Principal purpose test

A test under BEPS to prevent treaty abuse. The benefits of a treaty may be denied if the prinicipal purpose of a structure is to benefit from the treaty.

Abuse of law, Anti-tax avoidance, Beneficial ownership, BEPS, Direct taxation, Financial transactions, Fund management, Ireland, MLI, OECD, Principal purpose test, Tax haven, Tax Treaties, Treaty shopping, United Kingdom, Withholding Taxes

(Temple Tax Chambers; King’s College London)/ /3 Comments
article 3(2), burden of proof, OECD Commetary, treaty interpretation, UN Commentary

Even before introduction of the BEPS PPT, the UK has had purpose-based provisions in various forms, designed to limit access to treaty benefits in its double tax treaties since the 1960’s. Its standard formulation first appeared in 1992.  Surprisingly, the first case in which the meaning and application of this wording in a tax treaty…

Double Taxation, Financial institutions, Hybrids, International Tax Law, Limitation on benefits, Principal purpose test, Tax Administration, Tax Credits, Tax Planning, Tax Policy, Tax Treaties, Treaty shopping, United Kingdom, United States, Withholding Taxes

(Temple Tax Chambers; King’s College London)/ /Leave a comment

The relationship between treaties and domestic tax law ought to be straightforward. The pacta servanda sunt principle expressed in articles 26 and 27 of the Vienna Convention on the Law of Treaties itself implies that treaty obligations must be upheld notwithstanding domestic law. A variety of constitutional arrangements around the world mean that there is…

Abuse of rights, Beneficial ownership, Denmark, ECJ, Intertax, Principal purpose test, Switzerland

(Tax Policy Center, University of Lausanne; Danon, Lausanne)/ /Leave a comment

Analysis of the ECJ judgments, reading by national courts, and impact on tax treaty practice Authors: Robert Danon,[1] Daniel Gutmann,[2] Margriet Lukkien,[3] Guglielmo Maisto,[4] Adolfo Martín Jiménez,[5] Benjamin Malek[6]   (Forthcoming: Intertax, vol. 49, 2021, issue 6/7) Since they were delivered in 2019, the judgments of the ECJ in the Danish cases have been widely…

Abuse of law, Abuse of rights, Anti-tax avoidance, Corporate income tax, EU law, EU/EEA, Finance, GAAR, International Tax Law, M&A and Reorganizations, MLI, MNE Profits, Permanent Establishments, Principal purpose test, Principal/ancillary arrangements, Profit allocation methods, Tax Avoidance, Transfer Pricing, United Kingdom, United States

(Temple Tax Chambers; King’s College London)/ /Leave a comment

When the UK introduced its diverted profits tax, I was telephoned by a lawyer at the US Treasury. He wanted to know whether the “just and reasonable” apportionment of profits, in certain circumstances where DPT applied, was a new development? What did it mean? I was reminded of that discussion this week as a result…

Abuse of law, Anti-tax avoidance, EU law, Finance, Financial institutions, GAAR, Indirect taxation, Principal purpose test, Tax Avoidance, United Kingdom

(Temple Tax Chambers; King’s College London)/ /Leave a comment

Case law on thepurpose of transactions is starting to develop around the world. Is there a common pattern? Whether a financing structure was a “tax avoidance arrangement”  under  now repealed general anti-avoidance provisions of the New Zealand Income Tax Act 2004  was examined last month by the New Zealand Court of Appeal in Commissioner of…

International Tax Law, Principal purpose test, Tax Avoidance

( PwC Netherlands, Lazarski University and Singapore Management University)/ /Leave a comment

Inspiration, purpose and the context of this contribution In the article “The PPT in Post-BEPS Tax Treaty Law: It Is a GAAR but Just a GAAR!”, Professor Robert Danon convincingly demonstrated that “while the PPT certainly permits a purposive interpretation, it may not be used to build into tax treaty law additional requirements that were…

Abuse of law, Anti-tax avoidance, Double non-taxation, Double Taxation, International Tax Law, Mauritius, MLI, Netherlands, OECD, Principal purpose test, Tax Avoidance, Tax Planning, Tax Treaties, Treaty shopping, United Kingdom

(Temple Tax Chambers; King’s College London)/ /Leave a comment

In last month’s blog I promised to address the treaty aspects of  Davies and Others v HMRC [2020] UKUT 67 (TCC). The case concerned UK resident individuals who each took out a life insurance policy with a Bermuda insurer under which their entitlements were linked to a Mauritian company that developed land in the UK….

