Access to Treaty Benefits

S. 1061. Introduction

Globalization and economic growth encourages international investment surges. Consequently, due to the different legal systems and tax treatments on forms of business among states, mixed structures or contractual relationships are widely employed to renumerate income for investors or shareholders. To reduce tax burdens, many businesses seek to create artificial arrangements so that the relevant persons involved can be entitled to a treaty benefit. This can occur since the non-tax laws of most countries recognize artificial persons that reflect mere contractual relationships of its members, beneficiaries, and participants for various purposes such as partnerships, trust, and estates. Such arrangements often constitute hybrid entities, namely, those that are treated as separate taxable persons (opaque) in one jurisdiction, and disregarded for tax purpose (transparent) in another state. The uncertain tax treatment with regards to a hybrid entity in an international context could give rise to double taxation, or, instead, double non-taxation. In this chapter, the tax treatment of hybrid entities under the OECD Tax Model Convention will be examined (primarily the 2017 ver...