At the May 10, 2012 signing of the Bermuda-Qatar tax treaty Bermuda’s Premier observed that “investors in countries that to date do not have a DTA with Qatar can domicile in Bermuda and benefit from the Qatar-Bermuda double tax agreement.” http://www.tax-news.com/news/Qatar_DTA_Will_Boost_Investment_In_Bermuda_Says_Cox____55423.html
Aside from the fact that Bermuda has none of the usual prerequisites that would warrant the conclusion of an agreement designed to prevent double taxation – namely direct taxation of any kind – the Premier’s invitation to investors in third states to ‘re-domicile’ in Bermuda and so access benefits under the new agreement will no doubt raise more than a few ‘onshore’ and ‘offshore’ eyebrows!
While the incidents of ‘treaty-shopping’ against which treaty partners routinely proscribe through the application of treaty-based and domestic anti-abuse rules are many, the deliberate re-domiciliation of a ‘person’ from its home country to another solely to avoid tax by accessing benefits of a treaty to which its ‘home’ state is not a party is a well-documented example of treaty ‘misuse’.
As a result taxing jurisdictions have developed a number of ‘anti-abuse ‘ provisions in their tax treaties and in their domestic law precisely because this practice, where not underpinned by the pursuit of a real commercial interest in the treaty country, undermines the tax base of the ‘home’ country.
Perhaps the Premier is relying on the dicta of the Indian Court of Appeal in the 2003 case of Azadi Bachao Andolan http://www.indiankanoon.org/doc/1960330/ where the court ruled that in the absence of a ‘limitation of benefits’ clause treaty shopping was not illegal and was an intended and legitimate use by third States of the India-Maurtitus tax treaty.
Dismayed but nonetheless bound by the ruling, in 2011 India formally requested the renegotiation of its tax agreement with Mauritius to introduce a ‘limitation of benefits’ clause restricting treaty benefits to genuine investors of either country.
In the circumstances I expect that there will be more than a passing interest in the full text of Bermuda’s new tax accord with Qatar.