Beneficial Ownership in International Tax Law. Angelika Meindl-Ringler.. Wolters Kluwer

Transcription

1 Beneficial Ownership in International Tax Law Angelika Meindl-Ringler. Wolters Kluwer

2 List of Abbreviations Acknowledgements xix xxiii CHAPTER 1 Introduction 1 I. Introduction to Beneficial Ownership and Purpose of the Book 1 II. Structure of the Book 3 CHAPTER 2 General Rules and Principles conceming the Interpretation of Tax Treaties 5 I. Vienna Convention on the Law of Treaties 5 1. Art. 31 VCLT 6 2. Art. 32 VCLT 7 3. The Relevance of the OECD Model and Commentary under the VCLT 8 II. The Purpose of Tax Treaties 9 III. The Substance-over-Form Principle 10 IV. Attribution-of-Income Rules 11 CHAPTER 3 Beneficial Ownership in the OECD Model 13 I. Overview 13 II. Historical Development of Beneficial Ownership in the OECD Model OECD Model a. Reports of the Working Parties 14 i. Working Party ii. Working Party iii. Excursus: Art. 4(1) Sentence 2 OECD Model 19 iv. Working Party v

3 III. b. Analysis 26 i. Working Party Ii. Working Party iii. Working Party c. Conclusion and 1997 Amendments 32 a. Amendments 32 b. Analysis Amendments 34 a. Amendments 34 b. Analysis 36 i. "Paid... to a Resident" 36 ii. No Narrow Technical Meaning of Beneficial Ownership 48 iii. Context and Object and Purpose of the Convention 48 iv. Agents, Nominees and Conduits 49 c. Intermediate Result Report on Harmful Tax Competition Partnership Report 54 a. Content 54 b. Analysis 55 c. "Paid" as an Attribution-of-Income Rule? Commentary on Art. 1 OECD Model 58 a. Content 58 i. The Improper Use of Tax Treaties 58 ii. The Treatment of CIVs 59 b. Analysis Amendments 61 a. Discussion Draft i. Proposed Amendments 61 ii. Comments by the Public 63 b. Revised Discussion Draft i. Proposed Revised Amendments 67 ii. Comments by the Public 69 c Commentary 72 d. Summary of the 2014 Amendments 73 e. Analysis 74 Conclusion: Beneficial Ownership in the OECD Model 75 CHARTER 4 Scholarly Discussion 77 I. Klaus Vogel 77 II. Charl du Toit 78 III. Stef van Weeghel 81 vi

4 IV. Philip Baker 81 V. Luc De Broe 83 VI. Jerome Libin 84 VII. John Avery Jones, Richard Vann and Joanna Wheeler 84 VIII. Joanna Wheeler 85 IX. Robert Danon 87 X. Adolfo Martin Jimenez 89 XI. Franz Wassermeyer 89 XII. Michael Lang 91 XIII. Eric Kemmeren 91 XIV. Saurabh Jain 92 XV. Beat Baumgartner 92 XVI. Conclusion: Scholarly Approaches to Beneficial Ownership 93 CHAPTER 5 Country Reports 95 I. United Kingdom and Australia Beneficial Ownership in United Kingdom Case Law and Administrative Views 96 a. Domestic Beneficial Ownership Cases 96 i. Beneficial Ownership in the Context of Liquidation 96 ii. Beneficial Ownership in the Context of Group Relief 97 iii. Beneficial Ownership in the Context of Losses 101 iv. Beneficial Ownership in Other Contexts 105 v. Conclusion 108 b. Beneficial Ownership and Trusts 108 i. Discretionary and Accumulation Trusts 109 ii. Baker v. Archer-Shee 110 iii. Conclusion 110 c. The Indofood. Decision 111 i. Facts 111 ii. Chancery Division 112 iii. Court of Appeal 113 iv. Analysis and Reactions to the Case 114 d. HMRC Guidance 117 i. INTM Double Taxation Claims and Applications - Beneficial Ownership 117 ii. INTM Double Taxation Treaties: Beneficial Ownership 119 e. Conclusion Beneficial Ownership in Australian Domestic Law 121 a. Beneficial Ownership in the Context of Equitable and Legal Interest 121 vii

