Key Parallels between Double Taxation Treaties and IIAs Key Parallels between Double Taxation Treaties and IIAs

Ownership structures are to be addressed from a tax angle and from the perspective of investment treaties. Changes in the tax area may have an impact on investment treaties. Find out how anti-abuse clauses in tax conventions restrict the planning under investment treaties.

The current economy is characterized by very interesting business opportunities for investors. Investments are, however, also fraught with a number of risks, particularly when they are made in a foreign jurisdiction. 

With a view to foster cross-border investments and economic exchanges, states have concluded more than 3,000 bilateral taxation treaties, as well as regional tax treaties aiming at preventing double taxation. Covering another aspect of international investments, a similar number of investment agreements lay the groundwork to challenge measures such as the introduction of exchange control, the cancellation of subsidies or concessions, the forced waiver of intellectual property rights or at worst expropriation. 

In a post-COVID environment where states are eager to make up for higher budget deficits, it is likely that benefiting from the protection of tax and investment treaties will be high on investors’ agendas. This will however mostly depend on how assets are owned.

Experience shows that ownership structures are often looked at primarily from a tax perspective. And that is for a reason: absent careful planning and consideration of applicable tax treaties, tax risks are likely to materialize sooner rather than later. Yet, whether or not the contemplated structure allows the investor to benefit from the protection of investment treaties frequently remains unaddressed. 

For this reason, investment structuring should be looked at in a holistic manner. Policy changes regarding taxation may also have implications on investment treaties. To assess whether a structure is appropriate from both perspectives, it is therefore necessary to understand how double taxation and investment treaties interplay. 

Hugues Salomé addresses these complex issues in a contribution recently published on the Kluwer Arbitration Blog: “Is the End of Nationality Planning Nigh? Key Parallels between Double Taxation Treaties and IIAs”. This article focuses in particular on how a new anti-abuse clause that is being inserted in double taxation treaties may restrict the scope of planning in that area of investment treaties. 

Such developments are particularly relevant for Private Clients and multinational groups as this may directly impact the way they own investments.

Additional information on investments made by Private Clients and  Multinational Groups can be found on the corresponding factsheets.