After the PPT, Luxcos or other group Holdcos preferably should have significant substance

It is common for multinationals or international private equity funds to use a subsidiary holding company in a jurisdiction with a favourable Treaty network, such as Luxembourg, to hold many of the group subsidiaries or investments. However, the principal purpose test (PPT) in Art. 7 of the Multilateral Instrument (MLI) now makes this practice more fraught. Regarding the Examples in Art. 29 of the OECD Commentary, it is suggested that:

Examples G and H appear to be consistent with the existence of a potential safe harbour for multinational groups in consolidating certain activities in an entity not resident in the parent company's jurisdiction. There are a number of jurisdictions with well-developed management services and financing capabilities, from both a workforce and a service provider perspective, that make it practical for multinationals to set up substantial group services and financing operations in those locations. At the same time, many of those jurisdictions have extensive treaty networks. Examples G and H recognize that it is not necessarily the residence of the parent company within a group that establishes a baseline for treaty-shopping analysis.

Furthermore, Example K:

suggests that it is acceptable to use a holding company that is resident in a third jurisdiction to manage a group of regional investments, so long as that holding company has sufficient substance in the jurisdiction in which it is resident. … Arguably, the threshold in, for example, Prévost Car, and Alta Energy may be insufficient.

More generally:

[T]here will be less risk of challenge under the PPT if there are demonstrable reasons for having a presence in a particular jurisdiction (such as key decision makers located in the jurisdiction, commercial or other regulatory reasons, proximity to jurisdictions into which investments are made, etc.) … .

Neal Armstrong. Summary of Nelson Whitmore and Owen Strychun, “Canadian Inbound Investment After the MLI,” Canadian Tax Journal, (2019) 67:3, 831-80 under Treaties – MLI – Art. 7(1).