handbook-tb

Preventing tax treaty abusemore of the relevant preparation and ultimate decisions occurin the residence State than occur elsewhere;‣ ¾ The test appears to focus on the number of decisions rather thantheir importance;‣ ¾ The test requires an examination of the decision-making forthe company claiming to be entitled to treaty benefits and any“direct and indirect subsidiaries.” Clearly, the listed companywill not be a “qualified person” under this option if it is effectivelymanaged from offshore, but the drafting suggests that the listedcompany must assume responsibility for the decision-makingof subsidiaries; relevant operational policy decisions cannotapparently be left to the executives of the operating subsidiaries.Where either the “locally traded’ or “locally managed’ test issatisfied, the listed company will enjoy access to all treaty benefits, butthe most important ones are likely to be treaty benefits for dividends,interest and royalties received from its subsidiary in the source country,and treaty benefits for income from business activities conductedin the source State without a permanent establishment (PE).Example 3State BCompany B Ltd.If Company B's shares aretraded (in State A or State B),it will be a qualified person if:- Its shares are primarilytraded in State B, or- Its primary place ofmanagement is in State B$State ACompany A Ltd.A second rule exists for companies that are subsidiaries of publiclytraded companies — that is to say, a company can be a “qualified person”if it is at least 50 per cent owned by a listed and publicly traded companythat is resident in one of the States and itself a “qualified person”:299