handbook-tb

Preventing tax treaty abuseThe Commentaries on individual articles in each ModelConvention also contain many passages which draw attention to possibleinterpretations of the text which can buttress the arguments oftax officials seeking to deny treaty benefits.The OECD recommendations encourage some new approachesto the problem which will be incorporated in the OECD ModelConvention and Commentary. Some of these measures are in commonuse; others are not. Developing countries may wish to include provisionssuch as these in their treaties in order to enhance the integrity offuture treaties. Four separate strategies are being proposed:‣ ¾ A general limitation of benefits article based on observablestructural features;‣ ¾ A general limitation of benefits article based on a purpose orstate of mind;‣ ¾ A change to the Preamble to the OECD Model Convention toreiterate that the treaty is not intended to provide relief from taxto residents of third States; and‣ ¾ A list of potential individual changes to the Model Conventionand Commentary to address a number of particular issues thathave been identified as abuses of treaties.The “minimum standard” proposed in the recommendationssets out a matrix of recommended combinations of these individualelements and a country’s existing anti-abuse measures.2.3.1 A general limitation on benefits articleOne of the measures likely to follow from the OECD project onBEPS is the inclusion in the text of the OECD Model Convention ofa general “limitation on benefits” (LOB) article. An LOB article isalready discussed in the Commentary to the United Nations ModelConvention 26 and the Commentary to the OECD Model Convention. 2726See paragraph 56 of the Commentary on Article 1 of the UnitedNations Model Convention.27A limitation on benefits article is already set out in paragraph 20 of theCommentary on Article 1 of the OECD Model Convention.291