Prof. Dr Hans van den Hurk

Tax Treaties and Abuse:

The Effectiveness of the Principal Purpose Test and Some of Its Shortcomings

“In this article, I will discuss a number of elements of the principal purpose test (PPT) included in article 29 of the OECD Model (2017),1 whereby the main focus will be on the question of how effective this test can be in practice, as the structure as well as the Commentary on Article 29 of the OECD Model (2017)2 regarding the PPT are not exactly clear.

In addition, I will briefly address the ques­tion of whether the PPT could be invoked by countries in situations under a tax treaty that does not contain a PPT and the tax treaty in question does not fall under the “Mul­tilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” (the “Multilateral Instrument” or MLI),3 as a Covered Tax Agreement (CTA) either.

It is questionable whether a kind of customary international tax law can be identi­fied that would lead to the PPT actually being applicable under any tax treaty.”

Source: IBFD – Bulletin for International Taxation, June 2021.