Moldova Clarifies that Foreign Tax Improperly Withheld under Tax Treaty is Not Creditable

Moldova's State Tax Service recently issued a letter clarifying the allowance of a credit for foreign tax paid under the 2006 tax treaty with Macedonia. The issue concerned a Moldovan software company that had sold software to a resident of Macedonia, which withheld 10% tax on the payment as provided under Article 12 (Royalties) of the treaty. However, because there was no actual transfer of exclusive rights to the software, the payment is not considered a royalty and would only be subject to…