Michał Wilk
Klauzula rzeczywistego beneficjenta (beneficial ownership)
w międzynarodowym prawie podatkowym
(Beneficial ownership clause in international tax law)
SUMMARY
PhD thesis prepared at the Tax Law Department under
supervision of Prof. Dr. Włodzimierz Nykiel
Increasing significance of international exchange of goods and services for global economy
in recent years requires giving due weight to the issue of avoiding double taxation as well as
preventing tax abuse. Beneficial ownership clause is one of the most essential regulations in
taxation of passive income (i.e. dividends, interest and royalties) in international tax law.
Beneficial ownership clause plays a special role in the legal construction of tax treaties. It
forms an element of norms limiting the taxing rights of source state with regard to income
from dividends, interest and royalties. Under a general rule benefits set forth by Art. 10, 11
and 12 of tax treaties may be granted to residents of the other contracting state. Including
a beneficial ownership clause to the construction of those regulations constitutes an additional
requirement for the limitation of withholding tax rate or granting tax exemption. Its legal
character is, however, twofold. Apart from being an attribution of income rule, beneficial
ownership is an anti-avoidance regulation which aims at fighting tax abuse. It has to be
stressed, that its anti-avoidance character has a very narrow scope. Beneficial ownership has
been constructed as a norm preventing specific cases of treaty shopping, which involves
interposing an intermediary in state which had a very attractive network of tax treaties
in order to gain access to the benefits granted by those treaties. Hence it is precluded to use
that legal instrument as a broad anti-avoidance regulation, substituting a general antiavoidance rule in particular. A review of landmark decisions passed down by courts all
around the world showed that it may so happen that tax authorities, using the vague wording
of the beneficial ownership clause regulation, tend to apply it in a character of a GAAR even
in cases, where under domestic tax law the actual GAAR legislation should be applied.
Beneficial owner has not been defined in OECD Model Tax Convention (hereinafter: OECD
MC) nor in tax treaties (with a few exceptions). There are some explanations on its meaning
in the Commentary to the OECD MC which, however, due to their limited scope do not
contribute to building a uniform and internationally accepted common understanding of that
term. Various interpretations of the meaning of beneficial owner presented by administrative
courts in different countries, very often accepting aggressive approach of tax authorities,
result in minimizing the clarity of international tax law in this area, increasing the uncertainty
of tax consequences of transactions carried out by taxpayers.
The notion of beneficial owner originates from the law of trust in British legal system and
functions in domestic law of common law countries. At the same time it is unknown
to jurisdictions based on civil law legal culture. I am of the opinion that having implemented
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that notion to tax treaties and OECD MC, international tax community accepted its
international and autonomous meaning, different from the meaning stemming from domestic
law of common law countries. That being so, as a rule, contracting states are not allowed to
refer to domestic law of the source state in order to determine the meaning of that term. It is
the situation where the context of the treaty requires a different interpretation.
As a consequence there was a necessity of building an international understanding of the
notion of beneficial owner.
I came to the conclusion that a beneficial owner is an entity which is capable of enjoying the
right to dispose of income it receives to a certain degree. Therefore the treaty should deprive
of treaty benefits only such conduit companies which have similar functions to agents (acting
in a similar way). In other words a conduit cannot be deemed as beneficial owner only
if it cannot enjoy the right to dispose of received income to such a limited extent as an agent
acting on account of a different person. Such assumption helps fighting against certain tax
avoidance schemes. At the same time it may touch honest taxpayers carrying out transactions
for purely business purposes. Therefore it is essential to assume the existence of a bona fide
clause, which would guarantee the application of a decreased withholding tax rate or tax
exemption to taxpayers which do not enjoy a certain degree of right to dispose income
(e.g. holding companies which “sweep” the dividends from the subsidiaries and transferring
them to their parent companies) but cannot be assessed as tax avoidance schemes. In my
opinion such an approach does not necessarily need to be implemented to tax treaties,
it would suffice to describe it in the Commentary.
As the essential criterion of identifying beneficial owner is the degree of enjoyment of the
right to dispose of income the identification of the status of the taxpayer should, in the first
place, amount to the examination whether and to what degree that right has been limited.
In my view, in order to guarantee the certainty and clarity of law it is crucial to base that test
on objective, legal criteria avoiding any references to economic aspects. It may be observed
that basing that test on economic criteria does create an open window for tax authorities to use
the beneficial ownership clause as a general anti-avoidance rule which, in many cases, may
and should be assessed negatively, as a form of tax law abuse by tax authorities.
