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.
In November 2015, Australia and Germany signed a new tax treaty to replace the current double taxation agreement signed in 1972. The new treaty incorporates OECD/G20 BEPS recommendations. For example, the preamble states that the express purpose of the treaty is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements. The definition of “permanent establishment” has been strengthened and supplemented by new integrity provisions. Taxpayers will be able to refer tax disputes that remain unresolved after two years to independent and binding arbitration.