This article critically studies case law on beneficial ownership in Spain, Switzerland, England, Canada and France to conclude that what seems to be the prevailing opinion (economic/substance-over-form analysis) of that term is not the one that best conforms the object and purpose of tax treaties. The minority opinion, represented by the Canadian Prévost judgements, is given attention as the most promising way to avoid some of the problems of the concept of beneficial ownership. Recent initiatives of international organizations (OECD, UN) affecting the concept of beneficial ownership are also considered to study other relevant issues in connection with beneficial ownership (liability of withholding agents when it is found that the person receiving income is not the beneficial owner, extension of the concept to other treaty articles) where clarification is needed.

1. Introduction

Some years ago, the discussion of a panel of experts commenced by pointing out that there is still much uncertainty about the meaning of “beneficial ownership”, despite the importance of the concept for application of the dividends, interest and royalties articles of tax treaties (DTCs).¹ The same panel also noted that “there are remarkably few court cases on the tax treaty meaning of term”.² Today, uncertainty as to the meaning of “beneficial owner” still exists, but, as this article shows, in the last three or four years more and more case law on beneficial owner has appeared in different jurisdictions (and more cases are still in the pipeline).³ To a certain point, it may be said that there is enough case law to know what the focus of discussion about beneficial ownership should be and where some light should be shed by the OECD or other international organizations, like the UN, on the meaning of the term.

In addition, both the OECD and the UN are doing work on “beneficial ownership” and several documents have been released which deal with such concept. A number of issues arise from the work of international organizations that are closely connected with the recent case law and the need to clarify the meaning of the term. Basically, those issues are the following: Is beneficial ownership a broad or narrow clause against treaty shopping? Should it be given an “economic” or “legal” meaning? Is it an attribution-of-income rule? If so, what is the relevant legislation (if any) to interpret the term (that of the source or the residence country)? Should it be extended to other articles of DTCs or simply be deleted, even from Art. 10 to 12 of the OECD and UN Models? What is (or should be) the liability of withholding agents if it is proved that the recipient of income is not the “beneficial owner”? The answer to these questions in the case law of different countries, as well as the author’s own opinion, are explained in the sections to follow. First, the position of beneficial ownership in different jurisdictions is studied. Second, some critical remarks are added and the work of international organizations on this issue is examined. It remains to be seen what the views of the OECD will be when it releases its paper on beneficial ownership in a (hopefully) not too distant future.⁴

2. Recent Judicial Decisions on the Concept of Beneficial Ownership

2.1. Spain

It is interesting to first refer to how “beneficial owner” is interpreted by Spanish courts, since their judgements are less well-known internationally than those of other countries.

Spanish tax legislation does not define “beneficial owner”. Therefore, reference to domestic law must be discarded to attribute a meaning to the expression when used in Spanish DTCs.⁵ Even when implementing EC Directives which use the term “beneficial owner”, the Spanish legislation has avoided the use of that expression.⁶

The judgement of the Tribunal Económico-Administrativo Central (TEAC) of 22 September 2000 is the first decision in Spain where the concept of beneficial ownership was an issue.⁷ In both cases, the Spanish TEAC and Audiencia Nacional (AN) had to decide if foreign societies for the management of copyrights and author’s rights were “beneficial owners” in order to apply the reduced withholding tax rates for royalties of several Spanish DTCs.⁸ The TEAC and AN ruled that foreign societies for the management of copyrights or author’s rights are “intermediaries or agents acting in the name of the holders of the right (the authors) and, since they do act on behalf of copyright holders, they cannot be beneficial owners for the purposes of Spanish DTCs” (unless they prove that the authors in the name of whom they act are residents of the same state as the societies).

The decisions of the TEAC and AN are technically correct, but some points need attention:

– The TEAC and AN did not mention in the judgements what the OECD Model or the OECD Commentaries explain on the concept of beneficial ownership in Arts. 10 to 12. It is likely that the courts used OECD materials, but there is no reference to where they found the meaning of “beneficial owner”. It is clear, however, that domestic law was not applied.

– The concept of beneficial ownership the courts used revolves around the idea of “ultimate owner of the income”. The facts of the case probably led the TEAC and AN to focus on the “ultimate owner” of income, but it is likely they did not mean to convey the idea that the concept should be given an economic, as opposed to a legal, meaning.

– The TEAC and AN stressed that the societies receiving the royalties had no power to dispose of the income received – they could only manage the rights of other parties (the authors), and the real owners of the rights had not attributed further powers to the societies apart from those related to receiving the income in their name. It is interesting that the Spanish courts studied the powers of the societies from the point of view of the Spanish legislation on author’s rights, when, in our view, they should probably have referred to the powers they had under the legislation of their own country. Likely, the courts simply sought a way to facilitate their decision: they studied the contracts between the societies and the authors and concluded that the structure of the societies and the powers they had are analogous to those similar Spanish societies have under domestic legislation. The courts probably did not mean that when searching for the beneficial owner, the legislation of the source state is relevant.

To sum up, it seems that these decisions regard “beneficial ownership” as a rule on attribution of income – the income was obtained by the authors and not the societies – rather than a broad anti-avoidance clause inserted in DTCs.

However, the position of the TEAC and AN suffered a “mutation” in the Hungarian conduit cases, which were released in 2006-2007. These are a group of judgements of the AN⁹ which refer to very similar structures used by a well-known soccer club, Real Madrid (RM), and not less notorious soccer players. RM paid certain amounts to several Hungarian entities for the use or the right to use “image rights” of some soccer players with whom RM had a work contract or, if the player had registered his name as a brand, the payments were for the use or the right to use such brand.¹⁰ The Hungarian entities, in turn, transferred almost the full income received¹¹ to entities which were residents of the Netherlands or Cyprus. The use of Hungarian entities had a clear goal: the DTC between Hungary and Spain is a well-known exit route for royalties, since it is (together with the DTC with Bulgaria) the only DTC in the Spanish treaty network with no withholding tax for royalties at source.¹²

In all the judgements the main issue¹³ was whether the Hungarian entity receiving and making payments could be regarded as beneficial owner for the purposes of the Hungary–Spain DTC. The Spanish tax administration concluded that the interposed entity in Hungary was not a beneficial owner because it paid almost all the “royalties” received to non-Hungarian (Netherlands or Cypriot) resident companies.¹⁴ The fact that the Hungarian entity only retained a small part of the royalty (between 2% and 0.5%) and the clear link between payments received and made (which were on the same date or one day after having received the payment) were crucial for the tax administration to conclude that the Hungarian entity was not the beneficial owner of the payments. Some of the circumstances the administration found out clearly were indicative that the position of the Hungarian conduits was very weak:

there were no invoices between the principal companies and the Hungarian entities; despite having no invoices the royalty payments were made (sometimes at dates prior to those established in the contract, sometimes in amounts that were different from those foreseen in the contract); in some of the cases the date of signature of the contract between the Netherlands/Cypriot company and the Hungarian entity was later in time than the date of the contract between the Hungarian entity and RM, etc.

