handbook-tb

Wei Cuiorder to fulfil its purpose, paragraph 4 must apply whetherthe company, partnership, trust or estate owns the immovableproperty directly or indirectly, such as, through one or moreinterposed entities. 66However, it does not appear that countries have generally enactedthe anti-avoidance measures permitted by Article 13 (4). For example,as discussed in section 6.2 below, surprisingly few countries — in theOECD 67 or in the developing world — have enacted domestic law fortaxing transfers of foreign companies (“indirect transfers”). The merelanguage of Article 13 (4), therefore, sheds little light on the design ofanti-avoidance.Finally, Article 13 (4) of the United Nations Model Conventioncarves out from source-country capital gains taxation transfers ofinterests in entities whose property consists directly or indirectly principallyof immovable property used by them in their business activities(but not an immovable property management company, partnership,trust or estate). The reason for this carve-out, presumably, is thatentities that use immovable property in their business activities arenot formed for purposes of avoiding the tax on the sale of immovableproperty. However, relatively few treaties involving developingcountries have adopted this carve-out; nor has Article 13 of the OECD66Despite the anti-avoidance intent of Article 13 (4), it has been arguedthat it may not encompass all the ways in which non-residents may employtax structures to avoid taxation. “A convertible debt or option, for example,may not be viewed by a court to constitute an interest in a company, butmerely a claim to a company’s property in the former case or a right over ashareholder or the company in the latter.” See Richard Krever, “Tax Treatiesand the Taxation of Non-Residents’ Capital Gains”, supra note 7, at 229.It has therefore been suggested that a source country may want to subjectsuch claims against a company holding immovable property situated in it tocapital gains taxation also. Canada defines taxable Canadian property (thatis to say, property whose gain realized by a non-resident is taxable in Canada)as including “an option in respect of” other taxable Canadian property. SeeIncome Tax Act, RSC 1985, c. 1 (5th Supp.), s. 248.67The OECD Model Convention contains a somewhat similar provisionfor source-country taxation of the shares of real estate holding companies,including shares of non-resident companies.138