OECD draft examples address tax treaty “principal purpose test” for non-CIV funds

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The OECD has today released for public comment three draft examples addressing the application of the OECD/G20 base erosion profit shifting (BEPS) Action 6 principal purpose test to non-collective investment vehicle (non-CIV) funds.

The principal purpose test, as outlined the BEPS plan, is added to tax treaties prevent tax treaty abuse, operating to exclude some taxpayers from entitlement to tax treaty benefits.

The proposed examples would be added to paragraph 14 of the Commentary on the principal purpose rule, as it appears in paragraph 26 of the OECD Action 6 report.

The draft examples describe the application of the principal purpose test to regional investment platforms, securitisation companies, and funds that invest in immovable property.

The OECD explained that the examples were developed by Working Party 1 of the OECD Committee on Fiscal Affairs (CFA) in May 2016 following its review of stakeholder responses to a March 2016 OECD discussion draft which asked for the examples.

The OECD stressed that the draft examples do not represent the consensus view of the CFA or its subsidiary bodies, but are intended to provide stakeholders with substantive proposals for feedback and comment.

Comments on the new draft examples are requested by February 3.

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