RM (the appellant) claimed that the tax administration founded its decision on the fact that most of the income received by the Hungarian conduits was paid to a third party, but did not give any argument as to whether (or not) the Hungarian entities were the legal owners of the royalties received. Therefore, the fact that most of the income received was paid to a third party, RM contended, could not leave the Hungarian entities outside the scope of beneficial ownership as in the DTC between Hungary and Spain.

The arguments the AN gave to exclude Hungarian entities from the beneficial-owner concept of Art. 12 of the Hungary–Spain DTC are the following:

– The main purpose of the concept of beneficial owner is to prevent treaty shopping. In fact, the AN conceives of beneficial ownership as a clause with a (very) wide anti-treaty shopping effect. In the AN’s opinion, its meaning and impact is analogous to the general domestic anti-abuse clause in the Spanish General Tax Law.¹⁵ As a consequence, for the AN, the beneficial-ownership requirement permits the source country to exclude from the royalties article any situation where avoidance can be singled out, without the “bother” to apply the internal law procedure for these cases.¹⁶

– For the AN, “beneficial owner” is a term with an autonomous international meaning. That is to say, this is a case where “context otherwise requires” and reference to internal law, according to Art. 3(2) of the OECD Model, must be excluded. The way the AN uses to “discover” such an international meaning is, to say the least, a bit peculiar. The AN followed the evolution of the concept of beneficial ownership in the OECD Model and its Commentaries, as well as in other OECD materials (the Conduit Report).¹⁷ But, it misunderstood such evolution. In the view of the AN, the 2003 changes to the OECD Commentaries on Art. 10 to 12 confirmed the “clear” goal of the concept of beneficial ownership, i.e. its function as a wide anti-treaty shopping device oriented to tackle any form of treaty shopping. After the changes in 2003 of the OECD Commentaries on Arts. 10 to 12, according to the AN, an “economic interpretation” can be used to seek the “real owner” of income¹⁸ (and, therefore, disregard the legal owner thereof). In fact, the AN assimilates “beneficial ownership” to a “business purpose test”: if there is a business reason to place an entity between the payer and the final recipient of the income beyond reduction of withholding taxes in Spain, the intermediary will be the beneficial owner if the conduit has the only goal of reducing withholding taxes, it will fall outside that concept.¹⁹

– The AN did not take into account the legal powers the recipient had over the royalties received. Rather, it presumed that since the Hungarian entities received and immediately paid “royalties” out to Netherlands or Cypriot companies, they did not have any control over the income. Therefore, the decisions lack an analysis of whether the Hungarian entities could be the legal owners of the income, whether (or not) the royalties could be legally attributed to them or if they assumed any risk in the transactions at issue, no matter the legal obligations that Hungarian entities had with third parties.

– The AN applied the 2003 OECD Commentaries, as well as the 1986 OECD Conduit Report, to the 1984 Hungary–Spain DTC, but it did not even dedicate a word of its judgements to explain why later Commentaries or OECD materials could be used to interpret previous DTCs.

The main conclusion that can be drawn from the judgements is that the Spanish tax administration and courts have aligned (without citing foreign decisions) with the trend to identify beneficial ownership with a broad anti-fraud or avoidance clause. The basis of the reasoning of the AN is an economic/substance-over-form analysis of the kind often found when applying general anti-avoidance clauses or judicially crafted theories on the abuse/avoidance of tax law. As it will be shown, the growing tendency in other jurisdictions (with the exception of Canada) is to attribute beneficial ownership a meaning similar to the one used by the Spanish AN.²⁰

2.2. Switzerland

Some years before the judgements of the Spanish AN, the Swiss Federal Tax Appeals Commission decided on beneficial ownership in a judgement of 28 February 2001: V SA.²¹ The facts of the case were relatively straightforward. A Luxembourg company (“Luxco”), which was controlled by two British companies, purchased from a US resident the full capital of a Swiss company. The purchase was financed (almost in full) with a loan obtained from one of its shareholders. Such participation was the only relevant asset of Luxco. In 1996 and 1997, it received dividends from the Swiss company and, when applying for the refund of taxes withheld at source, the Swiss tax authorities denied access to the reduced withholding tax rates of the Luxembourg–Switzerland DTC. Other relevant facts are: (1) Luxco was not a holding company in Luxembourg benefiting from any special tax regime; (2) all revenues received from the Swiss subsidiary were used to pay interest and other charges; and (3) when asked by the Swiss authorities, surprisingly Luxco responded that it was not the beneficial owner of the dividends received.

The Swiss Commission noted that Art. 10(3) of the 1993 Luxembourg–Switzerland DTC did not use the term “beneficial owner” but only referred to “beneficiary”. Using a grammatical interpretation, the Commission concluded that a company which transfers to a third person, in the form of deductible interest and charges, the dividends it receives without having the power to fully dispose of them is not the “beneficiary” of income. This definition of beneficiary, the Commission noted citing the 1986 OECD Conduit Report, is close to the concept of beneficial owner, which is the “person who economically has the benefit of an item of income”.²² Such a concept “is not applicable to conduit companies like intermediaries between the debtor and the person who will ultimately receive the item of income”. Thus, Luxco could not be granted the refund requested since it was not a beneficiary or beneficial owner for the purposes of the Luxembourg–Switzerland DTC.

