Preventing Treaty Abuse

I. S. 272Introduction

After the release of the limitation on benefits rules (LOB rules) by the Organisation for Economic Co-operation and Development (OECD) on its Base Erosion and Profit Shifting Project (BEPS), many concerns were expressed regarding the eventual conflict between their requirements and European Union (EU) law, specifically regarding the infringement of the fundamental freedoms.

As seen in the previous contributions to this volume, the LOB clauses intend to fend off the misuse of double taxation conventions (DTCs) by companies from non-contracting States, disqualifying persons that would not achieve a “sufficiently strong nexus to the contracting state where they claim residence”. Although the United States of America has largely adopted this methodology (almost becoming a deal breaker during the negotiation of the agreement), including its DTCs signed with EU Members, many issues can arise when the implementation of such rules leads to an unequal treatment of entities based only on the owner’s nationality or on strict rules that do not match the principles of EU law. The issue has been thoroughly scrutinized by scholars in several academic papers, counting, however, with ...