More Related Content Similar to Beneficial ownership clause presentation Similar to Beneficial ownership clause presentation (20) More from Christos Theophilou More from Christos Theophilou (20) 1. Excellence in Taxation.
Eliminate Tax Risks
as regards Beneficial
ownership clause,
Dividends, Interest,
Royalties - ADIT
International Tax Advice.
Tax Compliance.
Indirect Tax Services.
2. Agenda
© 2019 Taxatelier Page 2
1
•Uncover “Beneficial Ownership”
2
•Check Dividends Interest & Royalties Case
Law
3
•How ADIT can assist you
3. Agenda
© 2019 Taxatelier Page 3
1
•Uncover “Beneficial Ownership”
2
•Check Case Law Dividends Interest &
Royalties
3
•How ADIT can assist you
4. © 2019 Taxatelier Page 4
COHERENCE
• AP2: No hybrid mis-
matches
• AP3: Better CFC rules
• AP4: Interest
deduction limitation
rules
• AP5: No harmful tax
practices
SUBSTANCE
• AP6:Preventing Tax
Treaty abuse
• AP7: Prevent artificial
avoidance of PE
• AP8: Transfer Pricing
of Intangibles
• AP9: TP/risk and
Capital
• AP10:TP high risk
transactions
TRANSPARENCY
• AP11: Methodologies
and data analysis
• AP12: Disclosure of
rulings
• AP13: TP
Documentation
• AP14:Dispute
resolution
4
Digital Economy
AP 1
Multilateral
Instrument AP15
OECD BEPS Action Plan
6. © 2019 Taxatelier Page 6
OECD BEPS Actions EU Coverage
Action 1: Digital Economy EC VAT Action Plan
EC Proposals on taxation of digital economy
Action 2: Hybrids Parent-Subsidiary Directive
Anti-Tax Avoidance Directive
Action 3:CFC Anti-Tax Avoidance Directive
Action 4: Interest Limitation Anti-Tax Avoidance Directive
Action 5: Rulings Directive on Administrative Cooperation -EOI
Action 6: Treaty Abuse ATAP Recommendation
Action 7: PE ATAP Recommendation
Actions 8-10: TP JTPF to follow up
Action 11: BEPS Data NA
Action12: Mandatory Disclosure Rules Directive on Administrative Cooperation -EOI
Action 13: CBCR Directive on Administrative Cooperation -EOI
Action 14: Dispute Resolution Directive on Double Taxation Dispute Resolution
Action 15: MLI NA
OECD BEPS and EU BEPS
7. EU Anti - Tax Avoidance Directive (ATAD)
© 2019 Taxatelier Page 7
BEPS ATAD
Art. 9
Art. 7-8
Art. 4
Art. 6
HYBRID
CFC
Interest
limitation
PPT
8. Significance of “Beneficial Ownership”
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OECD Model A10: (Dividends), A11 (Interest), A12 (Royalties)
UN Model: A10 (Dividends), A11 (Interest), A12 (Royalties)
EU Directives Parent Subsidiary, Interest & Royalties
US 2016 Model: A10 (Dividends), A11 (Interest),
A12 (Royalties), A17 (Pensions), A21 (Other Income)
9. © 2019 Taxatelier Page 9
OECD Model Tax Convention on Income and on Capital
Art. 12 ROYALTIES
(1) Royalties arising in a Contracting State and beneficially owned by a resident of the other
Contracting State shall be taxable only in that other State…
Art. 11 INTEREST
(2) …interest may also be taxed in the Contracting State in which it arises and according to the
laws of that State, but if the beneficial owner of the interest is a resident of the other
Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the
interest…
Art. 10 DIVIDENDS
(2) …dividends may also be taxed in the Contracting State of which the company paying the
dividends is a resident and according to the laws of that State, but if the beneficial owner of the
dividends is a resident of the other Contracting State, the tax so charged shall not exceed: (a) 5
per cent….; (b) 15 per cent….
10. © 2019 Taxatelier Page 10
Treaty Entitlement: Resident of a Treaty country
who is the beneficial owner of the income can claim
the benefit of reduction or exception of withholding
tax.
Treaty shopping: the situation where a person
who is not entitled of a benefit of a tax treaty make
use, in the widest meaning of the word, of an individual
or of a legal person in order to obtain those treaty
benefits that are not available directly to that person.
