Research On Principle Purpose Test Clause In International Tax Agreement

The continuous expansion of tax treaty network makes the economic ties between countries increasingly close,but it provides convenience for international tax avoidance.In recent years,treaty abuse especially treaty shopping has become one of the main ways of Base Erosion and Profit Shifting(BEPS),and there are many difficulties in the traditional anti-abuse measures.Therefore,BEPS action 6 put forward the principle purpose test(PPT)clause,which plays an important role in anti-abuse of tax treaty.With the signing of the Multilateral Convention,PPT clause will be applied to more tax treaties and become an important part of the international anti-abuse system.However,this clause has many defects in practice.Therefore,it is necessary to study this clause in order to give better play to the role of general anti-abuse rule.This paper combines theoretical analysis with case study,shows the problems studied in this paper by introducing relevant cases,and summarizes the problems existing in the application of this clause in China by analyzing the current situation of the application of this clause in China’s tax treaties.Based on this,this paper puts forward some suggestions on the application of this clause in China’s tax treaties.Specifically,this paper first expounds the necessity of introducing PPT clauses from the aspects of increasing proliferation of treaty abuse and the difficulties of traditional anti-abuse measures,and clarifies the relationship between PPT clauses and LOB clauses,beneficial owner system and domestic general anti-avoidance rule.Secondly,through the analysis of the identification standard of PPT,points out that there are some problems in this clause,such as vague wording,unclear identification standard,"one of the main purposes" standard is too strict,excessive discretion of tax bureau and unreasonable distribution of burden of proof.At the same time,by introducing a case,this paper expounds the subjectivity and high uncertainty of PPT from the perspective of practice,and obtains relevant enlightenment from this case.In addition,this paper also analyzes the current situation of the application of PPT in China,and points out that there are three main problems in China.First,the scope of application is not wide enough;Second,the applied rules are quite different;Third,some rules are vague and lack of normative interpretation.Finally,it puts forward some suggestions on the application of PPT in China from three aspects.First,improve the design of PPT clause,including the introduction of economic substance test,strengthen the interpretation of terms and phrases,emphasizing tax and non tax purposes,and establishing objective standards as far as possible to improve the certainty of the clause;Second,improve domestic supporting laws and regulations,formulate explanatory documents and establish a case base of tax guidance;Third,strengthen international coordination,such as expanding the scope of application of PPT and strengthening mutual consultation among countries.