1 / 11

Beneficial Ownership: Recent Developments in Canada and China

Beneficial Ownership: Recent Developments in Canada and China. Jinyan Li April 20, 2010. (1) “B.O.” Concept: Importance. Found in DTCs: all but one Canadian treaties (Canada-Australia uses “beneficially entitled”) Chinese tax treaties Canada Litigation: Prevost Car, Velcro, MIL GAAR

oshin
Download Presentation

Beneficial Ownership: Recent Developments in Canada and China

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Beneficial Ownership:Recent Developments in Canada and China Jinyan Li April 20, 2010

  2. (1) “B.O.” Concept: Importance • Found in DTCs: • all but one Canadian treaties (Canada-Australia uses “beneficially entitled”) • Chinese tax treaties • Canada • Litigation: Prevost Car, Velcro, MIL • GAAR • Forthcoming CRA Guidance • China • GAAR legislation (2008) • State Administration of Taxation Circulars (2009) Jinyan Li

  3. (2) Canada: General Context • Judicial approach to tax avoidance • Duke of Westminster (limited only by GAAR) • Textual interpretation • no substance-over-form doctrine • “Treaty shopping” -- not a “dirty term” • Government lost each case: e.g. MIL (treaty shopping re capital gains) • GAAR did not apply • No inherent treaty abuse doctrine • In the absence of explicit LOB, literal compliance Jinyan Li

  4. (3) Canada: Prévost Car Shareholder Agreement Facts: Henlys (UK) Volvo (Sweden) 49% 51% • Dividend WHT rate: • 10%, UK treaty • 15%, Sweden treaty (reduced to 5% in 1997) • 5%, Holland • Sh’der agreement: • 80% dividend policy • Re Holdco and Prevost • Henlys and Volvo recorded • as “B.O.” of Prevost in • Corp. Minutes and bank • doc. • Dividends paid directly toHenlys without Holdco’s • Director’s signing Holdco (Dutch) 100% • Notes: • No clear Canadian treaty • policy on dividend wht • gov’t emails indicate • disagreement Prevost(Canada) Jinyan Li

  5. (4) Prévost Car Gov’t arguments: • Holdco is a “conduit”, not “BO” • “BO” should have an “ordinary meaning” rather than its legal meaning • English, French and Dutch versions of “BO” require the owner be the “real” “ultimate” beneficiary • Holdco has no “substance” Jinyan Li

  6. (5) Prévost Car Tax Court: • “domestic solution”, art.3(2) • Legal meaning: • receives the dividend for his/her own use and enjoyment; • assumes the risk and control of the dividend received” • Canadian law, Quebec civil law, Dutch law, expert opinions • No predetermined flow of funds as a matter of law FCA: - TCC’s meaning “accords with” OECD Materials • Later OECD commentary has weight • “Ultimate beneficiary” interpretation creates uncertainty • Reject “pejorative view of holding companies” Jinyan Li

  7. (6) Canada Revenue Agency • Did not apply for leave to appeal to SCC • Preparing guidance on B.O. • Combat abusive treaty shopping by applying:  LOB provision  GAAR  “B.O.” as a specific anti-abuse rule in Arts.10, 11 and 12 Jinyan Li

  8. (7) China: General Context • New GAAR in 2008 • Tax policy changed re FDI • Increasing anti-avoidance efforts • No court decisions • SAT Circulars regarded as law • “Treaty shopping” -- not a good word • “Conduit companies” looked through in sourcing capital gains (MIL type of situations) Jinyan Li

  9. (8) China: Tax Circulars • Guoshuihan, No.601, 2009: “Beneficial Owner”, • Guoshuihan, No.81, 2009: “Dividend withholding tax” • Guoshuifa, No.3, 2009, Withholding Taxes • Guoshuihan, No.698, Offshore transfer of Equity of Chinese companies • Extensive information reporting obligations • Exchange control • Registration Jinyan Li

  10. (9) China: “Beneficial Owner” Circular No.601 Meaning: “A person who has the right of ownership and right of disposal over the income or the income-producing assets” Substance over form Negative factors Jinyan Li

  11. (10) China: Negative factors • obligation to pass on all or most (e.g., <60%) of income within a specified period (e.g., 12 months); • little or no business activities (other than holding the assets); • assets, size of operations, and human resources are disproportionately small relative to the income received from China; • No control over income/properties and bears little or no risk; • No tax liability in the “residence” country • back-to-back loan, license structure Jinyan Li

More Related