The Australian Taxation Office (ATO) has announced the issuance of Practice Statement Law Administration (PS LA) 2020/2 on administering general anti-abuse rules, such as a principal or main purposes test, included in any of Australia's tax treaties. PS LA 2020/2 is dated 1 October 2020 but is considered effective from 16 December 2019.
Anti-abuse rules in tax treaties guidance
New guidance about how we administer the general anti-abuse rules in any of Australia's tax treaties has been finalised and published.
Law Administration Practice Statement PS LA 2020/2 Administering general anti-abuse rules, such as a principal or main purposes test, included in any of Australia's tax treaties sets out guidance, instructions and administrative processes for ATO staff to follow to ensure consistent and good decision making when administering these general anti-abuse rules.
The PS LA 2020/2 covers the administration of the following purposes tests:
- The Principal Purposes Test under paragraph 1 of Article 7 of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) as it applies to a Covered Tax Agreement (CTA) (the MLI PPT)
- A Principal Purposes Test in an Australian tax treaty that is not a CTA
- A Main Purposes Test in an Australian tax treaty that is yet to be or will not be modified by the MLI.
Australia has adopted the MLI PPT which can operate to deny treaty benefits if obtaining that benefit was one of the principal purposes of the arrangement. The test will be implemented in most of Australia's tax treaties through the operation of the MLI.
If you have concerns or questions about the application of a purposes test to your arrangement, we encourage you to engage with us via our Early Engagement process.