MLI Convention. Changes in DTT. Beneficial owner clause and Principal Purpose Test (PPT).
MLI Convention. Changes in DTT. Beneficial owner clause and Principal Purpose Test (PPT).
On 1 July 2018, the MLI Convention (Multilateral Instrument to Modify Bilateral Tax Treaties), modifying the content of many DTTs concluded by Poland, entered into force. The subsequent agreements are being modified as the ratification process progresses in other countries. Currently, Poland has notified 78 agreements for modification and 46 partners from this group have already notified Poland. Therefore, the MLI will become a part of such a number of agreements. As a result, the interpretation of the DTT provisions must also include the amendments introduced by MLI.
The key change within the MLI is the introduction of a 'principal purpose test' (PPT) clause. This clause provides the tax authority with the possibility to challenge the tax benefit of a given DTT, if the obtaining of such a benefit was the only or one of the main objectives of the taxpayer's actions. Application of imprecise wording in the clause, such as "main objectives of the taxpayer's actions", leaves the authorities with room for interpretation and, as a consequence, may result in disputes between taxpayers and tax authorities.
In anticipation of such situations, the International Corporate Tax Team offers the following services to its Clients: