ARTICLE 24 (MUTUAL AGREEMENT — U.S. Income Tax Treaty

This Article provides the mechanism for taxpayers to bring to the attention of competent authorities issues and problems that may arise under the Convention. It also provides the authority for cooperation between the competent authorities of the Contracting States to resolve disputes and clarify issues that may arise under the Convention. The competent authorities of the two Contracting States are identified in paragraph 1(g) of Article 3 (General Definitions).

Paragraph 1

This paragraph provides that where a resident of a Contracting State considers that the actions of one or both Contracting States will result in taxation that is not in accordance with the Convention he may present his case to the competent authority of

either Contracting State. This rule is more generous than in most treaties, which generally allow taxpayers to bring competent authority cases only to the competent authority of their country of residence, or citizenship/nationality. Under this more generous rule, a U.S. permanent establishment of a corporation resident in Belgium that faces inconsistent treatment in the two countries would be able to bring its complaint to the U.S. competent authority. If the U.S. competent authority can resolve the issue on its own, then the taxpayer need never involve the Belgian competent authority. Thus, the rule provides flexibility that might result in greater efficiency.

Although the typical cases brought under this paragraph will involve economic double taxation arising from transfer pricing adjustments, the scope of this paragraph is not limited to such cases. For example, a taxpayer could request assistance from the competent authority if one Contracting State determines that the taxpayer has received deferred compensation taxable at source under Article 14 (Income from Employment), while the taxpayer believes that such income should be treated as a pension that is taxable only in his country of residence pursuant to Article 17 (Pensions, Social Security, Annuities, Alimony, and Child Support).

It is not necessary for a person bringing a complaint first to have exhausted the remedies provided under the national laws of the Contracting States before presenting a case to the competent authorities, nor does the fact that the statute of limitations may have passed for seeking a refund preclude bringing a case to the competent authority. Paragraph 1 provides that a case must be presented within three years from the first notification of the action resulting in double taxation not in accordance with the provisions of the Convention.

The Protocol provides that the term "first notification of the action resulting in taxation not in accordance with the provisions of the Convention" means in the case of Belgium, the date on which the notice of assessment containing an assessment or supplementary assessment is sent to the person who considers that the taxation provided for in such assessment or supplementary assessment is contrary to the provisions of the Convention; and in the case of the United States, the date on which the taxpayer receives a notice of proposed adjustment or of assessment, whichever is earlier.

Paragraph 2

Paragraph 2 sets out the framework within which the competent authorities will deal with cases brought by taxpayers under paragraph 1. It provides that, if the competent authority of the Contracting State to which the case is presented judges the case to have merit, and cannot reach a unilateral solution, it shall seek an agreement with the competent authority of the other Contracting State pursuant to which taxation not in accordance with the Convention will be avoided. During the period that a proceeding under this Article is pending, any collection procedures shall be suspended.

Paragraph 3

Paragraph 3 authorizes the competent authorities to resolve difficulties or doubts that may arise as to the application or interpretation of the Convention. The paragraph includes a non-exhaustive list of examples of the kinds of matters about which the

competent authorities may reach agreement. This list is purely illustrative; it does not grant any authority that is not implicitly present as a result of the introductory sentence of paragraph 3.

The competent authorities may, for example, agree to the same allocation of income, deductions, credits or allowances between an enterprise in one Contracting State and its permanent establishment in the other (or between permanent establishments of a third country enterprise that are situated in the Contracting States) or between related persons. These allocations are to be made in accordance with the arm's length principle underlying Article 7 (Business Profits) and Article 9 (Associated Enterprises). Agreements reached under these subparagraphs may include agreement on a methodology for determining an appropriate transfer price, common treatment of a taxpayer's cost sharing arrangement, or upon an acceptable range of results under that methodology.

As indicated in subparagraph (d), the competent authorities also may agree to settle a variety of conflicting applications of the Convention. They may agree to settle conflicts regarding the characterization of particular items of income, the characterization of persons, the application of source rules to particular items of income, the meaning of a term.

