Tax Treaty Abuse and the Principal Purpose Test - Part I

60 Pages Posted: 15 Oct 2018

See all articles by David G. Duff

David G. Duff

Peter A. Allard School of Law, University of British Columbia

Date Written: September 21, 2018

Abstract

The Multilateral Convention to Implement Tax Treaty Measures to Prevent Base Erosion and Profit Shifting (MLI) has been described as “an historical turning point in the area of international taxation” which introduces a third layer of tax rules for the taxation of cross-border transactions in addition to domestic tax law and bilateral tax treaties. Of the many provisions of the MLI, the most important are the preamble text in Article 6(1) and the so-called principal purpose test (PPT) in Article 7(1), both of which have been adopted by all signatories to the MLI in order to satisfy the OECD’s minimum standard on tax treaty abuse under BEPS Action 6. This two-part article considers the structure and potential application of the PPT in the context of pre-BEPS responses to perceived tax treaty abuses, the OECD’s work on BEPS Action 6, and other provisions of the MLI including the preamble text in Article 6(1). The first part reviews pre-BEPS responses to perceived tax treaty abuses, providing necessary background and context for understanding BEPS Action 6, the MLI and the PPT. The second part examines the PPT in light of this background and in the context of BEPS Action 6 and other provisions of the MLI, considering its relationship to other anti-avoidance doctrines, rules and principles as well as its structural elements, in order to determine the kinds of transactions or arrangements to which it might apply.

Keywords: international tax, tax avoidance

JEL Classification: K34

Suggested Citation

Duff, David G., Tax Treaty Abuse and the Principal Purpose Test - Part I (September 21, 2018). Canadian Tax Journal/Revue Fiscale Canadienne, Vol. 66, No. 3, 2018. Available at SSRN: https://ssrn.com/abstract=3253423

David G. Duff (Contact Author)

Peter A. Allard School of Law, University of British Columbia ( email )

1822 East Mall
Vancouver, British Columbia V6T 1Z1
Canada
1-604-827-3586 (Phone)
604-833-8108 (Fax)

HOME PAGE: http://www.allard.ubc.ca/faculty-staff/david-g-duff

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