Justice, Equality and Tax Law

S. 1141. Introduction

Specific Anti-Avoidance Rules (“SAARs”) have been useful to counter tax avoidance schemes, and some SAARs have rapidly spread around the world because of their effectiveness in cross-border situations for example, Controlled Foreign Company rules (“CFC”), Thin-Capitalization rules (“Thin-Cap”) and Exit or Departure Taxes (“Exit Taxes”). Additionally, since the entry into force on 1 July 2018 of the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” (“MLI”), the Organization for Economic Cooperation and Development (“OECD”) has been promoting the adoption of a Limitation on Benefits (“LOB”) clause as a SAAR in bilateral tax treaties to avoid treaty shopping schemes.

The compatibility between domestic SAARs and tax treaties is disputed and complex. Until 2003, the commentaries on the OECD Model Convention were not clear concerning the relationship between domestic SAARs and tax treaties. In January 2003, however, the OECD issued extensive revisions to the commentaries on Article 1 of the OECD Model Convention that purport to clarify the relationship between domestic SAARs and tax treaties. Nevertheless, the OEC...