Hybrid Entities in Tax Treaty Law

S. 4241. Background and relevant concepts

1.1. Triangular structures

The objective of this chapter is to provide insight regarding the application of tax treaties in triangular cases that involve hybrid entities. This topic is relevant due to matters such as increasing international trade and the advancement of technology. Multinational enterprises such as banks, insurance companies, commercial and industrial enterprises often have income or capital that is subject to tax treatment in multiple states due to their complex corporate structures. Because of the connection between income or capital involved in the operations and multiple states, the same income or capital can be subject to tax on the basis of various criteria, which may lead to complexities as to where and how the taxation should apply.

Generally speaking, triangular cases are often known as situations where two or more states simultaneously apply tax treaties with regard to transactions involving dividends, interest and royalties. When there is a connection between the income or capital and multiple states, the effectiveness of bilateral tax treaties can vary in terms of application. Dependent on the circumstances, unrelieved d...