The preamble to the Organisation for Economic Co-operation and Development (OECD) model tax convention (MTC) contains an explicit statement to the effect that, in entering into the Double tax treaty (DTT), the contracting states do not intend to create opportunities for tax avoidance and are not obliged to grant the benefits of a DTT where there are arrangements that constitute an abuse of the relevant treaty.

There are, broadly, two ways that DTTs counter abuse arrangements:

1. •

   specific Anti-avoidance provisions which prevent a particular treaty article applying to a transaction or item of income (eg the articles concerned with dividends, interest and royalties). These include ‘beneficial ownership’ requirements and anti-conduit Rules which are intended to ensure that the legal recipient of the income is also the economic beneficiary, and

2. •

   general anti-avoidance provisions that restrict the application of the treaty. This includes:

   1. ◦

      the principal purpose test (PPT), which denies treaty benefits where one of the main purposes was to obtain those benefits, and

   2. ◦

      the limitation of benefits (LOB) provision, which denies treaty benefits to persons