Addressing Dividend Stripping Arrangements: A Discussion of Different Policy Options

Jurisdictions that seek to safeguard their dividend withholding tax base against traditional treaty-shopping structures involving conduit companies should be equally concerned about dividend-stripping arrangements that eliminate source-state withholding tax through the use of derivatives. Nevertheless, a recent study by the OECD (2023) indicates that awareness of such practices remains limited. This contribution sets out to provide tax policymakers with guidance on how dividend stripping may be addressed, taking into account that jurisdictions differ both in the perceived urgency of the problem and in the administrative capacity they can devote to it. To this end, the article first examines the extent to which existing anti-abuse rules (including provisions of the general anti-abuse rule type) are capable of countering dividend-stripping transactions. It then turns to targeted anti-abuse approaches and presents a proposal: the equity ownership quotient.