The PPT: The Introduction of a Uniform Standard with an Uncertain Application

Abstract

This essay focuses on the new proposed treaty-GAAR, Principal Purpose Test (PPT), and analyses its potential impact on conduit arrangements from an international perspective. Firstly, it traces the problem of treaty shopping that occurred back in the pre- Base erosion and profit shifting (BEPS) era and, secondly, argues that its increasingly complicated terminology and insufficient guidance to uniformly navigate tax authorities and courts afford opportunities for divergent applications that will undermine the reliance that has been placed on the double tax treaty (DTT) network. This incites concerns about the compatibility of the PPT with the principle of legal certainty which is enshrined in some national constitutions or under Article 1 of the First Protocol of the European Convention of Human rights (ECHR). In this context, the author contends that the signatories of the Multilateral Instrument (MLI) should introduce a number of procedural checks upon the application of the PPT via ‘the conference of the parties’. This should discourage taxpayers from entering into the widest possible range of conduit arrangements but ensure a sufficient degree of foreseeability in order for it to comply with the principle of legal certainty.