Conduit Companies, Beneficial Ownership, and the Test of Substantive Business Activity in Claims for Relief Under Double Tax Treaties

2012 ◽  
Author(s):  
John Prebble ◽  
Saurabh Jain ◽  
Kristina Bunting
Keyword(s):  
Business Activity ◽  
Tax Treaties ◽  
Beneficial Ownership

scholarly journals Conduit Companies, Beneficial Ownership, and the Test of Substantive Business Activity in Claims for Relief under Double Tax Treaties

2020 ◽  
Author(s):  
S Jain ◽  
J Prebble ◽  
K Bunting
Keyword(s):  
Business Activity ◽  
Business Law ◽  
Tax Treaties ◽  
South Wales ◽  
The People ◽  
Beneficial Ownership ◽  
The University ◽  
A Company ◽  
Legal Sense ◽  
Made In

If interpreted in a strict legal sense, beneficial ownership rules in tax treaties would have no effect on conduit companies because companies at law own their property and income beneficially. Conversely, a company can never own anything in a substantive sense because economically a company is no more than a congeries of arrangements that represents the people behind it. Faced with these contradictory considerations, people have adopted surrogate tests that they attempt to employ in place of the treaty test of beneficial ownership. An example is that treaty benefits should be limited to companies that are both resident in the states that are parties to the treaty and that carry on substantive business activity. The test is inherently illogical. The origins of the substantive business activity test appear to lie in analogies drawn with straw company and base company cases. Because there is no necessary relationship between ownership and activity, the test of substantive business activity can never provide a coherent surrogate for the test of beneficial ownership. The article finishes with a Coda that summarises suggestions for reform to be made in work that is to follow. © School of Taxation and Business Law (Atax), Australian School of Business The University of New South Wales.

scholarly journals Conduit Companies, Beneficial Ownership, and the Test of Substantive Business Activity in Claims for Relief under Double Tax Treaties

2020 ◽  
Author(s):  
S Jain ◽  
J Prebble ◽  
K Bunting
Keyword(s):  
Business Activity ◽  
Business Law ◽  
Tax Treaties ◽  
South Wales ◽  
The People ◽  
Beneficial Ownership ◽  
The University ◽  
A Company ◽  
Legal Sense ◽  
Made In

If interpreted in a strict legal sense, beneficial ownership rules in tax treaties would have no effect on conduit companies because companies at law own their property and income beneficially. Conversely, a company can never own anything in a substantive sense because economically a company is no more than a congeries of arrangements that represents the people behind it. Faced with these contradictory considerations, people have adopted surrogate tests that they attempt to employ in place of the treaty test of beneficial ownership. An example is that treaty benefits should be limited to companies that are both resident in the states that are parties to the treaty and that carry on substantive business activity. The test is inherently illogical. The origins of the substantive business activity test appear to lie in analogies drawn with straw company and base company cases. Because there is no necessary relationship between ownership and activity, the test of substantive business activity can never provide a coherent surrogate for the test of beneficial ownership. The article finishes with a Coda that summarises suggestions for reform to be made in work that is to follow. © School of Taxation and Business Law (Atax), Australian School of Business The University of New South Wales.

scholarly journals Interpreting the Factor of Dominion in Conduit Company Cases

2020 ◽  
Author(s):  
John Prebble ◽  
Saurabh Jain
Keyword(s):  
Supreme Court ◽  
Tax Treaties ◽  
Avoidance Test ◽  
Corporation Law ◽  
Beneficial Ownership ◽  
Federal Supreme

The official commentary on the OECD Model as it stood in 1977 has misdirected the Conduit Companies Report and courts to draw an analogy between a “nominee or agent” and conduit company. On the basis of this analogy, courts have transposed the dominion test from cases involving agents and nominees into conduit company cases. A problem with the reasoning of such cases is that courts have treated beneficial ownership as a test of ownership, not as an anti-avoidance test. The official commentary has also misdirected Danish judicial forums in ISS Dividends and ISS Interest despite the fact that they treated beneficial ownership as an anti-avoidance test. The shortcomings in the reasoning of the Danish judicial forums can be better understood in the light of the reasoning of the Swiss Federal Supreme Court in the Swiss Swap case. In the Swiss Swap case, the Swiss Federal Supreme Court interpreted “beneficial ownership” in the light of the object and purpose of the tax treaty in question. The court considered beneficial ownership to be a requirement that is inherent in double tax treaties and applied beneficial ownership as a general anti-avoidance test. The court interpreted the dominion test in the light of the object and purpose of restricting treaty benefits to residents of contracting states. It examined the arrangement as a whole and found that the arrangement was inconsistent with the object and purpose of the Switzerland-Denmark double tax treaty. By contrast, in ISS Dividends and ISS Interest, the Danish judicial forums did not interpret the term “beneficial owner” in the light of the object and purpose of the Denmark-Luxembourg double tax treaty. They considered beneficial ownership to be a specific anti-avoidance test that was added separately to the OECD Model in 1977. They assigned dominion as a criterion by which the beneficial ownership test would work. They narrowed the scope of the dominion test and applied the test to the facts in the context of corporation law. They allowed treaty benefits to the recipient company on the basis that the recipient company did not immediately pass on passive income.