They also may agree as to advance pricing arrangements. They also may agree as to the application of the provisions of domestic law regarding penalties, fines, and interest in a manner consistent with the purposes of the Convention.

Since the list under paragraph 3 is not exhaustive, the competent authorities may reach agreement on issues not enumerated in paragraph 3 if necessary to avoid double taxation. For example, the competent authorities may seek agreement on a uniform set of standards for the use of exchange rates. Agreements reached by the competent authorities under paragraph 3 need not conform to the internal law provisions of either Contracting State.

Finally, paragraph 3 authorizes the competent authorities to consult for the purpose of resolving any difficulties or doubts arising as to the interpretation or application of the Convention. This provision is intended to permit the competent authorities to implement the treaty in particular cases in a manner that is consistent with its expressed general purposes.

Paragraph 4

Paragraph 4 authorizes the competent authorities to request the disclosure of information from any person who may have such information relevant to the MAP proceeding to the extent necessary to facilitate the resolution of the case. The paragraph provides that a competent authority may conduct investigations and hearings notwithstanding any time limits in their domestic laws that would otherwise bar such requests for information. Finally, paragraph 4 provides, consistent with paragraph 2 of the U.S. Model, that any agreement is to be implemented even if such implementation otherwise would be barred by the statute of limitations or by some other procedural

limitation, such as a closing agreement. Paragraph 4, however, does not prevent the application of domestic-law procedural limitations that give effect to the agreement ( e.g., a domestic-law requirement that the taxpayer file a return reflecting the agreement within one year of the date of the agreement).

Where the taxpayer has entered a closing agreement (or other written settlement) with the United States before bringing a case to the competent authorities, the U.S. competent authority will endeavor only to obtain a correlative adjustment from the other Contracting State. See Rev. Proc. 2006-54, 2006-49 I.R.B. 1035, § 7.05. Because, as specified in paragraph 2 of Article 1 (General Scope), the Convention cannot operate to increase a taxpayer's liability, temporal or other procedural limitations can be overridden only for the purpose of making refunds and not to impose additional tax.

Paragraph 5

Paragraph 5 provides that the competent authorities may agree on administrative measures to carry out the provisions of the Convention, particularly with respect to documentation to be furnished by a resident to support a claim for reduced tax under the Convention.

Paragraph 6

Paragraph 6 provides that the competent authorities may communicate with each other directly for the purpose of reaching an agreement. This makes clear that the competent authorities of the two Contracting States may communicate without going through diplomatic channels. Such communication may be in various forms, including, where appropriate, through face-to-face meetings of representatives of the competent authorities.

Triangular competent authority solutions

International tax cases may involve more than two taxing jurisdictions ( e.g., transactions among a parent corporation resident in country A and its subsidiaries resident in countries B and C). As long as there is a complete network of treaties among the three countries, it should be possible, under the full combination of bilateral authorities, for the competent authorities of the three States to work together on a threesided solution. Although country A may not be able to give information received under Article 24 (Exchange of Information) from country B to the authorities of country C, if the competent authorities of the three countries are working together, it should not be a problem for them to arrange for the authorities of country B to give the necessary information directly to the tax authorities of country C, as well as to those of country A. Each bilateral part of the trilateral solution must, of course, not exceed the scope of the authority of the competent authorities under the relevant bilateral treaty.

Paragraph 7

Paragraphs 7 and 8 of the Convention and paragraph 6 of the Protocol provide a mandatory binding arbitration procedure.

A case shall be resolved through arbitration when the competent authorities have endeavored but are unable to reach a complete agreement regarding a case through negotiation and the following three conditions are satisfied. First, tax returns have been filed with at least one of the Contracting States with respect to the taxable years at issue in the case. Second, the case is not a case that the competent authorities agree before the date on which arbitration proceedings would otherwise have begun, is not suitable for determination by arbitration. Third, all concerned persons and their authorized representatives agree, according to the provisions of subparagraph d) of paragraph 8, not to disclose to any other person any information received during the course of the arbitration proceeding from either the Contracting States or the arbitration board, other than the determination of the board (confidentiality agreement). The confidentiality agreement may also be executed by any concerned person that has the legal authority to bind any other concerned person on the matter.

