Key takeaways

• BEPS Action 6 seeks to prevent treaty abuse. In a funds context this means enabling investors to obtain a better treaty position than they would get if they invested directly, rather than through a fund.
• Applying the anti-abuse provisions to a fund is tricky. One approach involves tracing through to all of the beneficial owners to establish if they are obtaining better treaty benefits by investing through the fund, while the other approach tests whether the principal purpose of the arrangements is to obtain treaty benefits. Most European countries have indicated that they will adopt the principal purpose test.
• Given the difficulties in applying the tests to a fund, the OECD has recently published examples showing how it anticipates the tests will apply. Although helpful, the examples leave a number of questions unanswered as to how the tests apply to common fund structures.