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.