Document Type
Article
Publication Date
8-2024
Abstract
An interesting recent column by Tax Notes’ Lee Sheppard criticizes the principal purpose test (PPT) that was adopted as a minimum standard in the OECD’s base erosion and profit-shifting project 1.0 and has since been incorporated into many tax treaties through the multilateral instrument. Sheppard explains:
Readers will recall that BEPS 1.0 had a set of minimum standards for participating countries, one of which was a treaty amendment to cement the purpose of the treaty to prevent both double taxation and double nontaxation. Participants could choose between a seemingly simple, subjective principal purpose test (PPT) and a complicated but objective U.S.-style limitation on benefits clause. Most countries, with some admitted strongarming by the OECD, chose the PPT, which had never been put to the test in court.
Sheppard then argues that “the recent changes to bilateral tax treaties in compliance with BEPS 1.0 minimum standards are likely to lead to more litigation,” and she uses the India-Mauritius treaty as a case study.
Recommended Citation
Avi-Yonah, Reuven S. "Limitation on Benefits or Principal Purpose Test? Part 1." Tax Notes International 115 (2024): 865.