5 i. Adele Grace Pty. Ltd. v. Commissioner of Land Tax (NSW) 122 ii. D.K.L.R. Holding Co. (No. 2) Pty. Ltd. v. Commissioner of Stamp Duties (NSW) 122 b. The Meaning of Beneficial Ownership in Different Contexts 122 i. Federal Commissioner of Taxation v. Casuarina Pty. Ltd. 123 ii. Haque v. Haque 123 iii. K.L.D.E. Pty. Ltd. v. Commissioner of Stamp Duties (Qld) 124 iv. Avon Downs Pty. Ltd. v. Federal Commissioner of Taxation 124 v. Dalgety Downs Pastoral Co. Pty. Ltd. v. Federal Commissioner of Taxation 125 vi. Franklin's Seifserve Pty. Ltd. v. Federal vii. Commissioner of Taxation 127 Federal Commissioner of Taxation v. Brian Hatch Timber Co. (Sales) Pty. Ltd. 128 viii. Federal Commissioner of Taxation v. Macquarie Health Co. Ltd. & Ors. 129 ix. Linter Textiles Australia Ltd. (in liq.) 129 x. Victoria Gardens Developments Pty. Ltd. and Taras Nominees Pty. Ltd. 131 c. Conclusion Beneficial Ownership in United Kingdom and Australian Tax Treaties 134 a United Kingdom-United States Treaty and 1966 Protocol 134 i. The Original 1945 Treaty 134 ii. The Subject-to-Tax Clause and the Issue of Charities 135 iii. Issues Arising with the Deletion of the Subject-to- Tax Clause and Possible Solutions 136 iv. Excursus: Proposed Art. VIIA of the Treaty 139 v. The Inclusion of the Beneficial Ownership Test and Reasons for the Deletion of the Subject-to-Tax Clause 140 vi. Interim Solution for Nominee Structures Involving Equivalent Beneficiaries 141 vii. Conclusion 142 b United Kingdom-New Zealand Treaty 144 i. Treaty Negotiations 144 ii. Analysis 146 c United Kingdom-Australia Treaty 148 viii

6 i. Initial U.K. Draft and Australian Reactions 148 ii. Communications between Australia and the United Kingdom 149 iii. Negotiations 150 iv. Subsequent Communications 152 v. Analysis 154 d. Excursus: The Angus Case and Legislation 156 i. Angus Case 156 ii. Amendment to the ITAA in iii. Amendment to Income (International Agreements) iv. Act in Connection between the Angus Case and Beneficial Ownership 157 e United Kingdom-Netherlands Treaty 158 i. The Meaning of Beneficial Ownership 158 ii. Beneficial Ownership and "Derived" 159 f Protocol to the 1950 United Kingdom-Denmark Treaty 161 g Australia-Germany Treaty 162 h United Kingdom-Japan Treaty 166 i. Conclusion Conclusion: Beneficial Ownership in the United Kingdom and Australia 168 II. Germany Domestic Law: Economic Ownership under 39(2) AO 169 a. Scope of 39(2) AO 169 b. The Meaning of Economic Ownership 171 c. Analysis Beneficial Ownership in a Treaty Context 173 a Treaty with Australia 173 b Treaty with Italy and 1991 Treaty with Norway 174 c Treaty with Sweden 175 i. Art. 43(3) of the Treaty 175 ii. iii. Mismatches in the Attribution of Income and the Problem with the Residence State Perspective 176 Residence and Source State Perspective under Art. 43(3) of the Treaty 177 iv. Conclusion 178 d Treaty with the U.S. 178 i. Treaty Provisions 178 ii. Administrative Practice and the Application of the Treaty to Income Received via Hybrid Entities 182 iii. The S-Corporation Cases 188 e Treaty with Spain 193 ix

7 III. IV. f. Analysis 3. Conclusion: Beneficial Ownership in Germany United States 1. Beneficial Ownership in a Domestic Law Context a. Examples of Beneficial Ownership under Domestic Law b. Scholarly Approaches 2. Beneficial Ownership in an International Withholding Tax Context 3. Beneficial Ownership in a Treaty Context a. U.S. Model 2006 and 2003 Treaty with Japan b. The Treatment of Conduit Structures i. Moline Properties and Bass ii. Aiken Industries iii. Rev. Rul iv. Rev. Rul v. Rev. Rul vi. Technical Advice Memorandum vii. Rev. Rul viii. Northern Indiana Public Service Company ix. SDI Netherlands B. V. X. Del Commercial Properties, Inc. xi. Intermediate Result on Beneficial Ownership in a Treaty Context 4. Conduit Financing Regulations a. Financing Arrangement b. Conduit Nature i. Tax Avoidance Plan ii. Reduction of Withholding Tax and "But-For" Test c. Consequences d. Relationship to Tax Treaties e. Analysis and Comparison to Prior Decisions i. Summary of the Conduit Financing Regulations ii. Summary of Prior Decisions on Treaty Entitlement of Conduits iii. Comparison between the Conduit Financing Regulations and Prior Case Law 5. Conclusion: Beneficial Ownership in the United States Beneficial Ownership in Other Countries 1. Netherlands a. Statements by the Dutch Underminister of Finance b. Royal Dutch Shell i. Facts ii. Gerechtshof Amsterdam iii. Höge Raad x

8 iv. Analysis and Reactions to the Case 223 c Treaty with Japan 223 d. Domestic Dividend Stripping Provision 224 e. Conclusion: Beneficial Ownership in the Netherlands Canada 225 a. Domestic Beneficial Ownership Cases: Cowan and Jodrey 225 b. MacMillan Bioedel 225 c. Prevost Car 226 i. Facts 226 ii. Tax Court 226 iii. Federal Court of Appeal 228 iv. Analysis and Reactions to the Case 228 d. Velcro Canada 229 i. Facts 229 ii. Tax Court 229 iii. Analysis and Reactions to the Case 230 e. Conclusion: Beneficial Ownership in Canada France 231 a. Administrative Guidance 231 b. SA Diebold Courtage 232 c. Societe Bank of Scotland 233 i. Facts 233 ii. Cour Administrative d'appel de Paris 233 iii. Conseil d'etat 233 iv. Analysis and Reactions to the Case 234 d. Conclusion: Beneficial Ownership in France Switzerland 236 a. Domestic Law 236 b. Re V SA 238 i. Facts 238 ii. Commission Federale de Recours en Matiere de Contributions 238 iii. Analysis and Reactions to the Case 240 c. X. Holding ApS 241 i. Facts 241 ii. Eidgenössische Steuerrekurskommission 241 iii. Bundesgericht 242 iv. Analysis and Reactions to the Case 242 d. A. v. Eidgenössische Steuerverwaltung (UBS Agreement Case) 243 i. Facts 243 ii. Bundesverwaltungsgericht 243 iii. Analysis and Reactions to the Case 244 e. Re Swiss Swaps Case I/A 245 xi

9 i. Facts 245 ii. Bundesverwaltungsgericht 245 iii. Analysis and Reactions to the Bundesverwaltungsgericht's Decision 246 iv. Bundesgericht 247 v. Analysis of the Bundesgericht's Decision 248 f. X. Särl v. Administration Federale des Contributions AFC 249 i. Facts 249 ii. Bundesverwaltungsgericht 249 g. Conclusion: Beneficial Ownership in Switzerland Denmark 251 a. Domestic Law and Administrative Position 251 b. The ISS Case - SKM , SKM i. Facts 251 ii. Eastern High Court 252 iii. Analysis and Reactions to the Case 253 c. The HHU Case - SKM LSR 253 i. Facts 253 ii. National Tax Tribunal 254 iii. Analysis and Reactions to the Case 254 d. The COOK Case - SKM LSR 255 i. Facts 255 ii. National Tax Tribunal 256 iii. Analysis and Reactions to the Case 256 e. The NetApp Case - SKM LSR 256 i. Facts 256 ii. National Tax Tribunal 257 iii. Analysis and Reactions to the Case 257 f. The Nycomed Case - SKM LSR 257 i. Facts 257 ii. National Tax Tribunal 258 iii. Analysis and Reactions to the Case 258 g. Case i. Facts 258 ii. National Tax Tribunal 259 h. Conclusion: Beneficial Ownership in Denmark New Zealand 260 a. Domestic Law 260 b. Beneficial Ownership in a Treaty Context China 262 a. Circular i. Content 262 ii. Analysis and Reactions to the Circular 263 b. Announcement xii

