Case Study 1: global anti-avoidance

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Presentation transcript:

Case Study 1: global anti-avoidance Robert Langston Jonathan Bicher

Anti-avoidance rules - overview Controlled foreign company (CFC) (Action 3) Beneficial ownership and anti-conduit Limitation on Benefits and domestic GAARs (Action 6) Hybrid entities and instruments (Action 2) Disclosure (Action 12)

Current structure X Ltd Y Ltd X Ltd owns valuable intellectual property which is licensed to Y Ltd for use in its trade X Ltd Royalty Non-treaty Country X Local Country Y Y Ltd

Proposed structure X Ltd Z Ltd Y Ltd X Ltd grants a license to a new company Z Ltd located in a treaty country, and Z Ltd then grants a license to Y Ltd Z Ltd has no other source of income The royalty paid by Z Ltd to X Ltd is equal to 50% of the royalty received by Y Ltd The corporate income tax rate in Country Z is lower than in Country X X Ltd Royalty Non-treaty Country X Z Ltd Royalty Treaty Country Z Local Country Y Y Ltd

Questions Will the royalty be deductible in Country Y? Will withholding tax relief be available under the Country Y / Country Z double tax treaty; consider Limitation on benefits Beneficial ownership Anti-conduit Will any local anti-avoidance rules apply in Country Y What disclosure requirements will there be for the arrangements in Country Y Would the position be different if Z Ltd was a disregarded entity from the perspective of X Ltd?