Tax Treaty Case Law around the Globe 2017

1. S. 116Introduction

The Molinos Argentina vs. DGI case addresses an alleged treaty shopping practice that involved the establishment of a holding company in Chile through which dividends from subsidiaries in other countries - in this case, located in Peru and Uruguay- would be passed to Argentina, presumably to benefit from a combination of a special regime in the Chilean domestic law and the Argentina-Chile Income and Capital Tax Treaty (1976) (hereinafter the Argentina-Chile tax treaty) in force at that time which lead to a double non-taxation phenomenon.

In this regard, in August 2016 the Court of Appeal confirmed the judgment of the Federal Tax Court against the taxpayer because it considered that the dividends distributed by the Chilean holding company to its shareholder in Argentina should not be eligible for the benefits of the treaty. Basically, the court stated that the holding was a conduit company which served to distribute dividends to the parent company free of withholding tax. The reasoning of the court was based on the principle of economic reality or “substance over form” - derived from domestic general anti-abuse rules (hereinafter GAARs) - set out in articles 1 and 2 of...