10 c. Circular d. Announcement e. Conclusion: Beneficial Ownership in China Italy 265 a. Domestic Law: EU Interest and Royalties Directive 265 b. Beneficial Ownership in a Treaty Context 266 i. Administrative Guidance 266 ii. Case Law 268 c. Conclusion: Beneficial Ownership in Italy Sweden 270 a. Facts 271 b. The Decision 271 c. Analysis and Reactions to the Case Austria Spain 274 a. Tribunal Econömico-Administrative Central, Resolution No. 6294/ b. The Real Madrid Cases 275 c. Tribunal Econömico-Administrativo Central, Resolution No. 1481/ d. Audiencia Nacional, RC 182/2009; RC 389/ e. Conclusion: Beneficial Ownership in Spain India 277 a. NatWest Markets (Advance Ruling No. 232 & 233 of 1995) 278 b. ABC (Advance Ruling No. P. 13 of 1995) 278 c. E*Trade Mauritius Ltd. (Advance Ruling No. 826 of 2009) 279 d. KSPG Netherlands (Advance Ruling No. 818/2009) 280 e. Aditya Birla Nuvo Ltd. 281 f. Conclusion: Beneficial Ownership in India Indonesia 282 a. PT Transportasi Gas Indonesia 282 b. PT Indosat 283 c. Conclusion: Beneficial Ownership in Indonesia Russia Belgium Korea (Rep.) Ukraine Vietnam Brazil Japan Czech Republic Kazakhstan 288 V. Conclusion: Approaches to Beneficial Ownership in Different Countries 288 xiii

11 CHARTER 6 A Domestic Law Meaning of Beneficial Ownership? 291 I. Art. 3(2) OECD Model Content and Meaning of Art. 3(2) OECD Model Excursus: The More Specific Meaning of "Unless the Context Otherwise Requires" 293 II. Art. 3(2) OECD Model and Beneficial Ownership Arguments in Favour of a Domestic Law Meaning Arguments in Favour of an International Fiscal Meaning 295 CHARTER 7 Beneficial Ownership in EU Legislation 299 I. EU Interest and Royalties Directive (2003) Beneficial Ownership in the EU Interest and Royalties Directive (2003) 299 a. Beneficial Ownership in Situations Involving Companies 300 b. Beneficial Ownership in Situations Involving PEs Excursus: Implementation in Germany Relationship between Beneficial Ownership in the Directive and in Tax Treaties 303 a. Scholarly Discussion 303 b. Analysis 304 II. EU Savings Directive (2003/2014) Beneficial Ownership in the EU Savings Directive (2003/2014) Excursus: Implementation in Germany Relationship between Beneficial Ownership in the Directive and in Tax Treaties 309 III. Conclusion: Beneficial Ownership in EU Legislation 309 CHARTER 8 Other Aspects to Consider in Determining the Meaning of Beneficial Ownership 311 I. The Limitation of Tax and the Appropriate Allocation of Taxing Rights 311 II. Beneficial Ownership in Other Provisions Apart from Art OECD Model Specific Characteristics of Art OECD Model 312 a. Limitation of Tax at Source 312 b. Particularities of Passive Income 313 c. Items of Income 313 d. Conclusion Application of Beneficial Ownership to Other Articles 314 a. Art. 21 OECD Model 315 b. Art. 13 OECD Model 315 xiv

