The proposed main purpose test in the anti-Treaty-Shopping rule will not work well

The Budget 2014 anti-Treaty-shopping proposals include a main purpose test which is similar to the limitations-on-benefits provisions contained in the new Canada-Hong Kong Treaty.  As pointed out by Jim Wilson (who was over 30 years with CRA), a literal application of this purpose test would result in all sorts of benign transactions being denied treaty benefits.  For example, an LOB provisions would apply where a Caymans company transfers Canco to a Hong Kong holding company in order to access the Treaty-reduced dividend withholding rate, even if the Caymans company is owned by a Hong Kong-resident individual.

Neal Armstrong.  Summary of Jim Wilson, "New Limitation on Benefits Provisions in Canada's Tax Treaties – A Step Too Far?", Gowlings Knowledge Centre, July 2013 under Treaties, Art. 29A (see also Steve Suarez, "Canada to Unilaterally Override Tax Treaties with Proposed New Anti-Treaty-Shopping Rule," Tax Notes International, 3 March 2014, 797-806, also under Art. 29A.)