Alternative approaches to address the (yet to be defined) treaty shopping phenomenon

Abstract

The present article intends to provide alternative solutions beyond the traditional countermeasures to counteract the treaty shopping phenomenon. It departs from the premise that the treaty shopping phenomenon has never been accurately defined, a fact that significantly conditions – and hinders – the process of conceiving measures to address it. Be that as it may, the paper briefly summarizes the key features of its three most paradigmatic countermeasures (beneficial ownership, limitation on benefits (LOBs) clauses and the principal purpose test) and further notes that the recently advocated international expansion of the latter two may not be appropriate (section 1). In this context, the paper advocates for four alternative approaches to neutralize treaty shopping. The first approach involves a reconsideration of domestic corporate tax residence tests, whose configuration ought to be regarded as the genuine ultimate root of treaty shopping concerns (section 2.1). The second and third involve a (re)interpretation and a minor amendment of Article 4.1 of tax treaties respectively (sections 2.2 and 2.3). The last one entails the adoption of a more targeted LOB clause (section 2.4). The first and fourth approaches rely on a specific (and personal) perception of the treaty shopping phenomenon (section 2.1).