The denial of double taxation treaty benefits by contracting states in respect of conduit companies : an international and domestic perspective

Abstract

Conduit companies are a product of a global economy. These entities could lead to situations of treaty shopping or treaty abuse, the result of which would be double nontaxation. Due to the existence of conduit companies and their use in the abuse of double taxation agreements, concepts, tests and other preventive mechanisms have been incorporated into international tax law. However, whereas a situation used to exist where international instruments did not aptly cater for treaty abuse, nowadays the situation could be considered to be the opposite. Preventive mechanisms within double taxation treaties have become so draconian that it is not only conduit structures that are being caught by the anti-abuse provisions, but the genuine structures also, denying double taxation treaty benefits to those for whom they were initially intended. If the tests, requirements and conditions which must be fulfilled in order to acquire treaty benefits are not reviewed, the result will be double taxation agreements that protect the interest of the State to such an extent that the tax payer would so rarely be eligible for treaty benefits, the purpose of the double taxation agreement would be disregarded.