The Principal Purpose Test and the Principle of Good Faith: Two Sides of the Same Coin?

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International Taxation

The article analyses some issues regarding the true nature  of the PPT rule (i.e., the general anti-abuse rule which introduces the so-called Principal Purpose Test), its relationship with the principle of good faith and its effectiveness under the Italian legal system.

In general terms, the PPT rule is triggered when (i) one of the principal purposes of an arrangement or transaction is to secure a benefit under a tax treaty and (ii) obtaining that benefit under these circumstances would be contrary to the object and purpose of the tax treaty.

According to paragraph 14 of Action 6, the PPT rule is rooted in an existing “guiding principle”, which – in a

nutshell – prevents taxpayers from exploiting tax treaties for tax purposes.

This conclusion may open to some concerns in terms of the effectiveness of this rule within the Italian legal system.

Hence, some question comes to mind: which is this “existing guiding principle”? Can be identified in the “principle of good faith”? And, again, which is the relationship between the PPT rule and the existing DTAs?

The article attempts to provides some answers. Authors conclusions are based on the Multilateral Convention, the OECD’s position, the doctrine and relevant case law.


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