The James Hausman Tax Law and Policy Workshop Series
presents
Matias Milet
Osler, Hosking & Harcourt LLP
Hybrid Foreign Entities, Uncertain Domestic Categories:
Treaty Interpretation Beyond Familiar Boundaries
Tuesday, January 11, 2011
4:10 – 6:00 p.m.
Solarium (room FA2) – Falconer Hall
84 Queen’s Park
Hybrid entities – entities that are fiscally transparent in one jurisdiction and fiscally opaque in another – challenge and strain everyday categories (“person”, “partnership”, “company”, “resident”, etc.) that are employed in a jurisdiction’s domestic tax laws and its tax treaties for (a) identifying the proper subject of taxation (the taxpayer) and (b) assigning income to such taxpayer. If fair results in cases involving hybrid entities are to be achieved utilizing these pre-existing categories, a proper understanding (whether implicit or explicit) is required of how general linguistic categories apply in borderline and novel applications. The related concepts of “family resemblances” in Wittgenstein and “open texture” (of language) in H.L.A. Hart provide helpful resources for determining whether income, profit or gain realized or earned by a hybrid entity should be entitled to treaty relief (whether in the hands of the entity or its members), as these concepts preclude a rigid and essentialist application of the terms in which tax treaty provisions are framed.
The analysis in this paper is grounded in particular in the Anglo-Canadian approach to hybrid entities, and takes issue with the longstanding position of the Canadian and UK tax authorities that determinations as to the applicability of treaty benefits for hybrid entities and/or their members are essentially questions of entity classification – a pigeonholing exercise in which a foreign entity must be first likened to a domestic trust, corporation, partnership or unincorporated association, following which analysis results under a treaty are expected to follow inexorably and mechanically. The more nuanced approach taken by the courts in two recent cases – Swift in the UK and TD Securities (USA) LLC in Canada – is elucidated in the paper. While neither case entirely jettisoned entity classification as a relevant step in the application of treaty benefits to hybrid entities and their members, the two decisions subordinate entity classification to a purposive analysis of terms like “partnership” and “liability to tax” that takes into account the particular treaty context before the court, expanding the boundaries of the meaning of such terms in an effort to achieve a fair allocation of taxing jurisdiction. In this process of linguistic expansion, some of the basic concepts of a domestic tax system undergo their own process of hybridization, mirroring the complex foreign entities they struggle to describe.
Matias Milet is a tax lawyer with Osler, Hoskin & Harcourt LLP in Toronto and an adjunct instructor at the Faculty of Law, University of Toronto (teaching International Taxation). In his practice at Osler, he advises on Canadian tax issues associated with cross-border business ventures and transactions, investment funds and pension funds. His practice has included a broad range of transactions and advice to Canadian and international clients involving tax treaties, the taxation of trusts, corporations and partnerships and the resolution of tax disputes. From 2000 to 2004, Matias was a tax associate in the New York office of a leading U.S. law firm.
Refreshments will be served.
For more workshop information, please contact Nadia Gulezko at n.gulezko@utoronto.ca
