21 Nopember 2015
White Ltd
Resident in Tax
Haven
Country A
Deposit $ 1 million
Example 1
Interest $100k
Less WHT $25
White Ltd
Resident in Tax
Haven
Country A
Deposit $ 1 million
Country that did not charge WHT on interest to nonresident; had a DTT with Country A which provided zero or
low rates of withholding tax on interest payments.
Example 2
Country B
Corporation Tax 20%
Branch Profit $100k
Tax $20k
Branch profits
$80k net
Double tax treaty
exemption method
Country C
Conduit Co.
Income = Branch Profit
$100k gross
$80k net of country B tax
Exempt from Country C tax
Dividend $76
Country A
Taxsave Inc
Corporation Tax 30%
Dividend from conduit co:
Cash Dividend $76
Gross of WHT $80k
Gross of Underlying Tax $100k
Direct conduit
Stepping stone
loans
loans
Mauritius
Finance Subsidiary
Interest
No WHT
Investors
In South East Asia
Branch profits
$80k net
Double tax treaty
exemption method
Country C
Conduit Co.
Income = Branch Profit
$100k gross
$80k net of country B tax
Exempt from Country C tax
Dividend $76
Country A
Taxsave Inc
Corporation Tax 30%
Dividend from conduit co:
Cash Dividend $76
Gross of WHT $80k
Gross of Underlying Tax $100k
2. Exclusion approach
The conduit company does not pay much tax, treaty benefits will be excluded, if:
These could be met through dividend participation exemption;
by paying out most of the income in the form of deductible expenses;
4. Channel approach
Eligibility provided if:
Less than 50% of the conduits income is paid to the non-resident owners in tax
deductible form
Such approach will not only catch conduit arrangement, might also catch perfectly
innocent commercial arrangement. So that a motive test would also be needed.
1.
2.
Non-profit organization
3.
Ownership/base erosion
4.
Derivative benefits
5.
6.
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