Tax Treaty Abuse: Is Canada Responding Effectively?

42 Pages Posted: 21 Jan 2009 Last revised: 20 Apr 2009

See all articles by Geoffrey Loomer

Geoffrey Loomer

University of Victoria - Faculty of Law; Oxford University Centre for Business Taxation

Date Written: March 25, 2009


It hardly needs repeating that the existing income tax treaty system struggles under the weight of global economic integration. Liberalization of state economies and transnational integration of businesses disturb the foundations upon which the tax treaty system is based. These phenomena also create opportunities for the unintended use or 'abuse' of tax treaties.

This paper explores the means by which tax authorities worldwide seek to strengthen their tax treaties, through safeguards of varying nature and scope, in order to identify and prevent what they consider to be abuse of such treaties. These means of challenge may be grouped under two headings: purposive approaches to treaty interpretation, particularly with respect to the terms 'person', 'resident' and 'beneficial ownership'; and broader responses to unacceptable tax avoidance, specifically reliance on treaty anti-abuse principles and domestic anti-avoidance rules. The Canadian response is evinced by two recent cases in which the government unsuccessfully challenged 'treaty shopping' arrangements, MIL (Investments) SA v Canada and Prevost Car Inc v Canada. Building on the existing literature regarding treaty shopping and other forms of treaty abuse, this work seeks not only to describe and explain the responses to treaty abuse but to make a critical inquiry into the essence of such abuse, particularly as it appears to be viewed by the Canadian revenue authorities. It is argued that the Canadian response to tax treaty abuse is inadequate, largely because it conflates multiple approaches and fails to address a key concern: the existence or lack of genuine economic establishment in the treaty state. The paper concludes with some suggestions for fashioning a more coherent and intellectually honest response to tax treaty abuse.

Keywords: beneficial ownership, corporate residence, international tax, comparative tax, tax avoidance, tax law, tax policy, tax treaties

Suggested Citation

Loomer, Geoffrey, Tax Treaty Abuse: Is Canada Responding Effectively? (March 25, 2009). Available at SSRN: or

Geoffrey Loomer (Contact Author)

University of Victoria - Faculty of Law ( email )

PO Box 2300, STN CSC
McGill at Ring Rds (Fraser Bldg)
Victoria, British Columbia V8W 3B1
2507218173 (Phone)

HOME PAGE: http://

Oxford University Centre for Business Taxation ( email )

Park End Street
Oxford, Oxfordshire OX1 1HP
United Kingdom
44-1865-288790 (Phone)


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics