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Beneficial ownership and the current developments within the OECD

Prof. Dr. Alain SteichenUniversity of LuxembourgBonn Steichen & Partners





The balancing act

Economic tax theory

Legalistic approach

to tax laws





Introduction

Elimination of double

taxation of residents

Scope of tax

treaties

WHT reductions should be limited to

residents of the treaty country

Source country’s concern

Anti-treaty shopping

provision : payments to

residents only subject to reduced WHT in case of BO

Beneficial ownership





Developments over time

OECD (2003)OECD (1997)

Common law countriesTrust law

UK-US tax treaty (1965)






OECD (2003)

Negative definition

“not available when an

intermediary, such as an

agent or nominee, is interposed”

OECD (1997)UK-US tax treaty (1965)






Exclusion of persons who act under

• “an agency or nominee relationship, (…), or

• as a conduit for another person who in fact

receives the benefit of the income”

A conduit : “a formal owner (…) with very

narrow powers (…) (akin) to a mere

fiduciary or administrator”

Not to be understood in a “narrow technical

sense”

OECD (2003)OECD (1997)UK-US tax treaty (1965)





Relevance of domestic law for interpreting the concept of beneficial ownership

Definition as per domestic

tax law

Uniform international tax meaning





Relevance of domestic law for interpreting the concept of beneficial ownership

Definition as per domestic tax law

Uniform international tax meaning• “unless the context otherwise

requires”• Vienna Convention on the Law

of Treaties• OCDE Commentary : relevance

of subsequent changes





Attribution of income

Artist/Sportsman

Rent-A Star Company

Activity

Third country

Residence country

Source country





OECD changes to the Commentary (2013)

Relevance of domestic law• Uniform international

understanding• Income attribution is

a prerequisite

Elements of a definition






Relevance of domestic

law

Elements of a definition• Very narrow

powers






Relevance of domestic law

Elements of a definition• Very narrow powers• Right to use is

constrained by a “contractual or legal obligation” …






Relevance of domestic law

Elements of a definition• Very narrow powers• Right to use is constrained

by a “contractual or legal obligation” …

• which needs to be “related’





Case 1 - related/unrelated obligations

Market

Bank in Residence country Co

Borrower in Source

country Co

Loan Interest, no WHT

Interest❶ Deposits






Market


Borrower in Source

country Co


InterestDeposits

Guarantee






Market


Borrower in Source

country Co


Interest

GuaranteeCash collateral






Market


Borrower in Source

country Co


Interest

GuaranteeState bond collateral





Conclusion

Helpful improvements

From bad to worse

Beneficial ownership is one instrument only for combating

treaty shopping

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