Treaty Shopping

The practice of structuring a transaction or investment through an intermediary entity in a third country specifically to access tax benefits under that country's treaty network that would not be available directly between the source and beneficial-owner countries. For example, a non-treaty-country investor routing investment into the US through a Netherlands BV to claim US-NL treaty rates on dividends would be treaty shopping if the BV has no genuine business substance. Modern treaties incorporate Limitation on Benefits (LOB) and Principal Purpose Test (PPT) articles — adopted broadly via the OECD Multilateral Instrument (MLI) since 2018 — to deny treaty benefits where one of the principal purposes of the structure is to obtain those benefits without genuine economic substance.