Beneficial Ownership and Tax Treaties

Abstract

Abstract This chapter addresses the principle of beneficial ownership and tax treaties. The principle of beneficial ownership has to be placed in context with the introduction of modern income tax systems, the subsequent occurrence of double taxation, as well as efforts to ensure that the consequently introduced double taxation treaties are correctly applied and grant benefits only to the actual economically entitled taxpayer. The scope of the beneficial ownership principle therefore extended the idea of preventing non-entitled parties from obtaining treaty protection. The term ‘beneficial owner’ was introduced for the first time into articles 10(2), 11(2), and 12(1) of the final version of the 1977 OECD Model, as well as into the respective passages of the Commentary on the OECD Model Convention. However, the introduction of the term into the 1977 OECD Model cannot be understood as a remarkable change when it comes to treaty application and interpretation. The explicit introduction of the beneficial ownership principle can be marked as the starting point of the discussion of whether the term is to be understood in a narrow ‘legal’ sense or based on a broad understanding, building on economic principles.