Beneficial ownership

Resource Information

The work Beneficial ownership represents a distinct intellectual or artistic creation found in International Bureau of Fiscal Documentation. This resource is a combination of several types including: Work, Language Material, Continuing Resources.

Label

Beneficial ownership

Creator

• Messineo, A.E.

Subject

• beneficial ownership
• dividend
• interest
• residence
• LoB
• tax treaty
• treaty interpretation
• withholding tax
• royalties

Language

eng

Summary

FACTS: H Co is a Host Country corporation all of the stock in which is owned by F Holdco, a Country X corporation that serves as a holding company for a group of operating companies within the multinational group of which H Co and F Holdco are members. All of the stock in F Holdco is in turn owned by Parent, a Country Y corporation that is the ultimate parent company of the group. H Co manufactures and distributes widgets under sublicenses from FIPCo, a Country Q subsidiary of Parent that licenses the relevant intellectual property from Parent, which owns such property. FIPCo oversees the registration of the intellectual property it licenses from Parent and manages efforts by outside lawyers and other third party contractors to ensure that such property retains its legally protected status and that such status is enforced against potential infringers, but employs only three people to do so. Host Country does not have any domestic legislation or income tax treaty with Country Y that provides relief from any Host Country withholding tax on dividends, interest or royalties paid to residents of Country Y. H Co regularly pays dividends to F Holdco. F Holdco generally redistributes to Parent all of such dividends (less an amount to cover its modest administrative costs) within 90 days of receiving them. Under its domestic legislation or income tax treaty with Country X, H Co imposes a substantially reduced withholding tax on dividends paid by Host Country corporations to corporate residents of Country X that own a substantial interest in the dividend-paying corporation, but only if such residents are the beneficial owners of the dividends in question. Country X imposes a 10 percent rate of tax on dividends paid to Country X corporations by subsidiaries in which the recipient owns at least a 25 percent interest, and does not impose withholding tax on dividends paid by Country X corporations to foreign corporate shareholders that own at least an 80 percent interest in the dividend-paying corporation. H Co finances a substantial part of its capital needs through loans from F FinCo, a Country Z subsidiary of Parent that finances the capital needs of many of the Parent group through third party bank borrowings. Based on H Co's needs, F FinCo borrows from third party banks, supported by H Co's guarantee and pledges of H Co assets, and relends the funds to H Co on parallel terms at an interest rate that is 10 percent higher than the rate charged to F FinCo by the relevant bank or bank syndicate (e.g., F FinCo would charge H Co. interest at 6.6 percent if the bank rate were 6.0 percent). F FinCo has a staff of experienced financial personnel that negotiates third party financing arrangements and performs risk management functions with respect to the group's financial position. However, most of the Parent group's capital needs are obtained through long-term (five years or longer) loans, the currency risks with respect to which are generally fully hedged up front. The Host Country income tax treaty with Country Z provides for a 0 percent source country tax on interest paid to residents of the other country, but only if that resident is the beneficial owner of the interest. Under its sublicense with FIPCo, H Co pays royalties equal to 11.0 percent of its sales (which have averaged approximately $100 million/year) to FIPCo. Under its license with Parent, FIPCo pays Parent royalties equal to 10.0 percent of H Co's sales, which royalties FIPCo is entitled to deduct in calculating its Country Q taxable income. Under its income tax treaty with Country Q, Host Country imposes no withholding tax on royalties paid to residents of Country Q, provided that such residents are the beneficial owners of such royalties. Country Q does not impose a withholding tax on royalties paid by FIPCo to Parent. QUESTIONS: H Co's management is interested in the answers to the following questions: 1. Under Host Country law and/or Host Country interpretation of the Host Country-Country X Treaty, would F Holdco be considered the beneficial owner of the dividends paid by H Co? Assume for purposes of the answer that F Holdco qualifies as a resident of Country X under the relevant law or treaty provision and that it satisfies the requirements of a "qualified resident" (or equivalent designation) under any residence and limitation on benefits articles in the Host Country-Country X Treaty. 2. Under Host Country law and Host Country interpretation of the Host Country-Country Z Treaty, would F Finco be considered the beneficial owner of the interest paid by H Co? Assume for purposes of the answer that F Finco qualifies as a resident of Country Z under and satisfies the requirements of a "qualified resident" (or equivalent designation) under limitation on benefits articles in the Host Country-Country Z Treaty. 3. Under Host Country law and/or Host Country interpretation of the Host Country-Country Q Treaty, would FIPCo be considered the beneficial owner of the royalties paid by H Co? Assume for purposes of the answer that FIPCo qualifies as a resident of Country Q under the relevant law or treaty provision and that it satisfies the requirements of a "qualified resident" (or equivalent designation) under any residence and limitation on benefits articles of the Host Country-Country Q Treaty

Citation source

In: Tax management international forum. - London. - Vol. 33 (2012),

Geographic coverage

International

Language note

English