handbook-tb

Peter A. HarrisSubject to tax treaties, Country B might also use the foreign tax creditmethod or a subject-to-tax clause.A.2.3 The mismatch in example 8 would have to be addressed indomestic law, but tax treaties may override this. Country A mightensure that, as a matter of domestic tax law, the profits of Y from thesale of goods through a local commissionaire are treated as sourcedand taxable in Country A. Tax treaty issues involving commissionairestructures are complicated and are covered in the OECD ActionPlan on BEPS, Action 7: Prevent the Artificial Avoidance of PE Status.Source countries might seek to ensure that their tax treaties are sufficientlybroad so as not to deny a taxing right in this sort of case.The position of Country B is similar to that discussed with respect toexample 7.A.2.4 The mismatch caused by double-dip depreciation through afinance lease in example 9 would largely be addressed by quarantiningforeign expenses. As discussed above with respect to example 3, aquarantining rule may be constructed in such a fashion that it wouldbe difficult for both Country A and Country B to consider that thedepreciation expense has a domestic source. Here the focus of the mismatchis on deduction of depreciation in both jurisdictions and not onthe character of the payments under the finance lease. However, saleand repurchase agreements can be structured in such a way as the primarybenefit from disagreement as to ownership of an asset results in amismatch of the character of payments made with respect to the asset.A.2.5 Figures 2 [figure 2.2 in the OECD Action 2 — 2014 Deliverable],3, 19 and 20 in the OECD Public Discussion Draft on BEPS Action2 — Domestic Issues are examples of mismatches in character of paymentscaused by disagreement as to who owns an asset as a result of asale and repurchase agreement. Here one country views a transactionwith respect to the asset as a sale and the other views it as a financingtransaction (loan). In figures 2 [2.2] and 3, the country of the acquirer(Country B) views the transaction as a sale whereas the country of theseller (Country A) sees no transfer of ownership (views it as a financingtransaction). In figure 19 the situations are reversed (as are the countrynames), the country of the seller (Country B) views the transaction asa sale and the country of the buyer (Country A) views it as no transfer(a financing transaction).264