The meaning of 'beneficial ownership' and the use thereof for tax treaty shopping and tax avoidance

Abstract

The term ‘beneficial ownership’ is included in numerous tax treaties that are concluded between countries today but the majority of these treaties do not define the term. The purpose of this study is four fold. Firstly, to investigate what the meaning is of the term ‘beneficial owner’ for tax treaty purposes? Secondly, what factors should be taken into account to determine the beneficial owner, if any? Thirdly, what the meaning of the term ‘beneficial ownership’ is in the context of those tax treaties where the term has been incorporated, and lastly, if the term ‘beneficial owner’ should have a domestic law, international tax or tax treaty meaning? The study was conducted by reviewing various articles, opinions, court cases and government publications, that deals with the issues raised in the preceding paragraph, and then to identify if there are answers to these questions that were raised? The study concludes that there is no concrete on-line definition for the term “beneficial owner” and that various factors need to be considered in support of the term. The Chinese revenue authority has recently issued various circulars, setting out various factors that need to be considered in an attempt to identify the beneficial owner. Equally important is the factors that need to be considered as set out in the ‘Limitation on Benefits’ clause that appears in most US tax treaties. The study also concludes that the findings of the Court in the Indofood International Finance Ltd v JP Morgan Chase Bank NA regarding the fact that the term ‘beneficial owner’ should have an international fiscal meaning is appropriate. Although there are counter arguments supporting the fact that an domestic tax law meaning pertaining to the specific taxes should prevail over any other meaning or that the term should be interpreted in a purely treaty framework, and not be referenced to domestic law, where there is a well established international law meaning for the term, an international fiscal meaning will result in a more consistent interpretation between Contracting States and limit misinterpretation due to differences in tax and legal systems. AFRIKAANS : Die term ‘voordelige eienaar’ is ingesluit in menige belasting ooreenkomste wat tussen lande gesluit word vandag, maar die meerderheid van hierdie ooreenkomste, definieer nie die term ‘voordelige eienaar’ in die ooreenkoms nie. Die doel van hierdie studie is vier voudig. Eerstens, om vas te stel wat die betekenis van die term ‘voordelige eienaar’ vir belasting ooreenkoms doeleindis is. Tweedens, watter faktore inaggeneem moet word in die vasstelling van die betokens van die term ‘voordelige eienaar’, indien enige. Derdens, wat die betekenis van die term ‘voordelige eienaar’ is in die belasting ooreenkomste waar die term reeds geïnkorporeer is en laastens, of die term ‘voordelige eienaar’ ‘n nasionale, internasionale of belasting ooreenkoms betekenis moet hê. Die studie is uitgevoer deur artikels, opinies, hofsake en regering’s publikasies te hersien, wat met die vrae wat in die vorige paragraaf aangespreeks is handel, en om dan te identifiseer of daar antwoorde is op die vrae wat geopper is? In die die studie wat gedoen is is gevind dat daar tans geen vaste een-lyn definisie is vir die term ‘voordelige eienaar’ nie, en dat menigde faktore inaggeneem moet word ter ondersteuning van die term. Die Chinese Belastingowerheid het onlangs menigde Omskrywings uitgereik wat menigde fatore uiteensit wat oorweeg moet word in ‘n poging om die voordelige eienaar te identifiseer. Ewe belangrik is die faktore wat oorweeg moet word soos uiteengesit in die ‘beperking op voordele’ klousule wat in meeste Verenigde State van Amerika belasting ooreenkomste voorkom. Die studie het ook gevind dat die bevinding deur die Hof in die “Indofood International Finance Ltd v JP Morgan Chase Bank NA” saak rakende die feit dat die term ‘voordelige eienaar’ ‘n internasionale fiskale betekenis moet he toepaslik is. Alhoewel teen argumente ter ondersteuning is van die feit dat ‘n nasionale belasting wetgewing betekenis rakende die spesifieke belasting voorkeer moet kry bo enige ander mening van die term ‘voordelige eienaar’ of dat die term uitsluitlik in ‘n belasting ooreenkoms hoedanigheid geïntreperteer moet word, en nie moet verwys na nasional wetgewing waar daar reeds ‘n goed gevestigde internasionale wetgewing betekenis vir die term is nie, sal ‘n internasionale fiskale betekenis ‘n meer konsekwente interpretasie tussen Kontrakterende State tot gevolg hê en die verkeerde interpretasie as gevolg van verskille in belasting sisteme en wetgewing voorkom.