Limits to Tax Planning

S. 67 1. Introduction

The past decades have witnessed a constant increase in the level of sophistication in the structuring of cross-border transactions. Tax planners found opportunities to use complex corporate structures, shifting company profits to low or zero tax jurisdictions.

Corporate residence has been used by tax planners to lower or eliminate the taxation of companies, typically via hybrid mismatch arrangements, exploiting differences between the national legislation of Contracting States. This has posed important challenges to revenue authorities and tax policy makers by constantly testing their ability to keep pace with complex transactions and to collect tax revenues.

Double tax conventions (DTCs), typically following Organisation for Economic Cooperation and Development (OECD) guidelines were originally introduced to protect international trade against double taxation. Yet some taxpayers have used treaties to lower or eliminate taxes in an abusive manner, against their object and purpose. According to the Vienna Convention, DTCs should be interpreted in “good faith.” In response, the scope of DTCs has been expanded to prevent tax avoidance and evasion, following the publicati...