Observing the overlap between the various provisions on treaty abuse and beneficial ownership, the actual substance of companies becomes increasingly important, especially in case of holding companies which have a limited substance due to the nature of their activities. The Italian case may provide international groups with holding companies that do not have any business activities or investments, no business premises, no personnel, and owning no shares beyond participation in the controlled subsidiary with an argument in beneficial ownership discussions with tax administrations. In this paper we have identified and clarified a number of additional considerations for international groups.

Some historical remarks

Originally, in the OECD-model tax convention of 1977, the concept of beneficial ownership was introduced as an anti-abuse provision. In recent versions of the OECD Model Tax Convention (“MTC”) and its corresponding commentary, the OECD has elaborated in more detail (article 10 OECD MTC and accompanying OECD commentary) on the concept of beneficial ownership for tax treaty purposes. The recipient of an item of income is regarded as the beneficial owner based on the power to use and enjoy any sums unconstrained by any contractual or legal obligation to pass on the payments to another person. In day-to-day practice we often see any or a combination of arguments raised in Prévost, Velcro, Indofood and the European Court of Justice (“ECJ”) cases Cadbury Schweppes (C-196/04), Weald Leasing (C-103/09), RBS Deutschland (C-277/09), Part Services (C-425/06) and SICES (C-155/13).