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TMI BlogLimitation of Benefit (LoB) Clause – Anti-Treaty Shopping MeasuresX X X X Extracts X X X X X X X X Extracts X X X X ..... del convention which has been included by OECD in its commentary recently. The most significant advantage of these provisions is that they provide more certainty in the application of tax treaties. The term Limitation on benefit is generally never defined under International tax treaties. In fact, at times, the concerned Article may not also be titled as Limitation on benefit , though in essence, the said Article may outline various provisions for limiting treaty benefits. The IBFD international Tax Glossary defines the term LOB as under: Provision which may be included in a tax treaty to prevent treaty shopping, e.g. through the use of a conduit company. Such provisions may limit benefit to companies which have a certain minimum level of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its political sub-divisions or local authorities, or citizens of the United States. The provisions of paragraph 1 shall not apply if the income derived from the other Contracting State is derived in connection with, or is incidental to, the active conduct by such person of a trade or business in the first-mentioned State (other than the business of making or managing investments, unless these activities are banking or insurance activities carried on by a bank or insurance company). The provisions of paragraph 1 shall not apply if the person deriving the income is a company which is a resident of a Contracting State in whose principal class of shares there is substantial and regular trading on a recognized stock exchange. For purposes of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia or USA, Government of India or USA or its political sub-divisions or local authorities, other individual subject to tax in India or USA on their worldwide income or Citizens of USA. Base erosion test requires that the income of the particular entity should not be used in substantial party, directly or indirectly, to meet liabilities (including liabilities for interest or royalties) of persons who are not qualified entities. Active business connection test requires that income earned by an entity is in connection with or is incidental to the active conduct in trade or business in the home country. There is no need to evaluate the active business connection test if an entity fulfils both ownership test and base erosion test. Recognized st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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