Preventing Treaty Abuse

I. S. 350Introduction

A. The OECD’s Road to BEPS

Double taxation treaties (‘treaties’) have been created as a consequence of ever-growing international trade and globalization, with the purpose of eliminating international juridical double taxation and thus enabling further growth of international trade and cross-border transactions. In order to facilitate the conclusion of such agreements by achieving a significant level of harmonization, the OECD initially and the UN later have created model treaties.

Together with the development of the rules for the elimination of double taxation, creative ways of abusing these rules in order to decrease the tax burden have been developing as well. The 1977 OECD Model Commentary mentions a possibility of abuse of treaty law for the first time, rather casually, by stating that: ‘[treaties] should not, however, help tax avoidance and evasion’. As of that moment, questions of the abuse and the development of counter measures has been intricately connected to the development of rules aimed at eliminating double taxation. Finally, since 2003, the OECD Model Commentary explicitly states: ‘The principal purpose of double taxation conventions is to promote, by ...