Paragraph 8

Subparagraph a) of paragraph 8 provides that the term “concerned person” means the person that brought the case to competent authority for consideration under Article 24 and includes all other persons, if any, whose tax liability to either Contracting State may be directly affected by a mutual agreement arising from that consideration. For example, a concerned person does not only include a U.S. corporation that brings a transfer pricing case with respect to a transaction entered into with its Belgian subsidiary for resolution to the U.S. competent authority, but also the Belgian subsidiary, which may have a correlative adjustment as a result of the resolution of the case.

Subparagraph c) provides that an arbitration proceeding begins on the later of two dates: two years from the information necessary to undertake substantive consideration for mutual agreement has been received by both competent authorities.

Clause p) of paragraph 6 of the Protocol provides that each competent authority will confirm in writing to the other competent authority and to the concerned persons the date of its receipt of the information necessary to undertake substantive consideration for a mutual agreement. In the case of the United States, this information is (i) the information that must be submitted to the U.S. competent authority under Section 4.05 of Rev. Proc. 2002-52, 2002-2 C.B. 242 (since updated to Rev. Proc. 2006-54, 2006-49 I.R.B. 1035) §7.05, and (ii) for cases initially submitted as a request for an Advance Pricing Agreement, the information that must be submitted to the Internal Revenue Service under Rev. Proc. 2006-9, 2006-2 I.R.B. 278, as it might be amended from time to time. In the case of Belgium, this information is any information that would be required under instructions or commentaries published by the Federal Public Service Finance. The information will not be considered received until both competent authorities receive copies of all materials submitted by concerned persons in connection with the mutual agreement procedure.

Paragraph 6 of the Protocol provides for a several procedural rules once an arbitration proceeding under paragraph 7 of Article 24 (“Proceeding”) has commenced,

but the competent authorities may modify or supplement these rules as necessary. In addition, the arbitration board may adopt any procedures necessary for the conduct of its business, provided the procedures are not inconsistent with any provision of Article 24 of the Convention.

Subparagraph (e) of paragraph 6 of the Protocol provides that each Contracting State has 60 days from the date on which the Proceeding begins to send a written communication to the other Contracting State appointing one member of the arbitration board. Within 60 days of the date the second of such communications is sent, these two board members will appoint a third member to serve as the chair of the board. The chair may not be a citizen of either Contracting State. In the event that any members of the board are not appointed (including as a result of the failure of the two members appointed by the Contracting States to agree on a third member) by the requisite date, the remaining members are appointed by the highest ranking member of the Secretariat at the Centre for Tax Policy and Administration of the Organisation for Economic Co-operation and Development (OECD) who is not a citizen of either Contracting State, by written notice to both Contracting States within 60 days of the date of such failure.

Clause (g) of paragraph 6 of the Protocol establishes deadlines for submission of materials by the Contracting States to the arbitration board. Each competent authority has 60 days from the date of appointment of the chair to submit a Proposed Resolution describing the proposed disposition of the specific monetary amounts of income, expense or taxation at issue in the case, and a supporting Position Paper. Copies of each State’s submissions are to be provided by the board to the other Contracting State on the date the later of the submissions is submitted to the board. Each of the Contracting States may submit a Reply Submission to the board within 120 days of the appointment of the chair to address points raised in the other State’s Proposed Resolution or Position Paper. If one Contracting State fails to submit a Proposed Resolution within the requisite time, the Proposed Resolution of the other Contracting State is deemed to be the determination of the arbitration board. No other information may be supplied to the arbitration board, unless it requests additional information. Copies of any such requested information, along with the board’s request, must be provided to the other Contracting State on the date the request or response is submitted.

All communication with the board is to be in writing between the chair of the board and the designated competent authorities with the exception of communication regarding logistical matters.

