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Taxes and Taxation
Reference:
Balakina Z.V.
Legal Problems of the Co-Relation Between the International Tax Concept of 'Beneficial Owner of Income' and Principles of 'Economic Substance' and 'Substantive Business Activity' When Applying the Double Tax Avoidance Conventions
// Taxes and Taxation.
2015. ¹ 12.
P. 937-950.
URL: https://en.nbpublish.com/library_read_article.php?id=67388
Balakina Z.V. Legal Problems of the Co-Relation Between the International Tax Concept of 'Beneficial Owner of Income' and Principles of 'Economic Substance' and 'Substantive Business Activity' When Applying the Double Tax Avoidance Conventions
Abstract:
The subject of the research is the theoretical and practical problems of the co-relation between the international anti-avoidance tax concept of 'beneficial owner of income' and principles of 'economic substance' and 'substantive business activity' of a foreign entity in his/her state of residence used for the purpose of tax convention application. There is a opinion that a foreign recipient of passive income has an 'economic substance' and 'substanctive business activity' in a state of his/her residence if there he/she has an office, employees, local directors and conduct actual entrepreneurial activity. Does it mean that a foreign company is automatically recognized as a 'beneficial owner' of passive income received out of the sources of a contracting state? In this research Balakina analyzes and systematizes the current approaches of OECD, foreign science and practice in the sphere of international taxation as well as approaches of Russian judicial and tax authorities to the problem. To substantiate theoretical provisions and practical results of the research, the author has used the methods of induction and deduction, comparative and logical analysis as well as systems and integrated approaches. The scientific novelty of the research is caused by the fact that the author provides a comprehensive analysis of the issue under research and offers recommendations aimed at differentiating between the concept of 'beneficial owner' of income and principles of 'economic substance' and 'substantive business activity' which is important for establishing particular criteria of the definition of 'beneficial owner' of income. The main conclusion of the research is that there are the two different anti-avoidance tax concepts from the point of view of legal science, and therefore they shouldn't be confused. The international tax concept of 'beneficial owner' of income relates to the scope of right for income earned by a foreign recipient of income but not the degree of economic attribution of a foreign recipient of income applying for a tax benefit based on the convention with a state of his/her residence. Despite the fact that foreign conduit companies usually do not have 'economic substance' or 'substantive business activity' in states of their residence, their presence does not always indicate them as the 'beneficial owner' of income.
Keywords:
anti-avoidance tax concept, Update OECD Commentaries, a resident of a contracting state, substantive business activity, economic substance approach, Double Tax Avoidance Conventions, conduit companies, actual recipient of income, beneficial owner of income, taxation of passive income
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