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.