Preventing Treaty Abuse

I. S. 422Introduction

This contribution aims to analyse and discuss a new clause proposed by the OECD to prevent multinational corporations from structuring their business through permanent establishments located in third countries for the main purpose of tax avoidance. The scope of the new clause will be discussed as well as the exceptions that were included to provide for triangular structures with business activities.

A brief analysis of the historical evolution of the discussion regarding the problem faced by the OECD due to abusive triangular structures has been included to give an overview of the efforts that were made to reach its result and how other countries and tax treaty models deal with the same problem. Their approach and their conclusions on how to prevent low taxation when an abusive intention is identified as well as how to grant tax benefits to those who have demonstrated legitimate business activities and investments in low-tax jurisdictions.

II. Triangular situations and risk of abusive tax planning through permanent establishments –the problem identified by the OECD

It was pointed out in the commentaries to paragraph 4 of Articles 10 and 11 and paragraph 3 of Article 12 ...