BEPS Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances

Treaty shopping refers to the abusive use of double tax agreements (DTAs) by persons not resident in a treaty state. Action 6 introduces anti-abuse clauses into the OECD Model Tax Convention.

• Minimum standard – mandatory for Inclusive Framework members
• Principal Purpose Test (PPT): denial of treaty benefits where obtaining the benefit was one of the principal purposes of an arrangement
• Limitation on Benefits (LOB): objective requirements on the beneficiary
• Implementation via MLI or bilateral negotiations
• Peer review to monitor implementation
• The Inclusive Framework comprises over 140 members; the MLI has been signed by over 100 jurisdictions

Treaty shopping structures – e.g. shell companies in favourable treaty states – have been used for decades. The OECD Model Tax Convention contained no general anti-abuse clause. Individual states negotiated LOB clauses (especially the USA), but a uniform standard was lacking.

The 2015 final report recommended three minimum standard options: (a) PPT + simplified LOB, (b) PPT alone, (c) LOB + specific anti-avoidance rules. The 2017 update to the OECD Model Tax Convention integrated the Action 6 recommendations directly into Art. 29 (PPT in Art. 29(9), LOB in Art. 29(1)-(7)). The MLI introduces the PPT into existing DTAs (Art. 7 MLI). Peer reviews began in 2018.

Action 6 applies to all double tax agreements between Inclusive Framework members. Specifically affected are:

• Conduit companies in DTA states
• Dividend, interest and royalty structures via favourable treaty states
• Structures designed to circumvent withholding taxes

• Introduction of a PPT and/or LOB clause in all covered DTAs
• Amendment of the treaty preamble to clarify that the treaty intends to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including treaty shopping)
• Annual peer review to verify implementation by the Inclusive Framework
• Implementation via MLI (Art. 7) or bilateral renegotiation

4 corrections:
- Contradiction in peer review start date between key_dates and history
- Treaty preamble, not treaty title, is the minimum standard requirement
- Grammar error in meta_desc_de — separable verb 'einfuehren'
- Official URL likely broken after OECD website migration
1 update:
- last_amended date outdated (2019-01-01)
2 clarifications.
2 notes.