Abuse of law, Anti-tax avoidance, International Tax Law, Principal purpose test, Tax Avoidance, Tax Treaties, Trusts and Estates, United Kingdom

(Temple Tax Chambers; King’s College London)/ /Leave a comment

We have all become familiar with the expression in the PPT set out in article 7(1) of the MLI and article 29(9) of the 2017 OECD Model  where “obtaining that benefit was one of the principal purposes of any arrangement or transaction”.  Discerning which is a principal purpose is one of the main challenges in…

Anti-tax avoidance, CFC, COVID-19, EU law, EU/EEA, International Tax Law, OECD, Principal purpose test

(Amsterdam Centre for Tax Law (ACTL) of the University of Amsterdam; Loyens & Loeff)/ /1 Comment

Many States have incorporated General Anti-Avoidance Rules (GAARs) into their tax laws to prevent tax avoidance; within the EU, a GAAR is even mandatory for corporate taxation since 1 January 2019 (Article 6 of the EU Anti-Tax Avoidance Directive (EU ATAD)). States are recommended in the OECD Model Tax Convention on Income and Capital to…

Abuse of law, Anti-tax avoidance, BEPS, Double non-taxation, Double Taxation, International Tax Law, MLI, OECD, Principal purpose test, Residence, Substance, Tax Avoidance, Tax Planning, Tax Treaties, Treaty shopping, Uncategorized, United Nations

(Temple Tax Chambers; King’s College London)/ /1 Comment

The Canadian Federal Court of Appeal has upheld the Tax Court of Canada decision in Canada v. Alta Energy Luxembourg S.A.R.L., 2020 FCA 43 (CanLII).   The case is of some significance because the Canadian Revenue Agency (“CRA”) sought to apply the Canadian domestic general anti-avoidance rule (GAAR) in order to deny treaty relief. The…

Anti-tax avoidance, BEPS, Double Taxation, India, MLI, OECD, Permanent Establishments, POEM, Principal purpose test, Residence, Tax Avoidance, Tax Treaties

(Tax Lawyer)/ /Leave a comment

India recently notified a Protocol that amends the India-China tax treaty and incorporates some of the OECD recommendations put forth as part of its BEPS project. The changes would apply from the 2020 financial year. The Protocol brings about serious changes to the tax treaty in several areas, including limiting treaty abuse, tackling artificial avoidance…

BEPS, MLI, Principal purpose test

(Leiden University)/ /1 Comment

Background Action 6 of BEPS introduced the principal purpose test (PPT) as one of the Minimum Standards to be implemented by the countries/jurisdictions taking part in the BEPS Inclusive Framework (IF). The PPT has been also introduced in the Multilateral Instrument (MLI), in force since 1 July 2018. Even though the choice given to countries…

BEPS, India, Limitation on benefits, Mauritius, Principal purpose test, Treaty shopping

(Indian Revenue Service)/ /Leave a comment

BEPS Action Plan 6 observes that corporations are misusing Double Taxation Avoidance Agreement (DTAA) provisions by indulging in treaty shopping. A typical example of treaty abuse that BEPS Action Plan 6 seeks to counter is that of an American corporation entering the Indian market through Mauritius because of the favourable India-Mauritius DTAA. An intermediary mailbox…

BEPS, India, OECD, Principal purpose test

(Advocate)/ /Leave a comment

In 1789, Benjamin Franklin wrote in a letter to French scientist Jean-Baptiste Leroy: “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” Franklin was right then and he is right now. However, there is one more commonality…