The beneficial ownership of the income concept (“the Concept”) is nowadays a material aspect affecting the eligibility of the taxpayers to claim treaty benefits.

The Concept is defined by the OECD, however, it is not very specific leaving room for Tax Administrations of each jurisdiction to adopt a more relax or strict approach. In either case the Concept is a weapon to the tax authorities which enables them to attack aggressive tax planning by refusing granting treaty benefits to the entities that are not beneficial owners of the income. The most recent example is the new interpretation of the Russian Federal Tax Service (“FTS”) issued on 12th of April 2018 which followed a strict approach as of the concept.

Given the above, clients should examine the position of their companies and take the necessary measures to comply with the new requirements of Russian Federal Tax Service. This should not be limited to those clients that obtain treaty benefits from Russia but to all clients that obtain treaty benefits as the “concept” can be found in all double tax treaties.


In the OECD commentary on Article 10 of the Model Convention, it is stated that the term “beneficial owner” should not be used in the narrow technical sense but should be understood in light of the object and purposes of the Convention, including avoiding double taxation and the prevention of fiscal evasion and avoidance.

The Commentary also states that in the cases of an agent, nominee, Conduit Company acting as a fiduciary or administrator, the direct recipient of the dividend is not the “beneficial owner” because that recipient’s right to use and enjoy the dividend is constrained by a contractual or legal obligation to pass on the payment received to another person. Such an obligation will normally derive from relevant legal documents but may also be found to exist on the basis of facts and circumstances showing that, in substance, the recipient clearly does not have the right to use and enjoy the income.

The Commentary stresses that the beneficial ownership concept should be applied only in relation to passive income such as dividends, royalties and interest.

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