International Tax Planning: A Perspective on the Principal Purpose Test

Abstract

This article provides a detailed review and analysis of the commentary on article 29(9) of the Organisation for Economic Co-operation and Development's (OECD's) model tax convention, the so-called principal purpose test (PPT). The PPT is intended to deny a treaty benefit where obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in the relevant circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty. The analysis distills the various principles that are reflected in the OECD commentary, compares those principles with principles developed in Canadian jurisprudence involving similar tests applied under the Income Tax Act, and highlights some uncertainties; but ultimately, it is intended to contribute to the process of better understanding how the PPT may affect the interpretation and application of Canada's numerous income tax treaties.