handbook-tb

Preventing tax treaty abusefor the purposes of the treaty; it is likely to meet the tests for being a“resident” of State B; and it is harder to argue that Company B is notthe “beneficial owner” of the amounts it has received merely because ithas undertaken obligations which will result in it having to spend thatincome or choosing to distribute it as a dividend. 172.2 Challenging inappropriate access using domestic lawMost countries will have domestic rules which aim to prevent or minimizethe scope for tax avoidance, and these measures may be suitableto use as weapons against treaty abuse.The first issue that arises is to ensure that a country has a completeset of domestic anti-avoidance rules. Developed countries willoften have a very large suite of domestic anti-avoidance rules, suchas thin capitalization rules, controlled foreign company and foreigninvestment fund rules, indirect asset transfer rules, transfer pricingrules, specific anti-avoidance rules and statutory general anti-avoidancerules. Developing countries which lack comprehensive anti-abuserules make the task of countering the most common forms of abusemore difficult.Similarly, existing judicial doctrines (with labels such as “businesspurpose,” “economic substance,” “abus de droit” or “substanceover form”) which were developed initially to control domestic taxabuse may also play a role in preventing tax treaty abuse.The obvious issue is whether the suite of domestic legislative andjudicial rules can be raised against practices which rely upon a treatybut are regarded as treaty abuse. It is sometimes argued that domesticanti-avoidance rules and existing judicial anti-avoidance doctrinescannot be applied if they would have the effect of denying the benefitswhich a treaty apparently offers. The Commentaries on both theUnited Nations and the OECD Model Conventions accept that specific17The meaning of “beneficial owner” is examined at length in JoannaWheeler, “Persons qualifying for treaty benefits,” supra note 16. See alsoOECD, OECD Model Tax Convention: Revised Proposals Concerning theMeaning of “Beneficial Owner” in Articles 10, 11 and 12 (Paris: OECD, 2012),available at http://www.oecd.org/ctp/treaties/Beneficialownership.pdf.287