Saurabh Jain has published Effectiveness of the Beneficial Ownership Test in Conduit Company Cases. Abstract:
Since the introduction of the term “beneficial owner” to the OECD Model Tax Convention in 1977, courts and the OECD have struggled to interpret the term, and to use it as a test for deciding conduit company cases.
If applied in a formal legalistic sense, the beneficial ownership test has no effect on conduit companies because companies are legal persons that, in law, own both their assets and their income beneficially. By contrast, in a substantive sense, a company can never own anything because economically a company is no more than a matrix of arrangements that represents individuals who act through it.
Faced with these opposing considerations, courts and the OECD have adopted surrogate tests for the beneficial ownership test. These tests, however, were originally meant to counter different kinds of tax planning strategies. They did not indicate the presence of beneficial ownership. Therefore, they are inappropriate for determining the correct tax treatment of passive income derived by conduit companies.
This book examines the conflict between the general policy of double tax treaties embodied in the beneficial ownership requirement and the concept of corporations. The work highlights the shortcomings of surrogate tests with the help of analyses of reported conduit company cases. It offers an alternative approach for interpreting and applying the beneficial ownership test. It contains a critique of the work of the OECD Committee on Fiscal Affairs before the insertion of the term, and suggests appropriate amendments to relevant parts of the official Commentary on the OECD Model Tax Convention.
John Prebble alerted me to this book and he says:
The book is particularly timely because it addresses one of the principal means by which multinational companies siphon profits to low-tax jurisdictions. One apparently obvious way to address the conduit company problem is for states to re-draft and to renegotiate their tax treaties. But that is easier said than done, and usually very time-consuming.
Until there can be wholesale re-drafting of treaties, the book argues persuasively that within current legal frameworks it is not only possible but legally correct for tax administrations and courts to interpret beneficial ownership provisions in tax treaties purposively. The result would be to thwart the use of stepping-stone strategies that shift profits from high-tax countries in Europe, Asia, and the Americas to low-tax jurisdictions.
The book adopts a comparative approach, analysing reported cases from a number of jurisdictions, comparing judgments that have interpreted treaties purposively with formalistic reasoning that creates loopholes that states never intended.
I agree, this is a particularly timely topic. It's technically and conceptually difficult, and it is difficult to solve as a matter of law as well. The book is available at the link above, and at a 20% discount until May 31 using promotional code EBOT_2013.