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Stef van Weeghel*
A Deconstruction of the Principal Purposes Test
This article provides for a critical examination of the principal purposes test (PPT) of
article 29(9) of the 2017 OECD Model Income Tax Convention on Income and on Capital.
The focus is on the second part of the PPT, which allows for the granting of treaty benefits
in the presence of a tax avoidance motive if that would be in accordance with the object
and purpose of the relevant provisions of the OECD Model. Questions are raised as
to how exactly the object and purpose are determined, the consistency of the relevant
parts of the Commentary on the 2017 OECD Model is discussed, and the Examples that
purport to clarify the application of the PPT are critically reviewed. Finally, an effort
is made to come to a sensible and workable synthesis of the various aspects of the PPT,
including the nexus part and the abusive transactions part thereof, which will be
addressed in some detail, and a concept is explored to extend the multilateral approach
taken with respect to the minimum standard of the BEPS Action 6 Final Report to the
nexus part of the PPT.
Contents
1. Introduction 3
2. Historical Context 5
3. One of the Principal Purposes: Relationship with the Object and Purpose and the 11
Burden of Proof
4. Object and Purpose of a Treaty versus Object and Purpose of the Relevant Provisions 14
of this Convention
5. Case Law 19
6. Object and Purpose: A Common Denominator? 23
7. Commentary on Article 29(9): Some Coherence Questions 27
8. The Examples: Guidance in Search of a Principle? 31
9. A Sensible Synthesis? 38
10. Some Thoughts on Multilateralism versus Bilateralism 42
11. Conclusion 43
1. Introduction
The object and purpose of this article is to deconstruct article 29(9) of the 2017 OECD
Model Tax Convention on Income and on Capital' (2017 OECD Model) on the principal
purposes test (PPT). That deconstruction will mostly explore the second part of the PPT,
which is now commonly referred to as the objective test: unless it is established that
granting that benefit in these circumstances would be in accordance with the object and
* Professor of International Tax Law at the University of Amsterdam, Chair of the Board of Trustees at
IBFD, immediate past chair of the Permanent Scientific Committee of IFA, Global Tax Policy Leader
PwC. The author wishes to thank Hugh Ault, Luc De Broe, Robert Danon and Adolfo Martin Jimenez
for their kind review of earlier versions of this article. Their critical comments have contributed to
the quality of this article. Shortcomings, digressions and leaps of thought inevitably present in this
article remain the responsibility of the author. The author is also grateful to his PwC colleague Phil
Greenfield for editorial comments and Erisa Nuku for research and editorial assistance.
1. OECD Model Tax Convention on Income and on Capital (21 Nov. 2017), Models IBFD [hereinafter OECD
Model (2017)]. All references to the OECD Model have been specified with a date, unless a general refer-
ence was intended.
WORLD TAX JOURNAL FEBRUARY 2019 13
© IBFD](ViewImageLocal?handle=hein.journals/wldtxjrn2019&div=1&collection=&method=preview&ext=.png&size=3)
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