Tax Executives Institute, Inc. (TEI) has issued follow-up comments in response to the OECD public discussion draft on 21 November 2014, in addition to its prior comments on 8 April 2014 on the first discussion draft. The latest comments are referenced herein:
- The Principal Purpose test remains highly subjective and susceptible to unpredictable interpretations, therefore TEI opposes including this test in the OECD model treaty.
- Jurisdictions should adopt an administrative appeal process if the Principal Purpose test is asserted.
- A treaty incorporating a Limitation on Benefits provision (LOB provision) and a Principal Purpose test may deny benefits if the LOB test is satisfied and the benefit is denied under the Principal Purpose test. The LOB provision should be the primary (objective) tool rather than one part of a two-part treaty abuse test.
- The Principal Purpose test may result in benefits not recorded on audited financial statements due to its uncertainty.
- Transition relief and prospective arrangements should be included in the final guidelines.
TEI’s comments should be reviewed to understand the myriad issues proposed to combat treaty abuse. Additional uncertainty, accompanied by appeals of such assessments, will be the likely result of the proposal as currently drafted.