Beneficial Ownership in Tax Law and Tax Treaties

2020 ◽  
Author(s):  
Pablo A Hernández González-Barreda
Keyword(s):  
Tax Law ◽  
Tax Treaties ◽  
Beneficial Ownership

scholarly journals Beneficial Ownership Provisions In Tax Treaties Between Developed And Developing Countries: The Canada/South Africa Example

2013 ◽  
Vol 12 (9) ◽  
pp. 1107
Author(s):  
Lee-Ann Steenkamp
Keyword(s):  
South Africa ◽  
Developing Countries ◽  
Tax Avoidance ◽  
General Definition ◽  
Tax Treaties ◽  
Cross Border ◽  
Treaty Negotiations ◽  
Beneficial Ownership ◽  
Treaty Networks ◽  
Trade And Investment

In the years since the Organisation for Economic Cooperation and Development (OECD) adopted its first draft tax treaty in 1963, the world has experienced an astonishing surge in international trade and investment. The tax treatment of these cross-border transactions is affected by double tax agreements. As tax treaty networks will likely continue to expand, concerns about tax treaty abuse might be expected to grow. The extent to which a countrys tax treaty policy favours developing countries - or not - depends upon the extent to which the country is prepared to adopt provisions from the UN model tax convention as opposed to the OECD model. Developing countries, in particular, should carefully consider the design of their tax treaties so as to effectively combat tax avoidance without sacrificing foreign direct investment. To this end, the Canada/South Africa tax treaty is compared and contrasted with these two models. The concept of beneficial ownership is reviewed in this context. It is contended that a general definition in South Africa's Income Tax Act of 'beneficial ownership' would assist in the interpretation of the term for the purposes of South Africa's tax treaties. It is submitted that the scope for the source taxation of passive investment income (viz. dividends, interest and royalties) in the developing country could be magnified through treaty negotiations.

scholarly journals Interpreting the Factor of Dominion in Conduit Company Cases

2020 ◽  
Author(s):  
John Prebble ◽  
Saurabh Jain
Keyword(s):  
Supreme Court ◽  
Tax Treaties ◽  
Avoidance Test ◽  
Corporation Law ◽  
Beneficial Ownership ◽  
Federal Supreme

The official commentary on the OECD Model as it stood in 1977 has misdirected the Conduit Companies Report and courts to draw an analogy between a “nominee or agent” and conduit company. On the basis of this analogy, courts have transposed the dominion test from cases involving agents and nominees into conduit company cases. A problem with the reasoning of such cases is that courts have treated beneficial ownership as a test of ownership, not as an anti-avoidance test. The official commentary has also misdirected Danish judicial forums in ISS Dividends and ISS Interest despite the fact that they treated beneficial ownership as an anti-avoidance test. The shortcomings in the reasoning of the Danish judicial forums can be better understood in the light of the reasoning of the Swiss Federal Supreme Court in the Swiss Swap case. In the Swiss Swap case, the Swiss Federal Supreme Court interpreted “beneficial ownership” in the light of the object and purpose of the tax treaty in question. The court considered beneficial ownership to be a requirement that is inherent in double tax treaties and applied beneficial ownership as a general anti-avoidance test. The court interpreted the dominion test in the light of the object and purpose of restricting treaty benefits to residents of contracting states. It examined the arrangement as a whole and found that the arrangement was inconsistent with the object and purpose of the Switzerland-Denmark double tax treaty. By contrast, in ISS Dividends and ISS Interest, the Danish judicial forums did not interpret the term “beneficial owner” in the light of the object and purpose of the Denmark-Luxembourg double tax treaty. They considered beneficial ownership to be a specific anti-avoidance test that was added separately to the OECD Model in 1977. They assigned dominion as a criterion by which the beneficial ownership test would work. They narrowed the scope of the dominion test and applied the test to the facts in the context of corporation law. They allowed treaty benefits to the recipient company on the basis that the recipient company did not immediately pass on passive income.

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