The Saving Clause and Hybrid Entities

Abstract

A treaty practice followed for a long time in the US, the saving clause was raised in the context of the OECD discussions related to hybrid entities and treaty abuse and ended up being adopted in both the MLI and the 2017 OECD Model. It plays a significant role concerning the tax treatment (and treaty entitlement) of hybrid entities. Accordingly, the saving clause was discussed under BEPS Action 2 to address an inconsistency between the general principle embraced by the Partnership Report and the solution chosen by the same report to some cases. However, by bringing an inconsistency from the Partnership Report to its model convention, the OECD included an incoherence therein, resulting from the transparent entities provision under Article 1(2) not being excepted from the saving clause under Article 1(3) of the OECD Model and leading to unrelieved double taxation.

Keywords: Hybrid Entities, Saving Clause, Tax Treaty Law, Treaty Abuse, Double Taxation

JEL Classification: K33, K34