Limitation on benefits provision

Tax Glossary Definition

Limitation on benefits provision

Tax treaty provisions aimed at curbing treaty-shopping opportunities by restricting treaty benefits to individuals or entities that satisfy specific criteria, potentially involving minimum qualifications such as local ownership.

Example:

If Country A and Country B have a tax treaty offering a low tax rate on dividends, a company from Country C cannot set up a dummy company in Country A just to claim that lower rate. The treaty may require that at least 50% of the company’s owners are residents of Country A, ensuring only genuine businesses receive the benefit.

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