handbook-tb

Taxation of non-residents’ capital gains6.1 Treaty shoppingOne obvious strategy for avoiding the capital gains tax is to set upholding companies that otherwise serve little or no business purposein jurisdictions with treaties that contain favourable provisions on thetaxation of capital gains. Even for countries that generally tax transfersof shares of domestic companies (whether all transfers or transfers ofsubstantial ownership, in accordance with Article 13 (5) of the UnitedNations Model Convention), some of their treaties may exempt suchtransfers. Still fewer treaties may exempt the transfer of shares of realestate holding companies (contrary to the provisions of Article 13 (4)of the United Nations Model Convention). 75 Moreover, a developingcountry may not always be able to negotiate the retention of residualtaxing rights under Article 13 (6).Since a separate chapter in this publication deals with the abuseof treaties, there is no need to dwell on the issue here. 76 However, onecomment is worth making in connection with Article 13. Unlike someof the other distributive articles in tax treaties (regarding, for example,interest, dividends, royalties and, increasingly frequently, other income),which generally deploy the concept of beneficial owner as a way of preventingtreaty abuse, the capital gains article generally does not referto beneficial owners. This by no means implies that a more permissiveattitude towards treaty shopping is intended with respect to capital gains.Instead, it merely reflects the fact that the drafting of the article uniformlyrefers to capital gains “derived by” residents of a contracting State,and never employs the phrase “paid to”. It is indeed this latter phrasethat led to the (perceived) need to stress the qualification of the payee asa beneficial owner in the other distributive articles. 7775The carve-out for companies that use domestic real property in theirbusinesses contained in Article 13 (4) of the United Nations Model Conventionis not often adopted, but where it is, it also gives rise to incentives fortreaty shopping.76See Chapter VI, Preventing tax treaty abuse, by Graeme S. Cooper.77A rare anti-avoidance provision specifically addressing capital gainsis found in Article 14 (6) of the Convention between the Government of theItalian Republic and the Government of the Republic of Ghana for the Avoidanceof Double Taxation with Respect to Taxes on Income and the Preventionof Fiscal Evasion, of 19 February 2004: “The provisions of this Article shall143