In chemistry substance is the actual matter of a thing, as opposed to its appearance or shadow. In the tax world substance is about reality over appearance. It is around economic nexus in one country resulting in another country willing to give up or reduce taxation rights.
Economic nexus has been a longstanding prerequisite for allocating taxation rights and substance requirements are an extension of that requisite.
What is changing is that the substance requirements recently have been codified by countries, typically tax haven or conduit jurisdictions, while the source countries are defining substance still in general, rather vague terms, leaving the possibility open for different interpretations by their tax administrations and courts. This is creating uncertainty for taxpayers. It seems that a lot of source country governments still fear that defining substance more stringently may reduce their flexibility and revenues, if it is interpreted as a safe harbor.
This is the first post in a series of posts on recent substance developments.