Ethiopia - Anti-abuse provisions

Ethiopia

Anti-abuse provision: Limitation on benefits

Article 21A. Limitation on benefits

1.   A resident of a Contracting State shall be entitled to the benefits granted by the provisions in paragraph 2 of Article 10, paragraph 2 of Article 11 or paragraph 2 of Article 12, only if such resident is a qualified person as defined in paragraph 2.

2.   A resident of a Contracting State is a qualified person only if such person is either:

a)  An individual;

b)  A contracting state, or a political subdivision or local authority thereof;

c)  A pension fund;

d)  A company, provided that:

i)    The shares of the company are regularly traded on a recognized stock exchange; or

ii)   At least 50 per cent of the shares of the company receiving the income is owned directly by one or more companies the shares of which are regularly traded on a recognized stock exchange, but only if the last-mentioned company or companies:

aa) Is a resident or are residents of the other Contracting State; or

bb) Would be entitled to benefits with respect to the particular class of income for which benefits are claimed under this Convention which are similar to or more favorable than the benefits provided by this Convention pursuant to a comprehensive arrangement for the avoidance of double taxation between its or their state of residence and the Contracting State from which the benefits under this Convention are claimed or pursuant to a multilateral agreement to which its or their state of residence and the Contracting State from which the benefits under this Convention are claimed, are a party; or

iii)  The company is engaged in the active conduct of a trade or business in the Contracting State of which it is a resident (other than making or managing investments for the company’s own account, unless these activities are banking or insurance carried on by a bank or an insurance company); or

iv)  The company is a headquarters company for a multinational corporate group which provides a substantial portion of the overall supervision, financing or administration of the group and which has, and exercises, independent discretionary authority to carry out these functions, but only if:

aa) The multinational corporate group consists of corporations resident in, and engaged in an active business in, at least five countries or five groupings of countries and the business activities carried on in each of the five countries (or five groupings of countries) generate at least 10 per cent of the gross income of the group; and

bb) No more than 50 per cent of its gross income is derived from the Contracting State other than the Contracting State of which the headquarters company is a resident

3.   A company that is not a qualifying person under paragraph 2, shall, nevertheless, be entitled to the benefits granted by the provisions in paragraph 2 of Article 10, paragraph 2 of Article 11 or paragraph 2 of Article 12, if the competent authority of the Contracting State which has to grant the benefits determines that the establishment, acquisition or maintenance of such company, or of its entitlements to such benefits or the conducts of its operations does not have as its main purpose or one of its main purposes to secure such benefits.

4.  The determination under paragraph 3 shall be based on all facts and circumstances including:

a)  The nature and volume of the activities of the company in its country of residence in relation to the nature and volume of the income to which the benefits to be granted relate;

b)  Both the historical and the current ownership of the company; and

c)  The business reasons for the company residing in its country of residence.

5.   The competent authority of the Contracting State which has to grant the benefits shall consult the competent authority of the other Contracting State before denying the benefits under this provision.

6.   For the purposes of the provisions of paragraph 2, the term “recognized stock exchange” means:

a)  Any of the stock exchanges in the member states of the European Union (EU);

b)  Any of the stock exchanges of the African Securities Exchanges Association;

c)  Any other stock exchange agreed upon by the competent authorities of the Contracting States, provided that the purchase or sale of shares on the stock exchange is not implicitly or explicitly restricted to a limited group of investors.