Access to Treaty Benefits

S. 4441. Introduction

Limitation on benefits (“LOB”) tests are based on objective fact patterns tackling treaty shopping behaviour. They are mainly found in double taxation treaties (“DTTs”) and act as a barrier to access treaty benefits.

LOB provisions are often referred to as specific anti-abuse rules and examined as part of the treaty access requirements, together with the residence or beneficial ownership requirements. They have sometimes been described as an expansion of these prerequisites because they usually require the claimant to be a “qualified” resident, insofar as additional formal or material characteristics must be shown to ascertain the substance of the claimant in the residence state.

LOB tests are part of the standard treaty policy of the United States (“US”), India, Japan, Korea and Russia, counting amongst the major players in the current economic environment. Furthermore, these provisions may stand as a new specific anti-abuse standard following the issuance of the OECD MC 2017 and the entry into force of the MLI for states that have so elected.

Procedural aspects relating to the LOB provisions are of great practical importance for both taxpayers and tax administrations....