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- Except as otherwise provided in this Article, a resident of a Contracting State shall not be entitled to a benefit that would otherwise be accorded under this Convention unless such resident is a qualified person, as defined in paragraph 2, at the time when the benefit would otherwise be accorded.
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- A resident of a Contracting State shall be a qualified person at a time when a benefit would otherwise be accorded under this Convention if, at that time, the resident is:
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- a)an individual;
- b)that Contracting State, a political subdivision or local authority thereof, the central bank of that Contracting State, or an agency or instrumentality of that Contracting State or political subdivision or local authority;
- c)a company or other entity, if, throughout the taxable period that includes that time,
- (i)the principal class of its shares is listed on a recognised stock exchange and is regularly traded on one or more recognised stock exchanges, if the company or entity has a substantial presence in the Contracting State of which it is a resident; or
- (ii)shares representing at least 50 percent of the aggregate voting power and value of the company are owned directly or indirectly by five or fewer companies entitled to benefits under clause i) of this subparagraph, provided that, in the case of indirect ownership, each intermediate owner is a resident of either Contracting State;
- d)a recognised pension fund, if, at the beginning of the taxable year for which the claim to the benefit is made, at least 50 per cent of its beneficiaries, members or participants are individuals who are residents of either Contracting State; or
- e)a person other than an individual, if, at that time and on at least half of the days of a twelve month period that includes that time, persons that are residents of that Contracting State and that are qualified persons under subparagraph (a), (b), (c) or (d) own, directly or indirectly, at least 50 per cent of the shares of the person.
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- a)A resident of a Contracting State shall be entitled to benefits to this Convention with respect to an item of income derived from the other Contracting State, regardless of whether the resident is a qualified person, if the resident is engaged in the active conduct of a business in the first-mentioned Contracting State, and the income derived from the other Contracting State emanates from, or is incidental to, that business. For purposes of this Article, the term “active conduct of a business” shall not include the following activities or any combination thereof:
- (i)operating as a holding company or holding intangible property;
- (ii)providing group financing (including cash pooling), unless provided by a company performing the main treasury functions within the group;
- (iii)making or managing investments, unless these activities are carried on by a bank, insurance enterprise or registered securities dealer in the ordinary course of its business as such. A holding company or a company holding intangible property shall, however, be considered to be engaged in the active conduct of a business if the company has the human and material resources to actively provide overall supervision of a group of companies or to be able to develop and enhance the intangible property.
- b)If a resident of a Contracting State derives an item of income from a business activity conducted by that resident in the other Contracting State, or derives an item of income arising in the other Contracting State from a connected person, the conditions described in subparagraph (a) shall be considered to be satisfied with respect to such item of income only if the business activity carried on by the resident in the first-mentioned Contracting State to which the item of income is related is substantial in relation to the same or complementary business activity carried on by the resident or such connected person in the other Contracting State. Whether a business activity is substantial for the purposes of this paragraph shall be determined based on all the facts and circumstances.
- c)For purposes of applying this paragraph, with respect to a resident of a Contracting State, business activities conducted in that Contracting State by connected persons shall be deemed to be conducted by such resident.
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- The competent authority of a Contracting State shall consult with the competent authority of the other Contracting State before denying a treaty benefit pursuant to paragraph 3.
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- A company that is a resident of a Contracting State shall also be entitled to a benefit that would otherwise be accorded under Article 10, if at the time when the benefit otherwise would be accorded and on at least half of the days of any twelve-month period that includes that time, at least 95 per cent of the aggregate vote and value of its shares (and at least 50 per cent of the aggregate vote and value of any disproportionate class of shares) is owned, directly or indirectly, by seven or fewer persons that are equivalent beneficiaries, provided that in the case of indirect ownership, each intermediate owner is a qualifying intermediate owner.
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- If a resident of a Contracting State is neither a qualified person, nor entitled to a benefit under paragraph 3 or 5, the competent authority of the Contracting State in which a benefit is denied under the preceding paragraphs of this Article may, nevertheless, grant a benefit of this Convention, taking into account the object and purpose of this Convention, but only if such resident demonstrates to the satisfaction of such competent authority that neither its establishment, acquisition or maintenance, nor the conduct of its operations, had as one of its principal purposes the obtaining of such benefit. The competent authority of the Contracting State to which a request has been made under this paragraph by a resident of the other Contracting State shall consult with the competent authority of that other Contracting State before either granting or denying the request.
