Dissecting BEPS Action Plan 6 Preventing The Granting Of Treaty Benefits In Inappropriate Circumstances

Action Plan 6 of the BEPS Action Plan identified treaty abuse, and in particular treaty shopping, as one of the most important sources of BEPS concerns.

The most important aspects of the report are :

  • Three-pronged approach be used to address treaty shopping arrangements
    • Clear statement of intent in treaty to avoid creation of double non-taxation
    • Introduction of specific anti-abuse rule based on the limitation-on-benefits (LOB)
    • Introduction of a more general anti-abuse rule - the principal purposes test (PPT)
  • Multiple alternatives to reach the goal of ending treaty shopping
  • Countries to agree on minimum level of protection that should be implemented

OECD in September 2014 released a 112 pages report. The Report is divided into 3 sections.
The first section of the report has crucial observations relating to tracking treaty shopping situations and will also have an impact on investment holding company structures set up in tax favourable jurisdiction.

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Source: Taxsutra, Ameya Kunte



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