Introduction to the Law of Double Taxation Conventions

S. 355. Treaty abuse

5.1. Denial of treaty benefits

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Great controversy exists among tax scholars with respect to whether tax authorities may prevent the improper use of DTCs. The discussion focuses, on the one hand, on what constitutes abuse and is thus undesirable and, on the other, on the rules empowering tax authorities not to grant treaty benefits. In 2017, a new title, preamble and Art. 29 on the entitlement to treaty benefits were added to the OECD Model in order to emphasize that the object and purpose of the OECD Model is not only to prevent double taxation, but also to prevent tax evasion and tax avoidance.

5.2. The application of domestic anti-abuse principles?

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In most countries, taxes cannot be avoided or reduced through abuse. Domestic tax laws contain provisions or principles pursuant to which transactions are disregarded or recharacterized if they are abusive. Often, an abuse exists when the arrangement or transaction is artificial or uncommon and it was entered into for the main or one of the main purposes of obtaining a tax benefit.

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The courts of some countries apply the principle of “substance over form” to disregard the legal form of a transaction in favour of its true econo...