The SC Lowy Case and Application of the OECD Principal Purpose Test (PPT)
DOI:
https://doi.org/10.46801/2595-7155.15.8.2025.2759Keywords:
double taxation agreement, treaty abuse, Principal Purpose Test, treaty shopping, burden of proof, standard of proofAbstract
This article examines the application of the PPT rule, including the allocation of the burden and standard of proof, in light of the SC Lowy case decided by the Indian Income Tax Appellate Tribunal. Based on a doctrinal reconstruction of the rule, it argues that the application of the PPT requires robust evidence by the tax authority to establish the existence of abuse, and that it is not permissible to presume intent or to impose requirements not set forth in the treaty. The decision in SC Lowy confirms this view by reaffirming the centrality of the treaty text and the importance of due process. The article concludes that the PPT rule must be applied based on objective evidence and within the limits agreed upon by the contracting States, as otherwise it may lead to a breach of the principle of equality in the granting of treaty benefits.
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OECD. Commentary on Article 29. In: OECD. Model Tax Convention on Income and on Capital. Condensed version, 2017. Paris: OECD Publishing, 2017.
SC Lowy P.I. (Luxembourg) S.A.R.L. v. ACIT, ITA No. 3568/DEL/2023, Tribunal de Apelação do Imposto de Renda (Seção de Delhi, Corte “D”), decisão de 30 de dezembro de 2024.
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