Conduit Companies, Beneficial Ownership, and the Test of Substantive Business Activity in Claims for Relief under Double Tax Treaties

Saurabh Jain, John Prebble, Christina Bunting

Publikation: Working/Discussion PaperWU Working Paper

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If interpreted in a strict legal sense, beneficial ownership rules in tax treaties would have no effect on conduit companies
because companies at law own their property and income beneficially. Conversely, a company can never own anything in a
substantive sense because economically a company is no more than a congeries of arrangements that represents the people
behind it. Faced with these contradictory considerations, people have adopted surrogate tests that they attempt to employ in
place of the treaty test of beneficial ownership. An example is that treaty benefits should be limited to companies that are both
resident in the states that are parties to the treaty and that carry on substantive business activity. The test is inherently illogical.
The origins of the substantive business activity test appear to lie in analogies drawn with straw company and base company
cases. Because there is no necessary relationship between ownership and activity, the test of substantive business activity can
never provide a coherent surrogate for the test of beneficial ownership. The article finishes with a Coda that summarises
suggestions for reform to be made in work that is to follow. (authors' abstract)
HerausgeberWU Vienna University of Economics and Business
PublikationsstatusVeröffentlicht - 2014


NameWU International Taxation Research Paper Series

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  • WU International Taxation Research Paper Series

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