US, UK competent authorities address tax treaty’s limitation-on-benefits article

The US Internal Revenue Service on July 28 published two competent authority arrangements between the US and the UK that clarify the application of the limitation on benefits article in light of the UK’s exit from the EU (Brexit) and the entry into force of the US–Mexico–Canada Agreement (USMCA).

The US–UK tax treaty includes in Article 23 a limitation of benefits provision that is intended to prevent treaty shopping by residents of third countries attempting to obtain benefits under the treaty.

The US-UK competent authority agreement on Brexit confirms that, post-Brexit, a UK resident is ‘a resident of a Member State of the European Community’ for purpose of applying the “derivative benefits test” under Article 23, including the term “equivalent beneficiary.”

The competent authorities further agree regarding the USMCA that references to the North American Free Trade Agreement (NAFTA) should be understood as references to USCMA upon its entry into force for purposes of the equivalent beneficiary definition.

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