In making its determination the arbitration board will apply the following authorities as necessary and in descending order of relevance: (i) the provisions of the Convention, (ii) any agreed commentaries or explanation of the Contracting States concerning the Convention, (iii) the laws of the Contracting States to the extent they are not inconsistent with each other, and (iv) any OECD Commentary, Guidelines or Reports regarding relevant analogous portions of the OECD Model Tax Convention.

The arbitration board must deliver a determination in writing to the Contracting States within 6 months of the appointment of the chair. The determination must be one

of the two Proposed Resolutions submitted by the Contracting States. The determination may only provide a determination regarding the amount of income, expense or tax reportable to the Contracting States. The determination has no precedential value and consequently the rationale behind a board’s determination would not be beneficial and may not be provided by the board.

Clause (k) of paragraph 6 of the Protocol provides that, unless any concerned person does not accept the decision of the arbitration board, the determination of the board constitutes a resolution by mutual agreement under Article 24 and, consequently, is binding on both Contracting States. Each concerned person must, within 30 days of receiving the determination from the competent authority to which the case was first presented, advise that competent authority whether the person accepts the determination. In addition, if the case is in litigation, the concerned persons must advise the relevant court of their acceptance of the arbitration determination, and withdraw from the litigation the issues resolved by the MAP arbitration. The failure to advise the competent authority or the relevant court within the requisite time is considered a rejection of the determination. If a determination is rejected the case cannot be the subject of a subsequent Proceeding. After the commencement of the Proceeding but before a decision of the board has been accepted by all concerned persons, the competent authorities may reach a mutual agreement to resolve the case and terminate the Proceeding.

For purposes of the arbitration proceeding, the members of the arbitration board and their staffs shall be considered “persons or authorities” to whom information may be disclosed under Article 25 (Exchange of Information and Administrative Assistance). Paragraph 6 of the Protocol provides that all materials prepared in the course of, or relating to, the Proceeding are considered information exchanged between the Contracting States. No information relating to the Proceeding or the board’s determination may be disclosed by members of the arbitration board or their staffs or by either competent authority, except as permitted by the Convention and the domestic laws of the Contracting States. Members of the arbitration board and their staffs must agree in statements sent to each of the Contracting States in confirmation of their appointment to the arbitration board to abide by and be subject to the confidentiality and nondisclosure provisions of Article 25 of the Convention and the applicable domestic laws of the Contracting States, with the most restrictive of the provisions applying.

The applicable domestic law of the Contracting States determines the treatment of any interest or penalties associated with a competent authority agreement achieved through arbitration.

In general, fees and expenses are borne equally by the Contracting States, including the cost of translation services. However, meeting facilities, related resources, financial management, other logistical support, and general and administrative coordination of the Proceeding will be provided, at its own cost, by the Contracting State whose competent authority initiated the mutual agreement proceedings. In general, the fees of members of the arbitration board will be set at the fixed amount of $2,000 per day

100

(or the equivalent amount in euro). The expenses of members of the board will be set in accordance with the International Centre for Settlement of Investment Disputes (ICSID) Schedule of Fees for arbitrators (in effect on the date on which the arbitration board proceedings begin). The competent authorities may amend the set fees and expenses of members of the board. All other costs are to be borne by the Contracting State that incurs them.

Treaty termination in relation to competent authority dispute resolution

A case may be raised by a taxpayer under a treaty with respect to a year for which a treaty was in force after the treaty has been terminated. In such a case the ability of the competent authorities to act is limited. They may not exchange confidential information, nor may they reach a solution that varies from that specified in its law.

Relationship to Other Articles

This Article is not subject to the saving clause of paragraph 4 of Article 1 (General Scope) by virtue of the exceptions in paragraph 5(a) of that Article. Thus, rules, definitions, procedures, etc. that are agreed upon by the competent authorities under this Article may be applied by the United States with respect to its citizens and residents even if they differ from the comparable Code provisions. Similarly, as indicated above, U.S. law may be overridden to provide refunds of tax to a U.S. citizen or resident under this Article. A person may seek relief under Article 24 regardless of whether he is generally entitled to benefits under Article 21 (Limitation on Benefits). As in all other cases, the competent authority is vested with the discretion to decide whether the claim for relief is justified.