The Impact Of The Multilateral Instrument And The Principal Purpose Test On International Taxation: Addressing Base Erosion And Profit Shifting
- IJLLR Journal
- Jul 10
- 1 min read
Rishi Pareek, National Law University, Jodhpur
Onika Arora, National Law University, Jodhpur
ABSTRACT
Examining the Principal Purpose Test (PPT), first presented as a major clause under the Multilateral Instrument (MLI) in the framework of the OECD's Base Erosion and Profit Shifting (BEPS) Action 6, reveals important consequences for multinational corporations and their strategy to avoid tax in treaty jurisdictions. The PPT has generated a lot of debate even if its stated use is to curb aggressive tax planning and reduce treaty misuse. This project explores how well the PPT addresses these problems, paying especially close attention to how it affects legal certainty about foreign taxation. It also looks at the wider ambit of the OECD's BEPS Project and the MLI, with a particular emphasis towards the intricate interaction between the PPT and Limitation-on- Benefits (LOB) clauses as well as its compliance with national tax laws. The results show that the PPT's function as a general anti-avoidance rule (GAAR) under the MLI has several difficulties that might limit its whole efficacy in combating tax evasion techniques.
Keywords: BEPS, Tax treaties, Principal Purpose Test (PPT), Multilateral Instrument (MLI).
