BEPS Action 6 – Prevent Treaty Abuse

BEPS Action 6 “Preventing the granting of treaty benefits in inappropriate circumstances” recommends that countries include in their tax treaties an express statement that their common intention is to eliminate double taxation without creating opportunities for treaty shopping.

The Final Report on BEPS Action 6 includes proposed changes to the OECD Model Tax Convention to set a minimum standard on preventing abuse including through treaty shopping and new rules that provide safeguards to prevent treaty abuse and offer a degree of flexibility regarding how to do so.

The Final Report recommends that countries adopt, in their bilateral treaties, either a general treaty anti-abuse rule based on the principal purposes of the transaction (the PPT rule), a limitation on benefits rule (the LOB rule) supplemented by a mechanism that would deal with conduit arrangements not already dealt with in tax treaties, or both. The work would be coordinated with the work on hybrids.

Australia’s response BEPS Action 6

In May 2015 the Australian Government had indicated that it would adopt the OECD’s recommendations on tackling tax treaty abuse into its treaty practice.