While sharing the gist of the decision, Danon has criticized it is too focused on the right to “economically benefit from an item of income” rather than on economic control of the income. In this author’s view, the Swiss Commission should have focused on economic control of the income by Luxco, and absence of economic control is evident since there is a “direct link or pre-existing connection” between the dividends received and the interest paid by Luxco. As a consequence, for Danon, the recipient of income will not be the beneficial owner when two cumulative circumstances are present: (1) there is a functional connection between assets and rights generating the revenues in the source state and the obligation according to which this revenue should be transferred or paid to a third party by the intermediary (this calls for an analysis of the economic reality of the transactions); and (2) the functional connection is “effective”, which means that the agent or intermediary does not have any control upon the income it receives and pays out.²³ As a consequence, Danon concludes, the beneficial-ownership requirement focuses on “economic control as such”, when the position of the “intermediary” is “from an economic perspective, comparable to that of an agent”.²⁴

Some years later, the Swiss Commission released another decision on beneficial ownership on 3 March 2005: X Holding ApS, which was confirmed by the Swiss High Court on 11 November 2005.²⁵ This time the case referred to a direct conduit – a Danish holding company – which was set up in Denmark and controlled by a Guernsey company, in turn fully owned by a Bahamian company. The director and final shareholder of all of these was a resident of the Bahamas. The Swiss Court concluded that the Danish company was the beneficial owner of the dividends (it did not pay “deductible income” to third parties), but denied access to the nil withholding tax rate for dividends of the Denmark–Switzerland DTC by using Swiss internal anti-avoidance norms as a legal basis. Danon criticized the decision because, in his view, the Danish holding was not the beneficial owner of the dividends paid by the Swiss subsidiary and the decisions assimilated the beneficial-ownership concept to a base erosion test. Once again Danon misses in the decisions any reference to “economic control” of the dividends received. For this analysis, he points out, neither the structure or the activities of the holding should be taken into account, nor the fact that it pays all the dividends to its shareholder. Rather, what really matters is the “intensity of the attributes of ownership”, whether the position of the Danish holding can be (legally and economically) assimilated to that of an agent and if it has some power to autonomously decide what it will do with the dividends (in the case at issue, Danon held that the Danish company did not have the structure to take decisions on its own due to the fact that the will of the company was dominated by the ultimate shareholder).²⁶

Therefore, it seems that Swiss courts use tests similar to those of the Spanish AN when deciding if a company meets the beneficial-ownership requirement, with the consequence that it is given a broad anti-avoidance meaning (similar to a base erosion test). Danon’s view and criticism of the decisions are interesting and well founded. However, he defends an economic analysis of the concept of beneficial ownership, which blurs any difference between a general anti-avoidance clause and the concept of beneficial ownership.²⁷

2.3. United Kingdom: the Indofood decision and HMRC’s reaction

Some months before the first judgements of the Spanish AN, on 2 March 2006, the English Court of Appeals (Civil Division) gave its decision in (the civil, not tax) case Indofood International Finance Ltd v. JP Morgan Chase Bank N.A. London Branch.²⁸ The facts and reasoning in the judgement are already well known and I will only briefly summarize them to make a short comment on the position that the English Court and, later, the English tax administration adopted.²⁹ Indofood is not really about English law – it refers to what an Indonesian court would have done if confronted with the issue. The only connection with English law was the parties chose English courts to solve any dispute between them. An Indonesian parent company who wanted to raise funds in international markets for its activity, instead of issuing loan notes directly (a 20% withholding tax would have been levied in Indonesia),³⁰ did so through a Mauritian company,³¹ with the effect that the withholding tax on interest paid to the Mauritian company was reduced in Indonesia to 10% under the Indonesia–Mauritius DTC (no withholding tax was levied in Mauritius on interest paid to the noteholders).

When the Indonesian government denounced the 1996 Indonesia–Mauritius DTC in order to have it terminated with effect from 1 January 2005, the Indonesian parent company attempted to redeem the notes (not only because of the increase in withholding taxes but also due to the, at the time, high interest rate it was paying to the Mauritian company/noteholders). There was a clause in the agreement permitting the issuer of the notes to redeem them before the date initially foreseen in order to mitigate additional tax charges (the increased withholding tax after the DTC was terminated) unless there were “reasonable measures” which provided for an alternative solution. However, the trustee for the noteholders deemed that a “reasonable measure” would be to interpose a Netherlands company. Therefore, the English court had to decide whether replacement of the Mauritius special-purpose vehicle by a Netherlands company was such a measure. Only if the Netherlands company could be regarded as the beneficial owner of interest from Indonesian sources according to the 2002 Indonesia–Netherlands DTC could Indofood not redeem the note.

Some factual circumstances are relevant to understand the case:

– Payments received and made by the Mauritian/Netherlands company were tied, so that interest received by the bondholders was really the money or interest paid by the Indonesian company (in fact, one of the clauses of the contract prohibited the Mauritian company to pay interest with its own funds, other than the interest received from Indonesia). Moreover, there was no difference in the rate of interest on both loans.

– The Mauritian/Netherlands company did not retain a spread that could fully justify the risks assumed; it was remunerated with a sort of “fee” or charge.

– On paper, interest received by the Mauritian/Netherlands company was paid on the following day to the bondholders. However, as the Court explained, the parent company paid the sums due to the noteholders directly to their trustee (thus, the Mauritian subsidiary did not receive/make any payment).

– An answer by the Indonesian Directorate-General for Taxation (DGT) of 24 June 2005 to a question by the Indonesian parent concluded that the interposition of a Netherlands company would be a case of improper use of the treaty. The DGT identified the beneficial- ownership concept with the substance-over-form principle of Indonesian law and an anti-abuse rule. As a consequence, a Netherlands conduit would not be the beneficial owner of interest from Indonesian sources. On 7 July 2005, the DGT issued a circular letter in which it identified “beneficial owner” with “the actual owner of income... either individual taxpayer or business entity taxpayer that has the full privilege to directly benefit from the income”, and, therefore, “‘special purpose vehicle’ in the form of ‘conduit company’, ‘paper box company’, ‘pass-through company’ or other similar are not included in the ‘beneficial owner’ definition”.³²

The main findings of the Court are as follows:

– The term “beneficial owner” “is to be given an international fiscal meaning not derived from the domestic laws of the contracting states”.³³ This is really an important feature of the decision, which ruled out attributing to the term the meaning it has under English law.³⁴

– The concept of “beneficial owner” is “incompatible with that of the formal owner who does not have ‘the full privilege to directly benefit from the income’”.³⁵

– In finding the meaning of “beneficial owner”, the Court looked at the “substance of the matter”. Since both loans are tied and the intermediate company (Netherlands or Mauritian) has to pay that which it receives, “in practical terms it is impossible to conceive of any circumstances in which either the Issuer or Newco [the Netherlands company] could derive any ‘direct benefit’ from the interest payable to the Parent Guarantor except by funding its liability to the Principal Paying Agent or the Issuer respectively”. In the Court’s view, “[s]uch an exception can hardly be described as the ‘full privilege’ needed to qualify as the beneficial owner, rather the position of the Issuer and Newco equates to that of an ‘administrator of the income’”. As a matter of fact, one of the reasons why the Court of Appeal reversed the decision was because the assumption that an arm’s length spread would be retained by the Netherlands company was incorrect.³⁶

– The Court also based its conclusion on the fact that this is consistent with the object and purpose of the DTCs (between Indonesia and Mauritius, on the one hand, and between Indonesia and the Netherlands, on the other). For the Court, relief from withholding tax would not have been afforded had they granted the loan directly to the parent company, which is an indication that the transaction fell outside the object and purpose of the DTC at issue.

