Beneficial Ownership And The Primacy Of Substance Over Form
- IJLLR Journal
- 4 days ago
- 1 min read
Aditi Thakur, Co-Founder, Footnote
ABSTRACT
Beneficial ownership is a fundamental concept in international taxation, particularly in determining eligibility for tax treaty benefits and addressing arrangements involving treaty abuse and tax avoidance. Despite its significance, the term is not expressly defined under the Income Tax Act, 1961 or most tax treaties, resulting in its interpretation largely through judicial precedents, OECD guidance, and anti-abuse provisions. This article examines the evolution and practical application of beneficial ownership through the doctrine of substance over form, distinguishing economic ownership from mere legal title. It analyses the key parameters relevant to determining beneficial ownership, including control and enjoyment of income, commercial substance, economic risk, independent decision- making, and the existence of genuine commercial rationale. The article further examines the interaction of beneficial ownership with the Principal Purpose Test (PPT), General Anti-Avoidance Rule (GAAR), and Limitation of Benefits (LOB) provisions. Through judicial precedents and practical illustrations, it highlights how tax authorities and courts assess whether an entity is the true beneficial owner or merely a conduit for income. The article concludes by emphasizing the importance of genuine commercial substance and robust documentation in substantiating beneficial ownership and accessing treaty benefits, reinforcing that economic reality, rather than legal form alone, remains central to its determination.
