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5 - The Limited Scope of Treaties

Published online by Cambridge University Press:  29 February 2020

Peter Harris
Affiliation:
University of Cambridge
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Summary

Considers the limited scope of tax treaties (i.e., things that tax treaties do not cover). Initially continues in a bilateral scenario investigating mismatches between source and residence countries regarding the fundamental features of payments. These may cause income to disappear or be recognised twice. Particularly considers hybrid entities, hybrid financial instruments, corresponding adjustments and secondary adjustments, as well as BEPS recommendations regarding hybrid mismatch arrangements. The second heading discusses limits inherent in the bilateral nature of tax treaties, particularly when three or more countries are involved (triangular situations). Tax treaties seek to resolve issues of source and residence in bilateral situations. Triangular situations can produce a mismatch of source of income or mismatch of residence of entities. Dual source of income and dual residence are discussed. Finally, re-sourcing and re-characterisation using intermediaries in third countries is considered. Two issues here are use of tax havens and treaty shopping, which are considered from the perspectives of intermediate, source and residence countries. Discusses rules on beneficial ownership, limitation of benefits, most favoured nation and the principal purpose test in tax treaty GAARs, as well as offshore indirect transfers. Responses under the BEPS project are compared to expanding EU rules and case law.

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Publisher: Cambridge University Press
Print publication year: 2020

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