A critical analysis of the provincial purpose test and how it could be interpreted and applied in South Africa
Date
2018
Authors
Lumley, Lisa
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Abstract
The major theme of this research report is to provide a critical overview of the
so-called 'principal purpose test' (PPT), which was first introduced by the
Organisation for Economic Co-operation and Development (OECD) in the
OECD Action Plan on Base Erosion and Profit Shifting during 2013. In
essence, the PPT is an anti-avoidance rule of general application, which aims
to operate as a mechanism to combat tax treaty abuse through avoidance
transactions and will find application in instances when it is reasonable to
conclude that a benefit granted by a tax treaty was 'one of the principal
purposes' for implementing that arrangement or transaction. The PPT has
since been incorporated in the Multilateral Convention to Implement Tax Treaty
Related Measures to Prevent Base Erosion and Profit Shifting, more commonly
referred to as the Multilateral Instrument (MLI), which was signed by 68
jurisdictions during a ceremony hosted by the OECD in Paris on 7 June 2017.
The purpose of the MLI is to 'swiftly modify bilateral tax treaties to implement measures developed in the course of the work on BEPS'1 (own emphasis).
Given that South Africa has signed the MLI and has indicated that it will adopt
the PPT in isolation, the aim of this research report is to critically analyse the
PPT and examine how it will be applied and operate in South Africa and
whether the South African general anti-avoidance rules (GAAR) can be used as
a tool for interpreting and understanding the nature and ambit of the PPT.
Description
A research report submitted to the Faculty of Commerce, Law and
Management, University of the Witwatersrand, Johannesburg, in partial
fulfilment of the requirements for the degree of Master of Commerce
(specialising in Taxation), Johannesburg 2018
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Citation
Lumley, Lisa. (2018). A critical analysis of the principal purpose test and how it could be interpreted and applied in South Africa. University of the Witwatersrand, https://hdl.handle.net/10539/26985