handbook-tb

Graeme S. Cooperstock exchange, its only shareholder is resident in State C, and its onlyactivity is to collect and remit interest from Company A. While thestructure may seem abusive, it is not obvious that State A has sufferedany loss of revenue from applying the A-B treaty when the ultimateowner of the income is an entity that would be entitled instead to thebenefits of the identical A-C treaty.Example 6State CCompany C Ltd.Shares in Company C areactively traded on arecognized stock exchangein State CState B$Company B Ltd.Company B is not a“qualified person” and is notengaged in active businessCompany B pays interest toits parent, Company CState A$Company A Ltd.Company A pays interest toits parent, Company BA tax treaty exists between State A and State B. The rate in article 11 (2) therein is 10 per cent.A tax treaty exists between State A and State C. The rate in article 11 (2) therein is 10 per cent.This issue is alluded to in the OECD Action 6 — 2014 Deliverableand a possible clause is examined. The clause would reinstate theoriginal treaty [in the example, the A-B treaty] in its entirety wherea company (and only a company) is (predominantly) owned by an“equivalent beneficiary.” The original treaty will be reinstated if bothan ownership test and a base erosion test are met. In the proposedparagraph 4, full treaty benefits are given to:[a] company that is a resident of a Contracting State … if…a) at least 95 percent of the aggregate voting power andvalue of its shares (and at least 50 percent of any disproportionateclass of shares) is owned, directly or indirectly,308