I reckon that such a test should be implemented to the Commentary which should be viewed
as the most effective tool of harmonization of international meaning of the notion
of beneficial owner. Introducing the definition of beneficial owner to the treaties may be the
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most powerful solution, as it would have a normative character, but, it cannot be forgotten,
that the process of renegotiating the existing treaties would be either impossible from the
political point of view or would take a lot of time. Moreover it is not sure whether different
contracting states would introduce the same definition to their treaties. From that perspective
I do not see the implementation of beneficial owner definition to domestic tax law a good
solution neither. What is more defining that term in domestic tax law may be seen as
a violation of the principle of pacta sunt servanda as it could change the meaning of the
beneficial owner notion accepted during the negotiations between contracting states.
The thesis consists of an introduction, seven chapters and conclusions. First chapter
is dedicated to the assessment of the directions of evolution of the beneficial ownership clause
and the pace of the changes of legal character of that instrument and the meaning of beneficial
owner. In the second chapter I focus on the understanding of the beneficial owner notion
in domestic law. I chose to collate legal orders of common law countries with systems based
on civil law (continental legal systems) which gave the opportunity to grasp significant
differences concerning the role which the notion of beneficial owner plays in those systems.
In this chapter I also dealt with the chaos of Polish translation of the term “beneficial owner”
and I opted for one translation (rzeczywisty beneficjent) which, in my opinion, reflects the
idea of beneficial owner the most.
Third chapter deals with differences in approaches to interpretation of the notion of beneficial
owner presented by domestic courts of different countries. I chose several jurisdiction which,
from different points of view, I found interesting or important: Great Britain, Canada, Spain,
Denmark, France, Switzerland, the Netherlands, China and the United States of America. The
last subchapter of that part of the thesis is dedicated to the problem of applicability and
significance of foreign courts decisions in the process of interpretation of the beneficial owner
notion by Polish domestic courts and tax authorities.
Since I came to the conclusion, that beneficial owner is an element of the language
of international tax law the core part of the thesis is constituted by chapter IV, which covers
the understanding of that term in international tax law. A special attention was given to the
issue of the principles of interpretation of tax treaties taking into account the specificity
of beneficial ownership clause. I found that the category of entities which cannot be deemed
as beneficial owners could be divided into two main groups: agents in broad meaning and
quasi-agents which cover mainly conduit companies. The first group would gather such
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entities to which their state of residence does not attribute income and which are normally
bound to act on account of other persons. Quasi-agents would be, on the contrary, treated
as taxpayers with regard to received income and act on their own behalf but which, due to the
need to prevent tax abuse, are deprived of tax treaty benefits.
The fifth chapter focuses on the notion of beneficial owner in the European Union law. I deal
with Interest & Royalties and Parent-Subsidiary Directives and I come to the conclusions that
those legal acts are characterized by different goals and the beneficial owner notion, used
in the construction of their norms serves different purposes than in double tax treaties. Hence
there is a little space for mutual application of the understanding of that term.
Twofold legal character of the beneficial ownership clause, which has already been
mentioned, was analyzed in the sixth chapter. Being an attribution of income rule the
beneficial ownership clause is also used as a specific anti-avoidance rule with a very narrow
scope of application.
Concluding the dissertation I deal, in seventh chapter, with the interface between the need
of preventing tax abuse and the principle of clarity of law recommending certain directions
for Polish tax policy. Coming down the problem of the shape and interpretation of beneficial
ownership clause to Polish practice of tax law application one should carefully examine both
the sphere of tax legislation and the sphere of tax law application. It seems that the legislation
as well as tax law application in this area should be based on two principles: the necessity
of guarantying the effectiveness of anti-abuse regulations and protection of fundamental
taxpayer’s rights, i.e. the clarity of tax law and the principle of legitimate expectations as well
as the principle of trust in the state.
On one hand such assumptions require implementation of alternative anti-abuse regulations
both to tax treaties and domestic tax law legislation (since the beneficial ownership clause has
a very narrow anti-abuse scope of application). A broader use of main purpose test or other
treaty instruments would be advisable. A number of tax abuse schemes may be potentially
avoided using the GAAR which is being currently discussed by the legislator. I am of the
opinion, that constitutionally guaranteed principles protecting taxpayer’s rights require some
amendments to the legislation concerning tax responsibility of withholding agents. Taking
into account the complexity of facts that need to be determined when identifying the status
of beneficial owner and actual impossibility of acquiring certain information by withholding
agents it is crucial to transfer a significant part of that responsibility to taxpayers. It seems that
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