Anti-avoidance and double tax treaties
Produced in partnership with David Klass of Hunton Andrews Kurth
Anti-avoidance and double tax treaties

The following Tax guidance note Produced in partnership with David Klass of Hunton Andrews Kurth provides comprehensive and up to date legal information covering:

  • Anti-avoidance and double tax treaties
  • What are the anti-avoidance concerns in a double tax treaty context?
  • Specific anti-avoidance provisions in tax treaties—beneficial ownership and limitation on benefits
  • Specific DTT anti-avoidance provisions
  • The multilateral instrument
  • DTT provisions invoking domestic anti-avoidance rules

What are the anti-avoidance concerns in a double tax treaty context?

As discussed in Practice Note: What are double tax treaties?, one of the aims of double tax conventions or treaties (DTTs) is to prevent avoidance and evasion. However the very existence of a DTT could facilitate avoidance cross-border by securing the benefit of a domestic tax advantage and a relief from tax under a DTT. The 2017 update to the OECD model convention introduced an explicit statement in the preamble to the convention to the effect that, in entering into the DTT, the contracting states do not intend to create opportunities for avoidance.

In addition, most states include anti-avoidance provisions in their domestic tax codes to prevent taxpayers from securing tax advantages that are considered unfair.

These issues raise two related questions:

  1. are DTT advantages available to those who deliberately seek to abuse the benefits of a DTT?

  2. how do domestic anti-avoidance rules interact with DTT provisions?

This Practice Note approaches these questions by considering:

  1. the specific anti-avoidance provisions that are contained in DTTs, including:

    1. beneficial ownership

    2. limitation on benefits, and

    3. other provisions

  2. treaty general anti-avoidance provisions—which have seen some highly significant developments in the 2017 version of the OECD model convention and the multilateral instrument

  3. treaty provisions that invoke domestic anti-avoidance provisions (including domestic general anti-avoidance rules (GAARs))