There is some resemblance between the cases decided by the Spanish AN, the Swiss Federal Commission and Indofood. The ratio decidendi in all cases is that payments received and made were so closely tied that the intermediate company had to pay “that which it received”. Like the AN or the Swiss Federal Commission, the English Court did not look at whether the Mauritian/Netherlands company was paying its own money or the money of others.³⁷ In our view, there was hardly any need to do so: (1) from a contractual perspective, it was clear that the Mauritian/Netherlands company did not have any right over the income it received, it had to pay what it received and could not use any other income to discharge its liabilities with the noteholders; (2) in fact, the Mauritian company did not receive any interest, since the Indonesian parent paid directly to the trustee of the noteholders. It seems to be implicit in the reasoning of the Court that if there had been any “spread” (which can only be justified if “risks” are assumed by the intermediate company), the conduit could be regarded as beneficial owner. As Baker puts it, “if beneficial ownership had any meaning at all, surely it would exclude the type of interposed entity which had no function whatsoever but to receive any income and pay on the identical amount of income: in fact, it had so little function that, according to the Court of Appeal, the actual flows of money missed it out completely”.³⁸

Less justified are some statements by the Court regarding “substance of the matter” (they remind of a substance-over-form analysis), where the Court resorted to the definition of beneficial ownership by the Indonesian DGT (since this definition does not make the meaning of “beneficial owner” more clear)³⁹ or where it thought that reduction of withholding of taxes by means of interposing an intermediate entity is contrary to the object and purpose of DTCs. These arguments give support to those who defend a broad interpretation of the term “beneficial owner”, as assimilated to a general anti-avoidance clause. And in fact, these statements were picked up by the English tax administration (HMRC) in order to give its peculiar understanding of the effects of Indofood in the United Kingdom. On 6 October 2006, HMRC released a Draft Guide⁴⁰ on the Impact of Indofood, which, later in time, was included in the International Manual of HMRC.⁴¹ The good thing about the Guide is that it acknowledges the international meaning of “beneficial owner”; the problem is that it ends up by assimilating it – like the Spanish tax administration in the Hungarian conduit cases – to a broad anti-treaty shopping device which permits HMRC to attack any reduction of UK withholding taxes by using conduits.⁴² It is surprising that the Guide focused its attention in the statements regarding Indofood on the object and purpose of DTCs and tried to draw conclusions from Indofood that go beyond the Court decision (and the “international meaning of the term”), especially because the Guide contradicts UK treaty policy of including specific anti-avoidance provisions in Arts. 10 to 12 of its tax treaties (“main purpose” clauses) as a means of combating treaty shopping.⁴³

In sum, it seems that HMRC equated the term “beneficial owner” to a (broad) anti-treaty shopping clause by making an interpretation of Indofood that the English Court did not defend. It is true that some statements in Indofood give support to the position of HMRC, but is no less certain that Indofood probably concerned one case where the intermediary could be regarded as an “agent or nominee” and this is what the English Court took into account.

2.4. France: Royal Bank of Scotland

Royal Bank of Scotland⁴⁴ is a well-known case of the French Conseil d’Etat which has caused some concern in the international tax community.⁴⁵ In November 1992, a US parent company sold to RBS the temporary usufruct of a number of preferred non-voting shares of its French fully owned subsidiary. The conditions of the sale were, as the Conseil d’Etat held, the most striking feature of the contract:

– The price paid by RBS would be recovered in three years in the form of dividends paid by the French subsidiary. The dividend was predetermined on the date of the initial sale and RBS would receive the price paid plus a certain amount (which was calculated after the French withholding tax was applied and the French avoir fiscal refunded to RBS).

– RBS did not assume any risk in the transaction since the US parent company (1) guaranteed that if the French subsidiary could not pay the predetermined dividends, it would do it, as well as a supplementary compensation if RBS did not receive the refund of the avoir fiscal from the French authorities; (2) would give all the financial support to the French subsidiary so that it could distribute the predetermined amount of dividends; and (3) was obliged to buy back the shares if the income of the French subsidiary did not reach an also predetermined amount in any trimester.

The aim of the transaction, which resembles a dividend stripping, was to gain access to the 1968 France–United Kingdom DTC. If dividends were received by the US parent, the avoir fiscal would not have been refunded, but by selling the usufruct to RBS the French tax liability was significantly reduced.

First, the French tax administration considered that RBS was not the beneficial owner of the dividends paid by the French subsidiary of the US company. The French tax administration deemed the price paid by RBS when purchasing the usufruct right to be the amount of net dividends guaranteed to RBS. Therefore, according to the French tax administration, RBS granted a loan to the US parent company and the benefit of RBS in the transaction was the avoir fiscal. The Court of Appeals of Paris ruled for the taxpayer, inter alia, because RBS could not be regarded as an agent or nominee and the tax administration did not show that the distribution of risks in the contract was abnormal.⁴⁶ However, the Conseil d’Etat considered that the distribution of risks in the usufruct contract sought to artificially hide the real transaction, i.e. a loan which would be reimbursed with the dividends paid by the French subsidiary. The main purpose of the contract was, for the Conseil d’Etat, to gain access to the 1968 France–United Kingdom DTC and, therefore, to obtain the refund of the avoir fiscal in France (which was not available if dividends were directly paid to the US parent company). The Conseil d’Etat ruled that this use of the DTC was contrary to its object and purpose and that the beneficial owner of the dividends was not RBS but the US parent.

