Treaty shopping is the practice of routing income through an entity in a jurisdiction chosen specifically to access a favorable double-tax treaty, even though the entity has little economic substance there. The classic structure: a Cayman company lends to a Brazilian subsidiary; interest flows to Cayman (no treaty, 25% Brazilian withholding). Insert a Luxembourg or Netherlands holding company and the same interest may face 0–10% withholding under an EU or OECD treaty.

Governments counter this with limitation-on-benefits (LOB) clauses and the principal purpose test (PPT) introduced by the OECD's Multilateral Instrument (MLI, 2017). Under the PPT, a treaty benefit is denied if obtaining that benefit was one of the principal purposes of the arrangement unless granting it is consistent with the treaty's object and purpose.

LOB — mechanical tests: ownership, base erosion, derivative benefits.
PPT — purpose-based, facts-and-circumstances, harder to plan around.
Substance — employees, premises, decision-making shift the analysis.

Structure	Withholding on interest	Treaty access
Direct Cayman lender	25%	None
Via Netherlands BV	10%	NL–BR treaty
Via NL with PPT denial	25%	Benefit denied