Base Erosion and Profit Shifting (BEPS)

I. S. 134Introduction

The debate over whether to include a limitation on benefits clause in the OECD Model Convention (OECD Model) is far from novel. The 1986 Reports of the OECD Committee on Fiscal Affairs on the use of base companies and conduit companies addressed the same underlying concerns, replicated in the Commentary on Article 1 of the OECD Model, on limitations to subjective entitlement in cases of “improper use of tax treaties”. Curbing the use of improper “tax triangles” while safeguarding bona fide economic activities from such limitations has been at the core of the debate, and it is – in essence – the construct of the limitation on benefits clause itself.

The OECD discussion on the improper use of tax treaties, nonetheless, now more than ever draws from US experience and from historical US anti-treaty shopping policy. The limitation on benefits clause of the US Model Convention that has been adapted and included in the Commentary on the OECD Model since 2003 was fully reproduced in the Action 6 Deliverable (2014) of the OECD/G20 BEPS Project, along with proposed Commentary on the OECD Model that literally transcribes the Technical Explanation of the US Model (the US Technica...