Preventing Treaty Abuse

I. S. 312Introduction

The OECD released its report on Base Erosion and Profit Shifting in February 2013. In July 2013, the OECD released its 15-point Action Plan to address BEPS. The OECD has addressed BEPS concerns under the 15-Action Points on various issues, where treaty abuse is encapsulated in Action Plan 6. In March 2014, the OECD released its discussion draft on Action 6, which was followed by a two-day public consultation in April, and the OECD released its report on treaty abuse as part of seven deliverables due in September 2014.It was indicated that the recommendations made in the report are at a preliminary draft stage and further refinement is necessary. Essentially, the report suggests treaty anti-abuse rules and provides clarificatory commentary for domestic anti-abuse rules.

With respect to treaty measures, the 2014 report on treaty abuse suggests a three-pronged approach to counter treaty shopping. Firstly, the title and preamble of tax treaties is modified to clearly include a statement that when states enter into tax treaties their intention is not to create opportunity for tax avoidance or evasion including treaty-shopping arrangements. Secondly, a targeted anti-avoidan...