Plain meaning
A treaty provision that limits treaty benefits to persons meeting specified ownership, activity, listing, or other qualifying tests.
Also called
LOB clause
LOB
Key points
- LOB clauses are more mechanical than the principal purpose test, but their details vary by treaty.
- Tests can look at public listing, ownership, base erosion, active business, derivative benefits, or competent-authority relief.
- Failing an LOB test can deny treaty-reduced withholding or other treaty benefits.
- LOB analysis usually requires reading the exact treaty article, not just the general concept.
Why it comes up
LOB clauses are one way tax treaties try to prevent treaty shopping and inappropriate access to reduced withholding rates.