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Beneficial owner

Beneficial owner. Richard Vann Challis Professor of Law University of Sydney. History 1. League of Nations authors’ or inventors’ societies collected royalties on behalf of the owners

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Beneficial owner

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  1. Beneficial owner Richard Vann Challis Professor of Law University of Sydney

  2. History 1 • League of Nations • authors’ or inventors’ societies collected royalties on behalf of the owners • concluded that the country where such a society was based should collect tax only on the commission if any earned from the collection activity, not on the royalties themselves [without need for beneficial owner] • avoidance of the double taxation of trusts and companies possessing a large number of transferable securities • project never carried out

  3. History 2 • OECD 1960-1970s WP27 • see attached extracts • intended to cover both agents and nominees (custodians) and broader trust situations?

  4. Australian practice • Most treaties use beneficially entitled, not owned • Close to trust taxing rules depending on present entitlement (where beneficiary has immediate legal right against the trustee to the income) • what if trustee taxed at 46.5% when no present entitlement? • Momsen, (1998) 27 Australian Tax Review 155 expresses view that should be confined in Australia to bare trust situations

  5. Australian New Zealand treaty • 2009 article 3(4) • For the purposes of Articles 10, 11 and 12, dividends, interest or royalties arising in a Contracting State and derived by or through a trust shall be deemed to be beneficially owned by a resident of the other Contracting State where such income is subject to tax in that other State in the hands of a trustee of that trust. • Originates in NZ treaty practice and former NZ Observation on article 3

  6. What about conduit companies and other articles? • Recent TPG saga: “treaty shopping” for sale by private equity group of relisted company • Investors > Caymans company > Luxembourg SARL > Dutch BV > Australian company owning department stores • Draft ruling TD 2009/D17 GAAR applied to prevent application of Australia NL treaty (GAAR clearly applies to treaties in Australia) but benefit of investors’ treaties not granted • but money had left country

  7. Conclusion • Issue of person claiming treaty benefits should be dealt with by attribution rules of residence country • normally will eliminate nominees/custodians • better results for trusts? • Issue arises treaty wide: historical artefact that arose in context of arts 10-12 • Words should be limited to agents, nominees and bare trust cases

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