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Title: The United States limitation on benefits clause and the European Community
Author: Clark, B.
Awarding Body: University of Cambridge
Current Institution: University of Cambridge
Date of Award: 2004
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The core of this dissertation analyses the compatibility of the limitation on benefits (LOB) clause in European Community (EC) Member State tax treaties with the United States (US) with EC law. This dissertation argues that the LOB clause is generally incompatible with the fundamental freedoms in the EC Treaty. In order to adequately remove the defects of the LOB clause, any anti-treaty shopping clause should be based on the theory of economic allegiance and should accurately assess a corporate taxpayer’s economic attachment to a contracting State. The most appropriate method to assess this economic attachment is to develop subjective economic criteria based on the theory of formulary apportionment. The LOB clause has a number of obtrusive defects in both its goal and its compatibility with the aims and objectives of a community of States such as the EC. This dissertation focuses on the question of whether the LOB clause is compatible with the fundamental freedoms of the EC Treaty. Answering this question involves considering complex legal issues in EC law such as the internal and external scope of EC law, the concept of an economic activity, the evolution of EC law and the exercise of discrimination by a non-Member State. This dissertation claims that EC law has not yet evolved to a stage where it will apply to a situation lacking a cross-border intra-Community economic activity. Consequently, a Member State may appropriately exclude certain non-active corporate residents from the benefits of its double tax treaties without infringing its obligations under the EC Treaty. This dissertation also evaluates the potential liability in damages of the Member States for concluding a tax treaty with the US that includes a LOB clause. This dissertation claims that the Member States will not be found liable for including the clause in their tax treaties due to the lack of incentive for a taxpayer to challenge the clause, and further due to the inability of a taxpayer to establish causation in any claim for damages. The LOB clause is a creature of bilateral tax treaties. The US government developed the clause in an aim to restrict treaty shopping, reduce the erosion of it tax base and preserve its balance of payments as the economic position of the US changed substantially from the 1960s to the 1980s. This significant economic change prompted the US Treasury Department to develop the LOB clause in its modern form.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available