Principal Purpose Test Research Articles

Guidance on the Application of the Principal Purpose Test in Tax Treaties

This article considers the impact of the principal purpose test, which Action 6 of the OECD/G20 Base Erosion and Profit Shifting initiative has proposed should be included in tax treaties, the certainty it offers with regard to legitimate tax planning and various sources of guidance for its application.

Past, Present and Future of Principal Purpose Test

Past, Present and Future of Principal Purpose Test

The Reasonableness Test of the Principal Purpose Test Rule in OECD BEPS Action 6 (Tax Treaty Abuse) versus the EU Principle of Legal Certainty and the EU Abuse of Law Case Law

The OECD BEPS Action 6 report contains a principal purpose test rule (PPT rule) for the purpose of combating abuse of tax treaties. This PPT rule is also included in the OECD Multilateral Instrument.The PPT rule is (amongst others) applicable when ‘it is reasonable to conclude’ that a benefit (granted by a tax treaty) was one of the principal purposes of any arrangement/transaction. This requirement contains two elements: the reasonableness test and the principal purpose test.In literature it is observed that (i) the reasonableness test of the PPT rule could be contrary to the European Union’s principle of legal certainty; (ii) that the OECD PPT rule gives the tax authorities too much discretion and, therefore, is not in line with EU law and (iii) there is doubt whether the OECD PPT rule contains a genuine economic activity test and therefore is in contravention of the abuse of law case law of the CJEU.In this contribution, I defend that none of the above-mentioned reasons the OECD PPT rule is contrary to EU law. The only potential problem I see is that the OECD PPT rule is broader (no artificiality required) compared to the GAARs in Anti-Tax Avoidance Directive and the Parent–Subsidiary Directive.

The Principal Purpose Test under BEPS Action 6: Is the OECD Proposal Compliant with EU Law?

In this article, the author contributes to the discussion on the BEPS project and its compatibility with EU law, focusing specifically on the PPT rule. The question addressed is whether or not Member States will be able to implement the proposed rule into their tax treaty networks in compliance with EU law. In addition, the PPT formula chosen by the European Commission in the Anti Tax Avoidance Package is analysed.

The Guiding Principle and the Principal Purpose Test

The author analyzes the various issues surrounding the guiding principle, as introduced by the 2003 OECD Commentary on Article 1, and compares it with the Principal Purpose Test that is proposed in the BEPS Action 6 report.

Treaty Entitlement of Investment Funds in Light of BEPS Actions 2 and 6

Both the limitation-on-benefits clause and the principal purpose test proposed by the OECD in its current BEPS initiative aim at countering treaty shopping. A closer look reveals that these rules could have considerable effect on the tax treaty entitlement of investment funds. In this article the authors shed light on the provisions proposed so far, their interplay with the proposed article 1(2) of the OECD Model and their effects on the treatment of investment funds under international tax law.

GAARs and Treaties. From the Guiding Principle to the Principal Purpose Test. What Have We Gained from BEPS Action 6?

The issue of General Anti-Avoidance Rules and treaties is a legal problem as old as double tax conventions themselves. However, the BEPS Project, materialized in 15 Actions and particularly in the Final Report of BEPS Actions 6, involves a radical change in the very physiognomy of the problem. Apart from the inclusion of a Limitation-on-benefits rule in the OECD Model, the most groundbreaking innovation arising from BEPS Action 6 would be the incorporation, also to the Model, of a GAAR (the Principal Purpose Test). This article will examine the pros and cons of the PPT vis a vis the old paradigm. It also seeks to analyze some new problems originating from the very existence of the PPT.

Final Report on Action 6 of the OECD/G20 Base Erosion and Profit Shifting Initiative: Prevention of Treaty Abuse

The author, in this article, analyses the Final Report on Action 6 on “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances” of the OECD/G20 Base Erosion and Profit Shifting initiative, especially with regard to the recommended inclusion of a principal purpose test and a new preamble in future tax treaties.

The Principal Purpose Test in Tax Treaties under BEPS 6

In report 6 of the BEPS action plan, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, the Organisation for Economic Co-operation and Development (OECD) proposes (amongst others) to include a principal purpose test (PPT) in tax treaties. Under this test a treaty benefit shall not be granted if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction (subjective test), unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty (objective test). The subjective test is, from the viewpoint of the tax authorities a relatively ‘easy’ test. The objective test, however, can provide for some relief for taxpayers. In this article the PPT is being investigated and discussed. Especially, attention is given to the objective test. An attempt is being made to develop practical guidance to interpret the PPT, based on Dutch case law and doctrine.

The Prevention of Tax Treaty Abuse in the BEPS Action 6: A Brazilian Perspective

In the context of the OECD BEPS project, Action 6 (‘Prevent treaty abuse’) is considered to be a key element in the reform of the current international tax regime, calling for an immediate reaction by all countries. The OECD studies and reports on this subject regard treaty shopping and rule shopping as abusive practices that must be tackled in order to prevent international base erosion. It is clear that this subject requires more in-depth consideration by tax policymakers. It is mandatory to seek a point of convergence under this subject that reconciles the interests of tax administrations of OECD member countries, which are conducting and implementing the BEPS Action Plan, and the interests of taxpayers, who assert their need for legal certainty in the structuring of their business activities. This article analyses the OECD proposal to prevent ‘treaty abuse’; investigates the feasibility and consequences of the inclusion of a limitation-on-benefits provision or a principal-purpose test in income tax treaties and, in particular, whether such specific anti-avoidance rules are consistent with the Brazilian tax system.