What is really interesting in the decision of the Conseil d’Etat is that:

– The Conseil d’Etat adopted a factual/economic approach to disregard the temporary usufruct contract and convert it into a loan, which is inherent to substance-over-form doctrines.⁴⁷

– The conclusions of the Court are based not only on the beneficial-ownership provision but also on the French general domestic anti-abuse clause. It is not entirely clear if this is so because the Conseil d’Etat thought that the beneficial-ownership requirement is not sufficient to underpin a “substance-over-form approach” and deny access to the 1968 France–United Kingdom DTC or, rather, because it treats the concepts of beneficial ownership and anti-treaty shopping clauses as equivalents.⁴⁸ The latter seems a plausible explanation, since in his preparatory opinion of the judgement, the Commissaire du Gouvernement already defended a broad interpretation of the concept of beneficial ownership to also cover any form of treaty shopping.⁴⁹ In fact, this is also how some French commentators read the concept of beneficial ownership.⁵⁰

As a consequence, it seems that in France beneficial ownership is given a meaning similar to that attributed to the term by the Spanish tax administration and courts, the Swiss courts and the English tax administration. The trend to identify beneficial ownership with a broad antiavoidance clause seems to be gaining ground in all the countries studied so far.

2.5. Canada: the Prévost decisions

The approach to the concept of beneficial ownership by Canadian courts in the Prévost judgements has attracted worldwide interest, mainly because they represent an alternative view to theories such as those defended by Spanish, French, Swiss and, with some nuances, English courts. There are two Prévost judgements – first, the decision of 22 April 2008 by the Canadian Tax Court (CTC)⁵¹ and, second, the confirmation of this judgement in appeal by the Canadian Federal Court of Appeal (CFCA) on 26 February 2009.⁵²

Both judgements refer to the treatment of holding companies as beneficial owners. A Netherlands holding company received dividends in 1996-2001 from a Canadian wholly owned subsidiary. The Canadian tax authorities concluded that it did not have access to reduced withholding tax rates of the 1987 Canada–Netherlands DTC (as amended by subsequent protocols) because the beneficial owners of them were the Netherlands company’s shareholders, Henlys (a resident of the United Kingdom) and Volvo (a resident of Sweden). Other relevant factual circumstances are the following: (1) there was a shareholders’ contract according to which the Netherlands holding company would distribute at least 80% of its profits; (2) the substance of the Netherlands holding was minimal but enough to be a resident of the Netherlands; (3) the Netherlands holding company’s single asset was the participation in the Canadian subsidiary; and (4) the directors of the Netherlands holding were also the directors of the Canadian subsidiary.

Prévost paid special attention to the opinion of two Netherlands expert witnesses (Van Weeghel, who has written extensively on improper use of DTCs,⁵³ and Raas, specializing in Netherlands corporate law). From the experts’ opinions, it was clear to the CTC that the holding company would be the beneficial owner of the dividends received under Netherlands commercial and tax law and, no matter the shareholders’ pact, there was no legally binding obligation for it to distribute 80% of its dividends. The CTC, after consulting internal law and the OECD materials, as well as, inter alia, the English Indofood case,⁵⁴ ruled in favour of the Netherlands holding. The CTC gave a narrow – but, in our opinion, fair – definition of beneficial owner, that is at odds with the jurisprudence of other countries.⁵⁵ In practice, Prévost left the meaning of beneficial ownership confined to something of an attribution-of-income rule.⁵⁶ The CTC gave a concept of beneficial ownership⁵⁷ and construed it from the perspective of Netherlands commercial and tax law, with the consequence that it disregarded the source country legislation and its anti-avoidance arsenal. Since according to Netherlands legislation, the holding company was the owner of the dividends (despite its minimal substance, there being no office or employees, the dividends were included in its profits and loss account, and until distributed they were an asset available to its creditors – there was no predetermined or automatic flow of funds to the Netherlands holding company’s shareholders and no legal obligation for the company to pass the dividends on to them), the CFC concluded that it was the beneficial owner for the purposes of Art. 10(2) of the 1987 Canada– Netherlands DTC.⁵⁸ Another salient feature is that the CTC mainly paid attention to the 1977 Commentary on Art. 10 of the OECD Model⁵⁹ (those in force at the time the Canada– Netherlands DTC and its protocols were signed), although it probably also took into account the Commentary on Art. 10 as amended by the 2003 revision of the OECD Model, as well as the OECD Conduit Report.

The Canadian tax administration appealed the decision of the CTC. The main arguments it adduced were that the CTC gave the term “beneficial owner” the meaning it has in common law, thereby ignoring the meaning it has in civil and international law. However, on 26 February 2009, the CFCA upheld the judgement of the CTC. The CFCA, unlike the CTC, did attribute relevance to the OECD materials (the 2003 amendments in the Commentary on Art. 10 of the OECD Model) issued after the 1987 Canada–Netherlands DTC to interpret its Art. 10(2). For the CFCA, these materials “are eliciting [sic “elucidating”], rather than contradicting, views previously expressed” (Para. 12).⁶⁰ In this sense, the CFCA stressed that the CTC’s formulation of the concept of beneficial ownership not only “emerges from the review of the general, technical and legal meanings of the terms”, but “most importantly”, it “accords with what is stated in the OECD Commentaries and in the Conduit Company Report” (Para. 14). The CFCA rejected the proposition by the tax administration to construe the concept to mean the person “who can, in fact, ultimately benefit from the dividend”, because this definition does not “appear anywhere in the OECD documents” and would jeopardize the “certainty and stability that a tax treaty seeks to achieve” (Para. 15).

To sum up, the CFCA not only approved the concept of beneficial ownership the CTC gave in Prevost, but also pointed out that it is in conformity with the OECD materials (even if some of them are posterior to the treaty being interpreted) and, what is more important, rejected an economic interpretation of the term “beneficial owner” which could have the effect of turning this concept into a broad anti-avoidance clause.⁶¹

to be continued...

This article first appeared in World Tax Journal.

