Article 21 addresses the problem of "treaty shopping" by

assuring that source basis tax benefits granted by a Contracting State pursuant to the Convention are limited to the intended beneficiaries — residents of the other Contracting State — and are not extended to residents of third States not having a substantial presence in, or business nexus with, the other Contracting State. In a typical case of treaty shopping, a resident of a third State might establish an entity resident in a Contracting State for the purpose of deriving income from the other Contracting State and claiming source State benefits with respect to that income. Article 21 limits the abuse of the Convention by limiting the benefits of the Convention to those persons whose residence in a Contracting State is not considered to have been motivated by the existence of the Convention.

Absent Article 21, the entity would generally be entitled to benefits as a resident of a Contracting State, subject to any limitations imposed by the domestic law of the source State, (e.q., business purpose, substance-over-form, step transaction or conduit principles) applicable to a particular transaction or arrangement. Article 21 and general anti-abuse provisions complement each other, as Article 21 generally determines whether an entity has a sufficient nexus to the Contracting State to be treated as a resident for treaty purposes, while general antiabuse provisions determine whether a particular transaction should be recast in accordance with the substance of the transaction.