OECD Report Proposes New Treaty Shopping Rules

In February we wrote about a discussion draft of Action 6 of the Action Plan on Base Erosion (BEPS Action Plan) developed by the Organisation for Economic Co-Operation and Development (OECD) at the request of the G20. In October, the OECD published its final report on Action 6 of the BEPS Action Plan.

Action 6 is intended to address the phenomenon of "treaty shopping", a practice whereby a business structures itself to take advantage of tax treaties with favourable provisions that are ordinarily unavailable. One example of treaty shopping involves a corporation resident in a country that does not have a tax treaty with Canada incorporating a subsidiary in a country that does have a treaty with Canada in order to receive the advantages of the tax treaty, such as a lower rate of withholding tax on the distribution of dividends to a non-Canadian shareholder. The goal of Action 6 is to limit the availability of treaty benefits to businesses that actually carry on