1. Oliver, J., Libin, J., Van Weeghel, S., and Du Toit, C., “Beneficial Ownership and the OECD Model”, British Tax Review 1 (2001), p. 27 et seq. Also published as "Beneficial Ownership", in 54 Bulletin for International Fiscal Documentation 7 (2000), p. 310 et seq. See also Wheeler, J. “The Attribution of Income to a Person for Tax Treaty Purposes”, 59 Bulletin for International Fiscal Documentation 11 (2005), pp. 478-479, and, of the same author, “General Report”, Conflicts in the Attribution of Income to a Person, Cahiers de droit fiscal international, Vol. 92b (Amersfoort: Sdu Fiscale & Financiële Uitgevers, 2007). On beneficial ownership, see Vogel, K., On Double Taxation Conventions (London: Kluwer, 1997), Preface to Arts. 10-12, Paras. 5-14; Van Weeghel, S., The Improper Use of Tax Treaties (Deventer: Kluwer, 1998), p. 64 et seq.; Du Toit, Ch., Beneficial Ownership of Royalties in Bilateral Tax Treaties (Amsterdam: IBFD, 1999); Walser, J., “The Concept of Beneficial Ownership in Tax Treaties”, in IFA, The OECD Model Convention – 1998 and Beyond (Proceedings of a Seminar held in London in 1998 during the 52nd Congress of the International Fiscal Association (London: Kluwer Law International, 2000); Baker, P., Double Taxation Conventions (London: Sweet & Maxwell, 2000), Art. 10, Para. 10B-09 et seq.; Pijl, H., “The Definition of ‘Beneficial Owner’ under Dutch Law”, 54 Bulletin for International Fiscal Documentation 6 (2000), pp. 256-260; and, of the same author, “Beneficial Ownership and Second Tier Beneficial Owners in Tax Treaties of the Netherlands”, 31 Intertax 10 (2003), pp. 353-361; Danon, R., Switzerland’s Direct and International Taxation of Private Express Trusts (Zurich: Schulthess, 2004), p. 296 et seq., and, of the same author, “Le concept de bénéficiaire effective dans le cadre du MC OCDE”, IFF Forum für Steuerrecht 1 (2007), pp. 38-55, “Le concept de bénéficiaire effective et les structures de relais direct”, 77 Archives de Droit Fiscal Suisse, pp. 105-117; Bernstein, J., “Beneficial Ownership: An International Perspective”, 47 Tax Notes International 17 (2007), pp. 1211-1216; De Broe, L., International Tax Planning and Prevention of Abuse (Amsterdam: IBFD, Doctoral Series 14, 2008), p. 654 et seq.

2. De Toit, in Oliver, Libin, Van Weeghel and Du Toit, note 1, p. 31.

3. The well-known Market Maker decision of the Dutch Supreme Court of 6 April 1994 is not discussed here. See, on this decision, for instance, Van Weeghel, note 1, p. 75 et seq.; Du Toit in Oliver, Libin, Van Weeghel and Du Toit, note 1, pp. 32-34; or Pijl, “The definition of ‘Beneficial Owner” under Dutch Law”, note 1, pp. 257-58, De Broe, note 1, pp. 694-697, or the Prévost decisions commented on in 2.5.

4. The issue of “beneficial owner” under EC law is not dealt with in this article. While the concept may have a meaning similar – but not completely equal – to that in DTCs in the context of Directive 2003/49/EC (Interest and Royalties Directive), it has a completely different function in Directive 2003/48/EC (Savings Tax Directive), closer to the similar concept in anti-money laundering legislation and EC directives.

5. In general, Spanish tax law uses civil law criteria to attribute income to an individual or company. The concept of beneficial owner, as understood in trust law, is unknown in Spain. It is important to stress that, with regard to fiduciaries, Spanish jurisprudence, in situations where the concept of beneficial ownership was not an issue, has tended to attribute income received by fiduciaries to the real owners of it. See, for instance, the judgements of Audiencia Nacional (National Court) of 20 January 2005 and 29 April 2004.

6. Art. 25(1)(h) of the Spanish Non-Residents Income Tax Law, when implementing Directive 2003/49/EEC, instead of referring to the beneficial owner, conditions the application of reduced withholding taxes in Spain (under the grandfathering provisions of the Directive) to the fact that “the royalty is received by a company on its own behalf and not as a mere intermediary or authorized agent of another person or entity”. That is, the implementing legislation tries to give a (not very faithful) description of what, in fact, the beneficial-owner concept is in the Directive. Something similar occurs with Real Decreto (Regulation) 1778/2004, which has implemented the Savings Tax Directive in Spain. Although the concept of beneficial owner is one of the three “pillars” of the Directive, the Regulation does not even mention this concept, but simply lists the cases where a person will not be the beneficial owner of interest. The concept of beneficial owner, however, is used in the agreements between Spain and the countries or territories affected by the Savings Tax Directive.

7. The decision of the TEAC was confirmed by the Audiencia Nacional (AN), a real court of justice, on 19 June 2003. The Tribunal Económico-Administrativo Central (TEAC) is not a real court, since it is functionally dependent on the Ministry of Economics and Finance. Appeals submitted by taxpayers against acts of the Spanish tax administration should be revised by administrative courts – either the central one (the TEAC) or regional ones (TEARs) However, it has been interpreted by the European Court of Justice that either the TEAC or TEARs can ask preliminary rulings. See ECJ, 21 February 2000, Cases C-110/98 to C-147/2008, Gabalfrisa S.L. y otros, Paras. 33-41 or ECJ, 1 April 1993, Cases C-260/91 and C-261/91, Diversinte e Iberlacta.

8. It is not very clear in the judgements to which DTCs they refer, but one of them was the 1990 Spain–United States DTC.

9. Judgements of the AN of 18 July 2006 (JUR2006204307, JUR20078915 and JUR200716549), 10 November 2006 (JUR2006284679), 20 July 2006 (JUR200716526), 13 November 2006 (JUR2006284618) and 26 March 2007 (JUR2007101877). See, for a commentary of these judgements, Vega Borrego, “La utilización de sociedades húngaras para la cesión de derechos de imagen de futbolistas de equipos españoles y el concepto de beneficiario efectivo en los convenios para la eliminación de la doble imposición”, 21 Revista Jurídica del Deporte 3 (2007), pp. 185-204. All the judgements by the AN follow literally, by copying his arguments, the position of Vega Borrego, “El concepto de beneficiario efectivo en los Convenios para Evitar la Doble Imposición”, Documentos del Instituto de Estudios Fiscales 8/2005, and Vega Borrego, Las medidas contra el “treaty Shopping” (Madrid: Instituto de Estudios Fiscales, 2003).

10. Since, in the context of the judgements, both categories of income present almost the same problems, we will not differentiate between both types of income flows.

11. The percentage of income paid out to the Netherlands or Cypriot companies ranged between 98% and 99.5% of the payments received from RM.

12. In our view, payments for “image rights” cannot be characterized as royalties under Art. 12 of the OECD Model. See on this issue Martín Jiménez, “La tributación de los cánones o regalías”, in Ruiz García and Calderón (eds.), Comentarios a los Convenios para evitar la doble imposición y prevenir la evasión fiscal concluidos por España (Coruña: Fundación Barriè de la Maza, 2004) p. 647 et seq. This view is neither shared by the Spanish tax administration nor by the Audiencia Nacional.

