Recent developments

In the OECD's Final Report on BEPS action 6, countries have committed, among others measures, to adopting a minimum standard in tax treaties to combat treaty shopping. The implementation of such a minimum standard will deny treaty benefits to certain commonly used holding structures.

Implications for holding structures

Although the Final Report on BEPS action 6 is not completely final, the implementation of a minimum standard into a tax treaty will no longer automatically ensure treaty benefits to a resident. Certain criteria in the form of a "Limitation of Benefits" ("LOB") provision and/or "Principal Purpose Test" ("PPT") need to be met in order to ensure entitlement to treaty benefits. As a matter of fact, certain commonly used holding structures will no longer meet these criteria. In order to retain its entitlement to treaty benefits in the future, a resident holding company needs to undertake action to comply with the treaty entitlement criteria.

What BEPS action 6 says

In the context of the OECD/G20 BEPS initiative, BEPS action 6: "Preventing the Granting of Treaty Benefits in Inappropriate Circumstances" identifies treaty abuse, and in particular treaty shopping, as one of the most important sources of the BEPS project's concerns. The OECD released the Final Report with recommendations on October 5, 2015. Countries have agreed to include anti-abuse provisions in their tax treaties, including a minimum standard to provide a minimumlevel of protection against treaty shopping. The minimum standard requires countries to include a statement in the preamble of tax treaties that they are not intended to be used to generate double non-taxation, as well as:

  • a combined approach of a LOB and PPT provision;
  • the PPT rule alone; or
  • the LOB rule supplemented with anti-conduit rules.

The Final Report assumes that the implementation of the results into current treaties will take place via a multilateral instrument.


A LOB rule limits the availability of treaty benefits to entities that are considered "qualified persons". Being a "qualified person" is determined on the basis of the legal nature, ownership in, and general activities of the entity. The qualification of an entity as a "qualified person" seeks to ensure that there is a sufficient link between the entity and its Member State of residence.

Under the proposed LOB rule, an entity is a "qualified person", among others, if it is an individual, (in)direct publicly listed, or more than 50% of the shares are owned by qualified persons. If an entity is not a "qualified person", certain alternative tests apply as follows: (i) active conduct of a business test; (ii) derivative benefits test; and (iii) discretionary relief.

However, the LOB rule in the Final Report is not yet final. On February 17, 2016 a new version of the US LOB rule was published. This new US LOB rule, which contains a headquarters provision, will be taken into consideration to finalize the BEPS LOB rule. A revised LOB provision can be expected in the first part of 2016.


The PPT is a more general anti-abuse rule based on the principal purposes of transactions or arrangements. If one of the principal purposes of a transaction or arrangement is to obtain treaty benefits, these benefits would be denied unless the granting of these benefits is in accordance with the object and purpose of the treaty provision.

In the EU Anti Tax Avoidance Package, published on January 28, 2016, the European Commission sets out that a PPT (or adapted PPT) has the preference over a LOB provision.

Actions to consider

Until today a lot of uncertainty remains on how, when and in what form countries will implement the BEPS action 6 recommendations.

However, it is clear that the developments mentioned above will impact commonly used holding structures. Although the developments will not mean the end of the use of holding structures, the developments that will require action from the tax payer such as:

  • restructuring;
  • possibly choosing holding structures in non-OECD countries; or
  • examining if a tax treaty is needed.


In accordance with BEPS action 6, countries have committed to adopting a minimum standard into tax treaties to combat treaty shopping. The minimum standard contains an LOB provision and/or a PPT rule. Under these provisions, certain commonly used holding structures will not be entitled to treaty benefits. However there is still a lot of uncertainty about how the developments will play out, and there might yet be certain ways to mitigate the risk that holding companies will not be entitled to treaty benefits in the future.