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India/United Kingdom/United States/European Union/International - Critical Analysis of the Principal Purpose Test and the Limitation on Benefits Rule: A World Divided but It Takes Two to Tango

Country:
European Union,India,International,United Kingdom,United States
Author:
A. Mithe
Issue:
World Tax Journal, 2020 (Volume 12), No 1
Published:
31 March 2020
This article focuses on the principal purpose test (PPT) and the limitation on benefits (LOB) provision as two divergent treaty anti-abuse measures presented by BEPS Action 6 and the Multilateral Instrument (MLI). It first traces the evolution of both these measures. Thereafter, it discusses the diverse interpretations of the PPT and studies the double-step application of the LOB in light of the US approach and comments on the merit of a standalone application of each measure as opposed to their combined application in a treaty. The article subsequently observes that while Action 6 recommended a combined application of both measures, the country choices in the MLI show a polarized global implementation of these measures. Most countries (the European Union being at the forefront) prefer a standalone application of the PPT (without the LOB), while the US rejects the PPT and continues to exclusively apply the LOB provision. Lastly, the author proposes a solution to bridge this global divide.
 
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