Scope and Purpose of “Beneficial Ownership”
11. DIVIDENDS – Prevost Car Inc. v R-Canada (2008) –
The Legal approach
© 2019 Taxatelier Page 11
Sweden
Volvo
UK
Henlys
Canada
Prevost
Netherlands
BV
10% Withholding tax
15% Withholding tax
51%
49%
100%
5 withholding tax%
12. Anti-abuse – Deny DTT benefit Treasury Co. Example
© 2019 Taxatelier Page 12
Income Statement year 2018 Details Euro
Interest income Loans 10m @10% 1.000.000
Interest Expense Loans payable 10@ 9% (900.000)
Gross Profit 100.000
Administration expenses (10.000)
Profit Before Tax 90.000
Tax @ 12,5% 11.250
Reduced Foreign Tax (WHT) paid at
source (Ukraine)
1.00.000 @ 2% (DTT between Cyprus
and Ukraine)
20.000
Denying the DTT benefit 1.000.000 @ 15% 150.000
Tax payable 150.000-20.000 130.000
13. Definition of the term “Beneficial Ownership”(1)
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First time in 1966 protocol to the UK-US DTT (1945).
In 1977 included in the 1977 OECD Model (not an agent or
nominee).
OECD Negative definition (2003):* Not a conduit or a mere
fiduciary or administrator acting on account of the interested parties…
* OECD 1986 Conduit Companies Report updated the OECD
commentary in 2003
14. Definition of the term “Beneficial Ownership”(2)
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OECD Positive definition (2014):* Full right to use and enjoy the
payment unconstrained by a contractual or legal obligation to pass on
it to another person… Such an obligation will normally derive from
relevant legal documents but may also be found to exist on the
basis of facts and circumstances showing that, in
substance,……
Surprisingly not in BEPS 6 but OECD suggest the use of Principal
Purpose Test (PPT)
* OECD Discussion draft in 2011, revised Discussion draft in 2012 and
final draft updated the OECD commentary in 2014.
15. Agenda
© 2019 Taxatelier Page 15
1
•Uncover “Beneficial Ownership”
2
•Check Dividend, Interest, Royalties Case Law
3
•How ADIT can assist you
16. © 2019 Taxatelier Page 16
In general, two different lines of reasoning:
The Legal approach
The Economic approach
The forwarding approach
17. DIVIDENDS – Prevost Car Inc. v R-Canada (2008) –
The Legal approach
© 2019 Taxatelier Page 17
Sweden
Volvo
UK
Henlys
Canada
Prevost
Netherlands
BV
10% Withholding tax
15% Withholding tax
51%
49%
100%
5 withholding tax%
18. INTEREST – Indofood, UK Court of Appeal (2006) –
The Economic approach
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PT Indofood •Indonesia
New Co •Netherlands
Indofood
Int. Finance •Mauritius
Noteholders
Interest
10% WHT
Interest
0% WHT
Interest
0% WHT
19. © 2019 Taxatelier Page 19
Danish Co
EU Intermediate
Holding Co
Tax haven
etc.
ECJ – The Danish EU IRD and PSD Cases, 26 February
2019
0% withholding tax% 0% withholding tax
20. © 2019 Taxatelier Page 20
Beneficial ownership
Actual beneficiary, power to freely determine use of income
OECD Model and commentaries relevant
Tax avoidance / general EU anti-abuse principle
General EU law principle, anti-abuse rule implicit in directive: TA have the burden
of proof, TA don’t have to identify the BO
To be applied regardless of domestic or treaty based anti-abuse rules
Broader definition of abuse than ‘wholly artificial’
Artificial arrangements without economic justification with essential aim to
obtain tax advantage running counter to the aim or purpose of the applicable tax
law
Indications
Interposition of conduits
Absence of economic activities: analysis of management, balance sheet, structure of
costs and actual expenditure, staff, premises and equipment, contracts, financing of
transactions, valuation of equity, inability of economic use of interest/dividends received
ECJ – The Danish EU IRD and PSD Cases
21. © 2019 Taxatelier Page 21
The Zao Votek Mobile Case – Dividends
The OAO Sankt-Petersburg Case – Dividends
The OAO Moscommertsbank Case – Interest
The OAO TD Petelino Case – Royalties
Russia Arbitration Court Vladimirskaya Oblast – Capital Gains Tax
Russian Tax Case Law on Beneficial Ownership
s
22. Thank you!
Christos A. Theophilou
FCA, MSc Tax (Oxon)
Partner
Tel: + 357 22 875720
E: ctheophilou@taxatelier.com
W: www.taxatelier.com
Delfon Street 10, 5th floor
1101, Nicosia, Cyprus
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