India Ruling Reinforces Limits on Tax Agency’s Treaty Actions

Multinational businesses operating in India have new clarity on the tax authority’s limits in applying global rules meant to curb treaty abuse, after a court rejected the agency’s denial of tax benefits.

The agency couldn’t deny treaty benefits to Ireland-based companies, the court ruled, because it didn’t notify the public that it would be applying the principal purpose test of the OECD’s multilateral instrument, or MLI, an agreement meant to block exploitation of loopholes in individual tax treaties.

“This decision is one of the first in Indian jurisprudence to deal with PPT under the MLI, not in theory but ...