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TMI BlogAction Plan 6 – Prevention of Treaty AbuseX X X X Extracts X X X X X X X X Extracts X X X X ..... reements an express statement that their common intention is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements. The following preamble now appears in the 2017 OECD Model Tax Convention: Intending to conclude a Convention for the elimination of double taxation with respect to taxes on income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Convention for the indirect benefit of residents of third States) Three Methods of Addressing Treaty Shopping J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions intended to lower artificially withholding taxes payable on dividends; transactions that circumvent the application of the treaty rule that allows source taxation of shares of companies that derive their value primarily from immovable property; situations where an entity is resident of two Contracting States, and situations where the State of residence exempts the income of permanent establishments situated in third States and where shares, debt-claims, rights or property are transferred to permanent establishments set up in countries that do not tax such income or offer preferential treatment to that income. The report recognises that the adoption of anti-abuse rules in tax treaties is not adequate to address tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaty shopping arrangements. Section C: Identifying tax policy considerations before entering into a treaty Section C of the report addresses the third part of the work mandated by Action 6, which was to identify the tax policy considerations that, in general, countries should consider before deciding to enter into a tax treaty with another country . The policy considerations described in that section should help countries explain their decisions not to enter into tax treaties with certain low or no-tax jurisdictions; these policy considerations will also be relevant for countries that need to consider whether they should modify (or, ultimately, terminate) a treaty previously concluded in the event that a change of circumstances (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA). In the event, the other contracting jurisdiction has not applied for SLOB, then the PPT test will apply to the concerned CTA. Pursuant to the Action 6 report, any new bilateral tax treaty entered by India factors the recommendations of Action 6 as part of its negotiations and in the final version of the tax treaty. The India-Hongkong tax treaty signed on 18th March 2018 contains the anti-avoidance provisions under Article 28 - Miscellaneous Rules of the tax treaty. Article 28 specifically mentions that the domestic law will override DTAA wherever there is tax evasion or tax avoidance. Further, legal entities not having bona fide business activities will not be eligible for treaty entitlement. The said treaty also incorporates the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the tax rate applicable in transition period if its affairs are arranged with the primary purpose of taking advantage of concessional rate of tax. Further, a shell or a conduit company claiming to be a resident of a Contracting State shall not be entitled to this benefit. A shell or conduit company has been defined as any legal entity falling within the meaning of resident with negligible or nil business operations or with no real and continuous business activities carried out in that Contracting State. A resident of a Contracting State is deemed to be a shell/conduit company if its expenditure on operations in that Contracting State is less than Mauritian rupee 15,00,000 or Indian ₹ 7,00,000 in the respective Contracting State as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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