David G. Duff (University of British Columbia Faculty of Law) presents Responses to Treaty Shopping: A Comparative Evaluation at the University of Toronto today as part of its James Hausman Tax Law and Policy Workshop Series.  Here is the Conclusion:

Over the past few decades the globalization of trade and investment and the exponential growth in bilateral tax treaties have greatly increased opportunities for taxpayers to engage in abusive treaty shopping that is neither intended nor contemplated by the contracting states. This conduct upsets the balance of sacrifices associated with the negotiation of tax treaties, undermines incentives to enter into tax treaties and facilitates international tax avoidance and evasion. In response to this phenomenon, the OECD and several countries have adopted various strategies, including the interpretation of tax treaties and the application of anti-avoidance rules in domestic law and tax treaties themselves. This paper has reviewed and evaluated these responses — examining cases and commentary on the concepts of residence and beneficial ownership, the existence of an anti-abuse principle inherent in tax treaties, domestic anti-avoidance rules and treaty-based anti-avoidance rules.

While each of these responses has a role to play in preventing abusive treaty shopping, this paper questions whether the interpretation of residence and beneficial ownership can prevent abusive treaty shopping, and the extent to which references to an inherent anti-abuse principle and/or domestic general anti-avoidance rules represent a fair and effective response, given uncertainty over the line between acceptable tax planning and abusive treaty shopping. For this reason, it concludes that the best response to treaty shopping involves the inclusion of detailed LOB and subject-to-pay provisions in tax treaties. Although Congress has shown some willingness to move in this direction in recent years, much more is required to ensure a coherent and consistent approach to treaty shopping.