13. Other procedural issues were also considered in the cases; however, they will not be discussed here. From an international perspective, another important point was whether it was possible to request the withholding agent to pay over the withholding taxes when the administration has concluded in a tax audit process that the recipient of income was not the beneficial owner for the purposes of a DTC. We will come back to this issue in 3.6.

14. The consequences of that decision were different regarding Dutch or Cypriot entities. In structures with Dutch entities, the tax administration decided to levy the 6% withholding tax applicable to royalties in the Netherlands–Spain DTC. Quite incomprehensively, the tax administration disregarded the Hungarian entity but concluded that the Dutch entity was the beneficial owner for the purposes of the Netherlands–Spain DTC. Such DTC does not have a beneficial-owner requirement in Arts. 10-12, so it is not clear whether the tax administration was concluding that beneficial ownership is not implicit in tax treaties which do not refer to that term or whether there was evidence that the Dutch entity was the beneficial owner of the “royalties”. In the case of Cypriot entities, there is no DTC between Cyprus and Spain (in fact, Cyprus is blacklisted as a tax haven in Royal Decree 1080/1991), and the domestic withholding tax rate in force at the time the facts took place (25%) was applied.

15. Art. 24 of the Ley General Tributaria (General Tax Law) of 1963, applicable to all the cases decided by the AN, and Art. 15 of the General Tax Law of 2003, which is currently in force.

16. In the old and the new Spanish General Tax Laws, declaration of tax avoidance had to follow a special procedure. Since 2003, that procedure requires the tax inspector to stop the tax audit and refer the case to a central commission, which will decide if there is avoidance or not (Arts. 15 and 159 General Tax Law).

17. Report “Double Tax Conventions and the Use of Conduit Companies”, adopted by the OECD Council on 27 November 1986 (“the Conduit Report”).

18. For the AN, the ownership of the income-generating asset is not relevant – what is really important is the link between the recipient and the income.

19. The Hungarian conduit cases are contradictory with some more recent judgements of the AN (judgements of 22 January 2009 and 16 June 2008), where the application of Directive 90/435/EEC (Parent-Subsidiary Directive) was excluded because the interposition between a US parent company and a Spanish subsidiary of a Dutch holding company lacked a valid “economic reason” (despite the substance of the Dutch subsidiary), but the DTC between Spain and the Netherlands was regarded as applicable to dividends paid by the Spanish company to its Dutch parent. In these decisions the AN did not consider the issue of beneficial ownership (the Netherlands–Spain DTC does not have such a clause), but it is undisputable that if it had not thought the income was attributable to the Dutch company, it would not have applied the Netherlands–Spain DTC (from the proceedings it can be inferred that the Spanish Tax Administration tried to apply the Spain–United States DTC, which has a higher withholding tax for dividends than the Netherlands–Spain DTC). This is therefore a case where “beneficial ownership” is interpreted narrower than in internal anti-abuse clauses.

20. As far as we know, the judgements have been appealed before the Spanish Supreme Court.

21. The decision (or rather, the most relevant paragraphs of it) can be found in the IBFD’s Tax Treaty Case Law Database. The judgement is commented on in detail by Danon, “Le concept de bénéficiaire effectif dans le cadre du MC OCDE”, note 1, p. 58 et seq. That author basically reads this decision from the point of view of his theory on beneficial ownership, defended in Danon, Switzerland’s Direct and International Taxation of Private Express Trusts, note 1, p. 326 et seq.

22. The Swiss Commission assumed that the concept of beneficial ownership is implicit in tax treaties which do not use it.

23. Danon, “Le concept de bénéficiaire effective dans le cadre du MC OCDE”, note 1, pp. 45-46. This position is a development of the ideas of the same author previously expressed in his doctoral thesis: “the person who legally, economically or factually has the power to control the attribution of the income”. This definition differs essentially from the common law meaning of “beneficial ownership” in that it does not require that the recipient of the income be able to enjoy the economic benefits of the item received. Moreover, it is submitted that this meaning remains perfectly in line with the OECD Commentary and Conduit Report. Indeed, it excludes agents, nominees and conduit entities with narrow powers on the ground that these persons are not in a position to control the attribution of the income (being legally, economically or factually bound by the instructions of their principal, shareholders, participants, creditors, etc.) (Danon, Switzerland’s Direct and International Taxation of Private Express Trusts, note 1, p. 340).

24. Danon, “Le concept de bénéficiaire effective dans le cadre du MC OCDE”, note 1, pp. 45-46.

25. On the factual circumstances and legal reasoning of the judgements I have followed Danon, “Le concept de bénéficiaire effective dans le cadre du MC OCDE”, note 1, p. 46 et seq., and “Le concept de bénéficiaire effective et les structures de relais direct”, note 1.

26. Danon, “Le concept de bénéficiaire effective dans le cadre du MC OCDE”, note 1, pp. 48-49, and “Le concept de bénéficiaire effective et les structures de relais direct”, note 1, p. 115.

27. In fact, this assumption is made explicit when Danon (in “Le concept de bénéficiaire effective dans le cadre du MC OCDE”, note 1, p. 51), explains that the relationship between domestic general anti-abuse clauses and the beneficial-ownership requirement is one of subsidiarity: the former will only have effect in cases where the latter cannot be applicable. That is to say, he deems the beneficial-ownership requirement to be a “specific anti-avoidance clause” which has priority in its application over general anti-avoidance norms. His last work on this issue, however, while retaining part of his primary theory, seems to slide towards a less economic and more legal construction of the term “beneficial owner”; see Danon “Le concept de bénéficiaire effective et les structures de relais direct”, note 1.

28. [2006] EWCA Civ. 158, [2006] STC 1195; the full text of Indofood can be found in the IBFD’s Tax Treaty Case Law Database.

29. On Indofood see, for instance, Fraser, R., and Oliver, J., “Treaty shopping and beneficial ownership: Indofood International Finance Limited v. JP Morgan Chase Bank, N.A., London Branch”, British Tax Review 4 (2006), p. 422; Baker, P., “Beneficial Ownership: After Indofood”, 6 Grays Inn Tax Chamber Review 1 (2007), p. 15; or Sheppard, L., “Indofood and Bank of Scotland: Who is the Beneficial Owner”, 45 Tax Notes International 5 (2007), p. 406. See also De Broe, note 1, p. 706 et seq.

30. Interest was paid “net” of taxes (gross-up clause), so the withholding really was a cost for the issuer.

31. The Mauritian company issued the bonds and on-lent the funds raised to the Indonesian parent company. The Indonesian parent acted as guarantor of the issue.

