handbook-tb

Graeme S. CooperPresumably, an entity is being “operated exclusively” for theappropriate purposes if it owns investments which generate income,even if some of that income might be retained rather than applied tocurrent works. It may be more difficult to say that a company whollyowned by a charity or similar entity is being “operated exclusively”for the appropriate purposes when its function is to fund activitiesrather than conduct them itself. Similar issues could arise if charitiesare permitted for tax and regulatory purposes to undertake commercialactivities, provided the profits generated from those activities areapplied to the charitable works in question — for example, a charitywhich operates a second-hand bookshop selling donated books, wherethe proceeds are paid to the charity to further its work. The statusof “qualified person” can be lost if business activities occur withinthe entity: the person must be “operated exclusively” for one of thelisted purposes and it is not obvious that the book sales amount tocharitable works even if they are undertaken to fund charitable works.There would be some doubt whether this problem could be solved byconducting the business activity through a wholly owned subsidiary.Again, the issue would be whether the entity is “operated exclusively”for one of the purposes if it is operated to fund the activity.Fourth, subparagraph d) also extends the status of “qualifiedperson” to private pension funds established to provide pension andsimilar benefits principally to persons who are residents of either ofthe contracting States:2. A resident of a Contracting State shall be a qualified personfor a taxable year if the resident is…d) a person, other than an individual, that…ii) was constituted and is operated exclusively toadminister or provide pension or other similarbenefits, provided that more than 50 per cent of thebeneficial interests in that person are owned by individualsresident in either Contracting State.The formulation used in this section appears to refer to thenumber of beneficial interests (“more than 50 per cent of the beneficialinterests”) rather than the value of the interests or the way the incomeis being applied in any year.294