Contracting State to a resident of that same State shall be exempt from tax by the other State,
except insofar as the dividends are paid with respect to a holding which forms part of the assets
of a permanent establishment or fixed base in that other State. Where that exception applies, the
dividends are covered under paragraph 4. Where the United States is the other Contracting State,
it may also tax dividends paid by a Belgian company to a U.S. citizen resident in Belgium; the
right to tax U.S. citizens is preserved in paragraph I of Article 23 (Relief from Double Taxation).
The United States generally may not impose a second level withholding tax on dividends paid to
residents of Belgium; however, it may impose such a tax in accordance with its law (including
other income tax treaties on dividends paid by a Belgian company to residents of third countries.
This provision is substantially similar to paragraph 4(a) of Article 10 (Dividends) of the 1970
Convention.
Paragraph 6 confirms Belgium's right to tax, in accordance with its internal law,
dividends derived from Belgian corporations by the Belgian permanent establishment of a U.S.
resident. Under current Belgian law, dividends paid by Belgian corporations are subject to a
withholding tax of 25 percent. When the shareholder is another Belgian corporation which has
held the shares for the full tax year, 95 percent of such dividends are exempt from corporate tax
and the withheld amount may be credited against the corporate tax on other income. When the
shares are part of the assets of a Belgian permanent establishment of a foreign corporation, the
same exclusion applies, but the 25 percent withholding tax is a final tax; it may not be claimed as
a credit against the Belgian tax on other income of the permanent establishment. This provision
corresponds to the second sentence of paragraph 3 of Article 10 (Dividends) of the 1970
Convention.
ARTICLE 2
Article 2 simply corrects a cross-reference.
ARTICLE 3
Article 3 inserts a new Article 12A (Limitation on Benefits) to ensure that the reduced
withholding rates at source on dividends, interest and royalties provided in the Convention, as

amended by the Protocol, will not be the object of “treaty shopping” by residents of third
countries.
Paragraph 1 provides that a resident of a Contracting State (other than an individual) shall
not be entitled to relief from taxation at source under Articles 10 (Dividends), 11 (Interest) or 12
(Royalties) unless one of three conditions is met. The first condition has two parts. More than 50
percent of the beneficial interest in such person (or in the case of a company, more than 50
percent of the number of each class of its shares) must be owned by residents of a Contracting
State, the States themselves or political subdivisions or local authorities thereof, or U.S. citizens.
In addition, more than 50 percent of the gross income of the person may not be paid out as
interest or royalties to persons who are not qualifying owners, as defined above.
The second test, which is an alternative to the first, is that the person derives the
dividends, interest or royalties in connection with, or incidental to, the active conduct of a trade
or business in the Contracting State of which it is a resident. For this purpose a business the
principal activities of which are making or managing investments in the other State (where the
income arises) does not qualify as the active conduct of a trade or business.
The third test, which is an alternative to the other two, is that the principal class of shares
of the company deriving the dividends, interest, or royalties is substantially and regularly traded
on a recognized securities exchange, or that more than 50 percent of each class of its shares is
owned by a resident of the same Contracting State which meets the substantial and regular
trading requirement. For this purpose a "recognized securities exchange" is defined (in paragraph
3) to mean a U.S. Securities exchange for purposes of the Securities Exchange Act of 1934, the
NASDAQ System, the Belgian stock exchanges, and any other securities exchange agreed upon
by the competent authorities of the United States and Belgium.
Paragraph 2 explains how each Contracting State will interpret the term "gross income" in
applying this Article. The United States will use the definition in the Internal Revenue Code,
applying it to worldwide gross income. Belgium does not have a corresponding statutory
definition. In its case the measure will be gross receipts or, for an enterprise which produces
goods, gross receipts less the direct costs of labor and materials attributable to such production
and payable out of such receipts.
ARTICLE 4
Article 4 provides the terms of the entry into force of the Protocol and the effective dates
of its provisions. The Protocol, which will be an integral part of the 1970 Convention, is subject
to ratification. The instruments of ratification will be exchanged at Washington, D.C. and the
Protocol will enter into force on the fifteenth day after the date of that exchange. The provisions
of the Protocol shall have effect retroactively with respect to dividends, interest, and royalties
paid or credited on or after January 1, 1988.

ARTICLE 5
Article 5 provides that the Protocol, as an integral part of the 1970 Convention, shall
remain in force as long as the 1970 Convention remains in force and shall terminate
simultaneously with that Convention. A special rule, however, permits separate termination of
the Protocol after it has been in force for five years if either State gives Six months' notice of
termination in writing through diplomatic channels. In such a case, the provisions of the Protocol
would cease to have effect for amounts paid or credited on or after the first day of January of the
year following the notice of termination, and the provisions of the 1970 Convention, as it applied
prior to amendment by the Protocol, shall have effect with respect to such amounts. This special
rule is included, not because of any anticipated dissatisfaction with the operation of the Protocol,
but as an indication of the intent of both sides to complete renegotiation of a full new treaty as
promptly as feasible.
EXCHANGE OF NOTES
An exchange of notes, signed at the same time as the Protocol, confirms the
understanding of the two delegations that the term beneficial interest', as used in paragraph
1(a)(i) of Article 12A (Limitation on Benefits) of the English text of the Protocol has the same
meaning in the French and Dutch texts of the Corresponding provision, notwithstanding any
imprecision in the translations of that phrase.