The origin and evolution of the concept of BO in international tax law

Abstract

Chapter 3 thoroughly analyzes the history of the concept of BO in international tax law (tax treaties), thereby including informative interpretational guidance regarding its origin and evolution. It initially briefly analyzes the very first appearance of the concept of BO in the US and the UK tax treaties, and then track the way this concept developed into the OECD Model. To this end, the chapter carefully analyses the OECD works preceding the introduction of the concept of BO in the 1977 OECD Model, and then continuing with the analysis of the most important amendments to the various versions of the Commentaries to the OECD Model up to its current 2017 version, which implements the OECD/G20 Base Erosion and Profit Shifting (BEPS) minimum standard to prevent tax treaty abuse and other antiabusive solutions. This chapter also analyzes the OECD Reports relevant for the concept of BO. In addition to the main influence of the OECD works on the origin and evolution of the international meaning of the concept of BO, chapter pays attention to the perception of the concept of BO by United Nations (UN) experts. The entire analysis gives a truly holistic view on the origin and evolution of the international meaning of the concept of BO in tax treaties. This, in turn, constitutes contextual material for the understanding of the concept of BO in a treaty autonomous way. The analysis in chapter 3 therefore assists in measuring the convergence/divergence of judicial understanding of the concept of BO with its autonomous international meaning developed by the OECD. The chapter additionally helps to answer questions about the legitimate role of the concept of BO in tax treaties, and whether the courts advance that role in line with the autonomous international meaning of the concept of BO, or pursue other goals, perhaps more oriented towards domestic tax policy. Altogether, the analysis in this chapter provides answers to the following research questions: Why and how did the worldwide spread of the negative impact of the concept to BO on the effectiveness of tax treaties initially come about? Where are we today when it comes to understanding and applying the concept of BO? What legal tools do we have to change it?