Treaty Shopping: An Update

Cross-border tax structures periodically optimize available tax treaty benefits having regard to the differences between various bilateral tax treaties. Structures that take advantage of such differences in bilateral treaties (e.g., holding companies situated in advantageous jurisdictions) may, however, be susceptible to attack under treaty shopping principles.

This article will discuss both Canadian and international jurisprudence that has considered such principles.

There is no widely recognized definition of treaty shopping; however, the Canada Revenue Agency (CRA) has commented that it considers treaty shopping to include transactions that involve the establishment of entities or residency in a particular jurisdiction to permit a taxpayer to avail itself of the benefits of a treaty with the particular jurisdiction for tax avoidance purposes.¹