handbook-tb

Protecting the tax base of developing countries7.3 Treaty-based rules7.3.1 Specific anti-avoidance rules in treatiesExisting treaties contain a number of specific rules that are aimed atdenying treaty benefits in particular situations that have been identifiedas abusive. The use of “beneficial ownership” rules can restricttreaty benefits where the recipient of the income is not the “true owner”of the income and is only functioning as an agent, conduit or nominee.The “special relationship” provisions of the interest and royaltiesarticles allow the tax authorities to reclassify certain payments thatare not made at arm’s length. Special provisions are often used thatare aimed at personal services companies used by entertainers andathletes to avoid source-country tax. 24 Similarly, special provisions inArticle 13 of both the United Nations and OECD Model Conventionsallow countries to tax gains from the sale of shares of real estate holdingcompanies to prevent the use of such companies to avoid taxationon gains on the underlying real estate. 257.3.2 General anti-avoidance rules in treatiesSome treaties deal with the problem of treaty abuse by having anexplicit general anti-abuse rule (GAAR) in the treaty. Paragraph 36 ofthe Commentary on Article 1 of the United Nations Model Conventionsuggests one possible version:Benefits provided for by this Convention shall not be availablewhere it may reasonably be considered that a main purpose forentering into transactions or arrangements has been to obtainthese benefits and obtaining the benefits in these circumstanceswould be contrary to the object and purpose of the relevant provisionsof this Convention.While a treaty GAAR can be a useful tool, too broad an applicationof a GAAR can in some circumstances create undesirable legaluncertainty and impede investment. In addition, the existence of a24See Article 17 (2) of the United Nations and OECD Model Conventions.25See Article 13 (4) of the United Nations and OECD Model Conventions.29