BEPS, The Principal Purpose Clause and Indian Taxation

Abstract

The BEPS project is the most significant international trend in the domain of taxation since the advent of bilateral tax treaties. Both the GAAR and the BEPS mandated Principal Purpose (PP) clause provide, by means of statutory language, that tax authorities must take taxpayer objectives into account in arriving at a conclusion of illegitimate tax avoidance. Taking taxpayer objectives into account is a legitimate move in any effort to combat tax avoidance but it does not need legislation. A broad purposive interpretation of tax legislation would result in taxpayer objectives being taken into account. In fact the introduction of legislative language tends to complicate matters in this domain. Both the PP clause and the GAAR test have additional, supposedly more objective provisions that purport to provide clear criteria for the application of anti avoidance rules. However these so called objective factors ultimately dilute the impact of the PP clause and the GAAR test respectively.

The part of this chapter on equalization levy has appeared in Nigam Nuggehalli, ‘India’s Implementation of the BEPS Project: A Critical Survey’ in Parthasarathi Shome (ed), Insights into Evolving Issues of Taxation (CCH 2016) Part 2.