Preventing Treaty Abuse

I. S. 149Introduction

The inclusion of anti-treaty shopping articles in treaties for the avoidance of double taxation (“double taxation treaties”) became widespread in the last decades and with the results of the Base Erosion and Profit Shifting (“BEPS”) project of the Organization for Economic Co-operation and Development (“OECD“) – by calling the phenomenon of treaty shopping as “one of the most important sources of BEPS concerns” – this process is likely to be even more accelerated. Limitation on Benefits (“LOB”) clauses as a potential remedy to the problem of third-country residents taking advantage of a double taxation treaty – which is meant to be a reciprocal agreement between two states – first appeared in the United States in the 1980s. Despite the various criticism of them and the difficulties in their application, these articles are seemingly becoming more and more popular along with more general anti-treaty shopping rules in the tax treaty negotiation policies of countries all around the world as well as in the OECD. Taking over the LOB from the US and including it in the OECD Model Convention is not a fully new idea as the OECD Model Commentary has included a proposal for an ...