12 c. Other Treaty Provisions 316 III. The Translation of Beneficial Ownership in Different Languages 317 IV. Multiple Beneficial Ownership 318 CHAPTER 9 Specific Approaches to Beneficial Ownership and Their Particularities 321 I. Beneficial Ownership as a Broad Anti-Avoidance Rule Scholarly Discussion and Case Law Analysis 322 II. The Attributes-of-Ownership Approach Scholarly Discussion and Case Law Analysis 324 III. The Forwarding Approach Scholarly Discussion and Case Law Issues with the Forwarding Approach 326 a. Legal versus Factual Obligations to Forward the Income 326 i. Scholarly Discussion and Case Law 326 ii. The Obligation to Forward Income in the Context of Corporate Control 326 iii. Analysis 327 b. Obligation to Forward and Actual Forwarding of the Income 328 c. Amount of Forwarded Income and Interdependence 328 d. Other Aspects of Control over the Income by the Intermediary 330 e. Risk of Double Taxation 330 f. Conclusion 330 IV. The Attribution-of-Income Approach Historical Context 332 a. OECD Material 332 b. U.K. Treaties from the 1960s 332 c. Conclusion Scholarly Discussion Case Law and Source Country Perspective Analysis 335 CHAPTER 10 How Should Beneficial Ownership Ideally Be Interpreted? 339 I. What Is Known about Beneficial Ownership? 339 II. The Object and Purpose of Tax Treaties 340 III. The Appropriate Scope of Beneficial Ownership and the Suitability of Different Approaches to Beneficial Ownership What Structures Should Ideally Be Covered by Beneficial Ownership? 342 xv

13 IV. a. Agents and Nominees 342 b. Conduit Companies 342 i. Beneficial Ownership and Conduit Companies 343 ii. Anti-Avoidance Provisions and Conduit Companies 344 iii. Conclusion: Beneficial Ownership and Conduit Companies 353 c. Base Companies 354 d. Tax-Exempt Entities 355 e. CIVs 356 f. Transparent Entities under the Law of Both States 357 i. Residency 357 ii. Beneficial Ownership 357 iii. Solutions to Hybrid Mismatch Situations 359 g. Accumulation and Discretionary Trusts 360 h. Conclusion: The Appropriate Scope of Beneficial Ownership What Approach to Beneficial Ownership Is Most Compatible with the Result Beneficial Ownership Should Ideally Have? 362 a. Agents and Nominees 363 b. Conduit Companies 363 c. Base Companies 364 d. Transparent Entities under the Law of Both States 365 e. Accumulation and Discretionary Trusts 366 f. Tax-Exempt Entities and CIVs 366 g. Conclusion: The Most Suitable Approach to Beneficial Ownership 366 Beneficial Ownership as a Liability-to-Tax-with-the-Specific-Income Test or a Subject-to-Tax Test? OECD Considerations Historical Tax Treaties 368 a. Beneficial Ownership as an Alternative to a Subject-to- Tax Provision 368 b. Risk of Double Taxation A Potential Risk of Double Taxation 369 a. Historical Considerations 369 b. Original Purpose of Beneficial Ownership in the OECD Model 369 c. Comparison of the Liability-to-Tax Test with a Subject-to- Tax Test 369 d. Further Considerations The Purposes of Tax Treaties Practical Considerations The Exclusion of Base Companies and Certain Conduit Companies 372 xvi

14 7. Conclusion: Beneficial Ownership as a Liability-to-Tax-withthe-Specific-Income Test 372 V. Issues with the Liability-to-Tax-with-the-Specific-Income Approach Relevance of the Attribution of Income under the Law of the Residence State and the Acceptability for the State of Source 373 a. Arguments in Favour of the Attribution of Income under the Law of the Residence State 374 b. Source State Perspective 374 i. Source State Perspective under the Forwarding Approach 374 ii. Source State Perspective under the Attribution-of- Income Approach 374 c. Insufficient Taxation in the State of Residence Attribution of Income under Domestic Anti-Avoidance Rules of the Residence State Art. 4(1) Sentence 2 OECD Model Practical Considerations Beneficial Ownership and the Relationship between Treaty and Domestic Law Beneficial Ownership and the Treaty Entitlement of Certain Tax-Exempt Entities, Hybrids, CIVs and Conduit Companies Conclusion 378 VI. Is Beneficial Ownership Still Necessary? Trusts Agents and Nominees Conclusion 383 CHAPTER 11 Conclusion: Back to the Roots! 385 Bibliography 387 Table of Cases 415 Index 421 xvii