handbook-tb

Preventing tax treaty abusehands of the agent, nominee, custodian, trustee or partnership — thetreaty between State A and State B should not be invoked to limit StateA tax claims.Example 1State CState BCompany C Ltd.$Income is owned by:- Principal- Beneficiary- PartnersIntermediaryreceives income as:- Agent- Nominee- Custodian- Trustee- PartnershipState A$Company A Ltd.A tax treaty exists between State A and State B.No treaty exists between State A and State C.This may already be acknowledged. Accepted interpretations ofseveral explicit provisions in tax treaties would deny treaty benefits to theintermediary in State B. For example, where the relevant arrangement issimply contractual (the resident of State C has organized for its incometo be collected by an agent or custodian), the relevant “person” for treatypurposes is the person with whom the resident is dealing, and that isthe resident of State C not its agent. 16 Second, the intermediary may notsatisfy the requirements of being a “resident” of State B for the purposesof the treaty — if the tax liability falls on the principal, beneficiary orpartners and not the intermediary, the intermediary is not a “person16See Joanna Wheeler, “Persons qualifying for treaty benefits,” in UnitedNations Handbook on Selected Issues in Administration of Double Tax Treatiesfor Developing Countries, supra note 15.285