The “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” : An analysis of the Principal Purpose Test from the perspective of Finnish tax treaty practice

The heated political debate on aggressive tax practices of multinational entities starts to produce tangible outcomes. On 7th of June 2017 Finland signed the so-called “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” (MLI). Certain rules related to the abuse of tax treaties will, as a result, start to become applicable soon. They can be seen as quite disruptive in international tax law. Hence, it appears worthwhile to present them to a broader audience. The reader will be introduced into the topic via a short outline of the flaws in the current international tax system leading to concerns on international (OECD, UN) and supranational (EU) level. Embedding it into the bigger picture of action against “Base Erosion and Profit Shifting”, the MLI and one of the Finnish choices – the Principal Purpose Test – will be elaborated. The article aims to assess the impact of this provision on Finnish tax treaty practice. It will be shown that, with respect to different occasions, the Principal Purpose Test leads to consequences considerably stricter than provided for by current rules. By itself, this was subject to severe critique in specialist literature. Furthermore, it raises a number of dogmatic problems. In this context the author attempts to provide for an interpretation of the provision towards alleviating its effects. The first two chapters are meant to give non-tax specialists some background information. They can be widely skipped by readers familiar with the subject. Due to space limitations constitutional law and European law questions are not within the scope of the investigation. Also, the analysis of Sec. 28 VML does not reflect the discussions held in scholarship in detail. That being said, the author is still confident to be able to make his point based on what is included in the article.Peer reviewe