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    There have been significant discussions around the world on taxpayers’ methods of minimizing taxes. Expressions like

    have been triggering discussions throughout the world as they are closely related with people’s tax minimisation.

    How tax minimization used to be effected?

    Intermediary company?

    Residents of non – treaty countries have been able to obtain the benefits of the conventions between two treaty countries usually by forming intermediary company (flow-through company), in a treaty country in order to obtain treaty benefits.

    Recent cases

    Multinational companies like:

    have been scrutinised and defamed of using tax ‘efficient’ structures

    Prevost (Volvo) was scrutinised as owning a holding company registered in Netherlands with no employees in order to get the benefits of Netherlands’ low withholding tax rates.

    When a company may be considered a “paper” intermediary company?

    If a third party i.e. fiduciary provider or administrator seems to act on behalf of a beneficial owner?


    Be taxed in the source country, thus lifting the veil of incorporation of the intermediary company.

    On the contrary,

    A intermediary company is an entity itself and is distinct from its shareholders. Some of  intermediary company’s powers may be exercised by its directors without the interference of its shareholders. Directors may also be advised from other experts and in many cases they have sufficient powers to make decisions.

    What might then be a definition of a beneficial ownership?

    A person that, either directly or indirectly, has the power to influence decisions?

    Organisation for Economic Co-operation and Development (OECD) attempt was to describe the term of the beneficial owner which relates to the receipts and payments of dividends, interest and royalties mainly by intermediary companies.

    Organisation for Economic Co-operation and Development (OECD) attempt

    A intermediary company is not a beneficial owner if:

    Economic substance (OECD)

    Sufficient economic substance should be present at the level of intermediary Company and therefore allocation of risks should be consistent with the economic substance (i.e. of that intermediary company)

    Important considerations/examples

    Our conclusion

    1. There is no standard approach on the above terms
    2. Each case will be treated on:
      • The interpretation of legal documents, facts and circumstances
      • The size and numbers

    Contact us

    Contact us for a free personal consultation at info@cyprusoffice.net


    This publication is for information purposes only and should not be considered as professional advice.

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