Preventing Treaty Abuse

I. S. 232An Introduction to the Derivative Benefits and Discretionary Relief Tests in the Limitation on Benefits Provision Structure

As part of the Base Erosion and Profit Shifting (hereinafter “BEPS”) project of the Organisation for Economic Co-operation and Development (hereinafter “OECD”), Action 6 had the aim of dealing with “Preventing the granting of treaty benefits in inappropriate circumstances” and one of its objectives was the development of treaty provisions in order to prevent the granting of treaty benefits in inappropriate circumstances.

The result of the work of the OECD on this matter is found in the Final Report of Action 6 that includes, among other provisions, a new Limitation on Benefits (hereinafter “LOB”) provision. It should also be noted that one of the purpose of the BEPS project is that this new provision should be included in the new OECD Model Convention.

An important particularity of this provision is that it includes different kinds of tests aimed at determining if a person that qualifies as a resident for purposes of a tax convention is at the same time qualified to access to the benefits of said convention. In this respect, the structure of the new LOB provis...