Base Erosion and Profit Shifting (BEPS)

I. S. 220Introduction

Limitation on benefits clauses are commonly known from income tax treaties (tax treaties) concluded by the United States, as well as those concluded by a few other countries, such as India and Japan. However, in tax treaties of other countries, such a clause has not yet become standard. The OECD Model Convention (OECD Model) also does not contain a corresponding provision. Nevertheless, this situation could change due to the OECD/G20 Base Erosion and Profit Shifting (BEPS) project. In the framework of the BEPS project, which aims at reforming the international tax system in order to ensure that income is taxed where it is generated, the OECD puts forward measures which would more effectively prevent the use of tax treaties in inappropriate circumstances. Most importantly, amongst the measures included under BEPS Action 6, the OECD recommends the introduction of a limitation on benefits clause in the OECD Model.

The proposed limitation on benefits clause of BEPS Action 6 (the proposed limitation on benefits provision), similarly to the limitation on benefits clauses of US tax treaties, grants tax treaty benefits to a person if it (i) has sufficient nexus to the contrac...