32. Indofood, Paras. 18-19.

33. Indofood, Para. 42 (citing Prof. Baker’s opinion and the OECD Commentaries 1977-2003, Arts. 10-12, as well as the 1986 OECD Conduit Report).

34. Baker, note 29, p. 23, pointed out in this regard that, if one were to applaud any point in Indofood, it is that it construed the term with an international, as opposed to a domestic law, meaning.

35. Indofood, Para. 42 (citing the Circular of the Indonesian DGT of 7 July 2005).

36. Indofood, Para. 40 (the “substance requirements” under Dutch law would be satisfied with a combination of “handling charges” and “paid-up equity capital”).

37. See Fraser and Oliver, note 29, p. 427.

38. Baker, note 29, p. 25. See also De Broe, note 1, p. 712 for a similar opinion.

39. See, for the same opinion, Baker, note 29, p. 25.

40. For a critical review of the Draft Guide, see Fraser, R., and Oliver, J., “Beneficial Ownership: HMRC’s Draft Guidance on Interpretation of the Indofood Decision”, British Tax Review 1 (2007), p 39.

41. See <www.hmrc.gov.uk/manuals/intmanual/INTM332050.htm>.

42. See Fraser and Oliver, note 40, for a similar view. Specially controversial is example 7 of the Guide, where the use of a Luxembourg company to channel a loan to a UK borrower from a country with no DTC with the United Kingdom is deemed to fall outside the term “beneficial owner” because “it is clear one of the main purposes of the Luxembourg company is to avoid the withholding tax which would be due” if payments were made directly to the company lending the funds to Luxco. In the example, Luxco was set up for this transaction, it has a small “turn” for administering the loan and the interest is “predetermined” to be passed on to the parent in a country with no DTC with the United Kingdom. As the quoted authors point out (p. 48), one of the problems in example 7 is that “predetermined” does not indicate anything as to the legal situation of Luxco and is so general a term that it can be used to attack any “conduit”, including those cases where the conduit is the real owner of the income it receives.

43. Fraser and Oliver, note 40, p. 41 et seq.

44. Judgement of 29 December 2006, No. 283314 (RBS) (the full text of the case can be found in the IBFD Tax Treaty Case Law Database).

45. On RBS, see for instance, Austry, Gelin and Sorel, “Practical Effectiveness of Beneficial Ownership Clauses in France’s Tax Treaties”, 53 Tax Notes International 2 (2009), p. 151 et seq.; Gibert, B., and Ouamrane, Y., “Beneficial Ownership – A French Perspective”, 48 European Taxation 1 (2008), p. 2 et seq.; Sheppard, note 29, pp. 409-413; De Broe, note 1, p. 697. For reference to previous decisions in France, see Gibert and Ouamrane, p. 6, and De Broe, note 1, p. 697 et seq.

46. Cour Administrative d’Appel de Paris, No. 01PA04068, 23 May 2005 (available in the IBFD’s Tax Treaty Case Law Database).

47. Sheppard, note 45, p. 410 (citing Michel Collet).

48. Gibert and Ouamrane, note 45, p. 9. For instance, these authors seem to regard beneficial ownership as a clause permitting to attack treaty shopping in a wide sense.

49. See Gibert and Ouamrane, note 45, p. 8, for an unofficial translation of the main paragraphs of the opinion.

50. Gibert and Ouamrane, note 45, p. 8.

51. Prevost Car Inc. v. The Queen, 2008 TCJ 231 (TCC), available online at <http://decision.tcccci. gc.ca/en/dn/2008/04.html>. On this decision see Arnold, B., “Tax Treaty Monitor”, 62 Bulletin for International Taxation 7 (2008), p. 263 for a brief but very interesting commentary; Kandev, M., “Treaty Shopping in Canada: The Door is (Still) Open”, 62 Bulletin for International Taxation 10 (2008), p. 463. See also Danon, “Le concept de bénéficiare effective et les structures de relais direct”, note 1, p. 105.

52. The Queen v. Prévost Cart Inc., 2009 FCA 57, available online at <http://www.fca-caf.gc.ca>. See on this decision Boidman, N., and Kandev, M., “Canadian TaxpayerWins Prévost Appeal”, 53 Tax Notes International 10 (2009), p. 862, or Bernstein and Summerhill, “Canada’s Prévost Decision: the World is Watching”, 53 Tax Notes International 11 (2009), p. 985; Arnold, B., “Tax Treaty Monitor”, 63 Bulletin for International Taxation 5/6 (2009), pp. 175-176.

53. See note 1.

54. The legal basis of the decision is not very clear. The CTC ruled out adoption in the treaty context of the internal law meaning of beneficial owner, because this route might lead to confusion in view of the fact that the interpretation in Canada of the term is not evident either, but apart from that, the decision is not fully based on OECD materials or any other single source. Arnold (note 52, p. 175) believes that the CTC “derived the meaning of the term from Canadian domestic law”.

55. Arnold, note 51, p. 263, and note 52, p. 175, and Kandev, note 51, p. 464.

56. See Arnold, note 51, p. 263 for a similar opinion.

57. For the CTC, beneficial owner is “the person who enjoys and assumes all the attributes of ownership” (Prévost, Para. 99). In the case of corporations, the corporate veil should not be lifted “unless the corporation is a conduit for another person and has absolutely no discretion to use or application of funds put through it as conduit, or has agreed to act on someone else’s behalf pursuant to that person’s instructions without any right to do other than that person instructs it” (Para. 100).

58. See especially Para. 102 et seq. in Prévost.

59. See Prévost, Para. 95.

60. This statement should probably be connected with the view of the CTCA as to when later Commentaries are relevant to interpret prior DTCs as expressed in Para. 11 of Prévost: “... later Commentaries, when they represent a fair interpretation of the words of the Model Convention and do not conflict with Commentaries in existence at the time a specific treaty was entered and when, of course, neither treaty partner has registered an objection to the new Commentaries”.

61. Boidman and Kandev, note 52, p. 864, have noted in this regard that the CFCA “has swept aside notions of purposive economic substance analysis in concluding as it did in Prévost in favour of merely distinguishing between agents and principals”. I do not share, however, their opinion that the OECD Conduit Report expanded the antiavoidance scope of the beneficial-ownership concept and the CFCA rejected the OECD’s expansionist view (as expressed in the Conduit Report and the 1986 Commentaries). It is true that the Conduit Report added some controversial references to “economic” interpretation of the term “beneficial owner”, but, as it will be shown below, from the Report it can also be inferred that not all conduits are excluded from the benefits of DTCs.