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Taxation of Bilateral Investments

Tax Treaties after BEPS

Carlo Garbarino

The OECD’s guidance on combatting tax avoidance strategies associated with Base Erosion and Profit Sharing (BEPS) methods is complex and accompanied by a wealth of literature. This book is the first to provide a concise and accessible overview of counter BEPS measures in the OECD Model and Commentary, allowing readers to gain a practical understanding of how the measures can impact the taxation of bilateral investments protected by tax treaties.
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EXTENDED CONTENTS

Carlo Garbarino

List of abbreviations

Table of cases

Table of legislation

Introduction

1.  DOING BUSINESS THROUGH A PERMANENT ESTABLISHMENT (PE)

I.  OPERATING THROUGH A PERMANENT ESTABLISHMENT 1.03

A. The tax PE threshold 1.03

B. The tests to determine the existence of a PE 1.10

1. The place of business and right of use tests 1.14

2. The location and duration tests 1.19

3. The business connection test 1.23

C. Building sites 1.28

D. Preparatory/auxiliary activities and anti-fragmentation rule 1.35

E. The Agency-PE: functional analysis 1.48

F. Structures in shipping and air transport 1.72

II.  FORCE OF ATTRACTION OF THE PE 1.85

A. Which activities are ‘attracted’ by the PE? 1.89

B. Separate treatment of isolated classes of income 1.105

III.  PROTECTING THE PE OPERATION THROUGH THE NON-DISCRIMINATION CLAUSE 1.110

2. Entitlement to tax treaties

I. SCOPE OF THE TREATIES 2.06

A. Personal scope: the basic rule 2.06

B. Transparency and hybrid mismatches 2.10

1. Transparent entities or arrangements 2.10

2. Partnerships 2.17

3. Collective investment vehicles 2.25

C. The saving clause 2.27

D. Taxes covered by the Treaties 2.32

II. RESIDENCE TEST FOR TREATY PURPOSES 2.39

A. The notion of ‘resident’ 2.39

B. Dual residents 2.44

1. Tie-break rules for individuals 2.48

2. Allocating residence for companies 2.60

III. THE LIMITATION OF BENEFITS CLAUSE 2.67

A. Qualified person 2.73

B. Active conduct test 2.81

C. Derivative benefits and discretionary test 2.91

D. Anti-abuse rule for PEs in third countries 2.98

IV. TREATY ABUSE 2.102

A. An integral approach 2.102

B. The principal purpose test 2.109

C. Improper use of the Convention 2.116

1. The evolution of the comprehensive approach 2.116

2. Different approaches to address tax avoidance 2.129

3. Addressing low-taxed treaty income 2.135

D. Using the ‘beneficial owner’ concept 2.147

E. Double treaty exemption 2.162

V. TREATY ENTITLEMENT AND NON-DISCRIMINATION 2.172

3. Operating through corporate vehicles

I. THE FOREIGN-SHAREHOLDER AND THE SUBSIDIARY-PE NON-DISCRIMINATION CLAUSES 3.03

II. REMUNERATION ON CORPORATE EQUITY INVESTMENTS 3.11

A. Protecting the interests of the SC: the holding requirement 3.11

B. The treaty definition of ‘dividends’: a moving target 3.26

C. Prohibition of extraterritorial taxation 3.33

III. REMUNERATION ON DEBT 3.37

A. Abusive structures that extract interest 3.37

B. ‘Interest’ and hybrid instruments 3.46

IV. REMUNERATION ON INTANGIBLES 3.52

A. Allocation rule 3.52

B. Definition of ‘royalties’ 3.59

1. Payments that are not royalties, but business profits 3.64

2. Payments for know-how 3.73

3. Payments for computer software 3.80

V. CAPITAL GAINS 3.95

A. Capital gains and country of destination: a grey area 3.95

B. Gains from the alienation of shares 3.111

4. Dispute settlement and enforcement

I. THE MUTUAL AGREEMENT PROCEDURE 4.02

A. The adjudicative MAP 4.10

1. Cases and activation 4.10

2. MAP procedure and implementation 4.24

B. Expanded forms of MAP: normative MAP and arbitration 4.34

II. TRANSFER PRICE IN TAX TREATIES 4.52

A. Attribution rules for business profits 4.54

B. Correlative adjustments of business profits 4.70

C. Arm’s length for associated enterprises 4.79

III. TAX TREATIES AND INFORMATION 4.94

A. Exchange of information 4.94

1. Concept of tax information and scope of exchange 4.100

2. Limitations to the exchange of information 4.114

3. Violation of domestic laws or administrative practices of the Requested-CS 4.117

4. Violation of secrecy rules or public order 4.123

5. Information-gathering measures and bank secrecy 4.129

B. Assistance in the collection of taxes 4.137

Index