Hybrid Entities in Tax Treaty Law

S. 1421. Introduction

A treaty practice followed for a long time in the US, the saving clause was raised in the context of the OECD discussions related to hybrid entities and treaty abuse and ended up being adopted in both the MLI and the 2017 OECD Model. The relevance of the saving clause for this book lies in the fact that it plays a significant role concerning the tax treatment (and treaty entitlement) of hybrid entities. Accordingly, the saving clause was discussed under BEPS Action 2 to address an inconsistency between the general principle embraced by the Partnership Report and the solution chosen by the same report to some cases. However, it is argued in this chapter that by bringing an inconsistency from the Partnership Report to its model convention, the OECD included an incoherence therein, resulting from the transparent entities provision under Article 1(2) not being excepted from the saving clause under Article 1(3) of the OECD Model.

To reach such conclusion, section 2 of this chapter begins by presenting a brief history of the saving clause, covering its use under the US Model Convention, the OECD debates regarding its adoption and some aspects of the MLI’s saving clause. Sec...