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- For the purposes of this Article:
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- a)the term “principal class of shares” means the class or classes of shares of a company or entity which represents the majority of the aggregate vote and value of the company or entity;
- b)with respect to entities that are not companies, the term “shares” means interests that are comparable to shares;
- c)two persons shall be “connected persons” if one owns, directly or indirectly, at least 50 per cent of the beneficial interest in the other (or, in the case of a company, at least 50 per cent of the aggregate vote and value of the company’s shares) or another person owns, directly or indirectly, at least 50 per cent of the beneficial interest (or, in the case of a company, at least 50 per cent of the aggregate vote and value of the company’s shares) in each person; in any case, a person shall be connected to another if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same person or persons;
- d)the term “equivalent beneficiary” means any person who would be entitled to benefits with respect to an item of income accorded by a Contracting State under the domestic law of that Contracting State, this Convention or any other international agreement which are equivalent to, or more favourable than, the benefits to be accorded to that item of income under the provisions of the Convention; for the purposes of determining whether a person is an equivalent beneficiary with respect to dividends received by a company, the person shall be deemed to be a company and to hold the same voting power of the company paying the dividends as such voting power which the company claiming the benefits with respect to the dividends holds;
- e)the term “recognised stock exchange” means:
- (i)any stock exchange established and regulated as such under the laws of either Contracting State;
- (ii)any of the stock exchanges in the member states of the European Union, the NASDAQ System and any stock exchange in the United States of America which is registered with the U.S. Securities and Exchange Commission as a national securities exchange under the U.S. Securities and Exchange Act of 1934, the Peruvian Stock Exchange (Bolsa de Valores de Lima), the Mexican Stock Exchange (Bolsa Mexicana de Valores), the Colombian Stock Exchange (Bolsa de Valores de Colombia) and MILA (Mercado Integrado Latino Americano); and
- (iii)any other stock exchange agreed upon by the competent authorities of the Contracting States;
- f)the term “disproportionate class of shares” means any class of shares of a company or entity resident in one of the Contracting States that entitles the shareholder to disproportionately higher participation, through dividends, redemption payments or otherwise, in the earnings generated in the other Contracting State by particular assets or activities of the company;
- g)the term “qualifying intermediate owner” means an intermediate owner that is either:
- (i)a resident of a State that has in effect with the Contracting State from which a benefit under this Convention is being sought a convention for the avoidance of double taxation; or
- (ii)a resident of the same Contracting State as the company applying the test under paragraph 5 to determine whether it is eligible for benefits under the Convention;
- h)for purposes of subparagraph (c) of paragraph 2 of this Article, a company or entity has a substantial presence in the Contracting State of which it is a resident if:
- (i)its principal class of shares is primarily traded on one or more recognised stock exchanges located in the primary economic zone of the Contracting State of which the company or entity is a resident; or
- (ii)the company's or entity’s primary place of management and control is in the Contracting State of which it is a resident;
- i)in making the determinations in subparagraph (h) of this paragraph,
- (i)the company's primary place of management and control will be in the State of which it is a resident only if executive officers and senior management employees of that company exercise day-to-day responsibility for more of the strategic, financial and operational policy decision making for the company (including its direct and indirect subsidiaries) in that State than in any other state and the staffs of such persons conduct more of the day-to-day activities necessary for preparing and making those decisions in that State than in any other state; and
- (ii)the primary economic zone of the Netherlands includes the member states of the European Union or the European Economic Area. The primary economic zone of Chile includes the member states of the Alianza del Pacifico.
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- Where an enterprise of a Contracting State derives income from the other Contracting State, and the first-mentioned Contracting State treats that income as attributable to a permanent establishment of that enterprise in a third jurisdiction, the tax benefits that otherwise would apply under the other provisions of this Convention shall not apply to that income if:
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- a)the combined tax that is actually paid with respect to such income in the first-mentioned Contracting State and in that third jurisdiction is less than 60 per cent of the tax that would have been payable on that income in the first mentioned Contracting State if the income were accrued or received in the first-mentioned Contracting State by the enterprise and were not attributable to the permanent establishment in that third jurisdiction; or
- b)the permanent establishment is situated in a third jurisdiction that does not have a comprehensive convention with respect to taxes on income in force with the other Contracting State from which the benefits of this Convention are being claimed, unless the income attributable to the permanent establishment is included in the tax base of the enterprise in the first mentioned Contracting State.
- Any income to which the provisions of this paragraph apply may be taxed in accordance with the domestic law of the other Contracting State, notwithstanding any other provisions of this Convention. However, any interest or royalties to which the provisions of this paragraph apply shall remain taxable in that other Contracting State but the tax so charged shall not exceed 25 per cent of the gross amount thereof.
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- Notwithstanding the other provisions of this Convention, a benefit under this Convention shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention.
