Principal Purpose Test

Plain meaning

A treaty anti-abuse rule that can deny a treaty benefit where obtaining that benefit was one of the principal purposes of an arrangement or transaction.

Also called

Key points

• The PPT asks whether it is reasonable to conclude that obtaining a treaty benefit was one of the principal purposes of an arrangement.
• Even if that is true, a benefit may still be allowed if granting it is consistent with the object and purpose of the treaty provision.
• The rule is intentionally broad and depends heavily on facts and surrounding circumstances.
• Canada's treaty network can be affected by the multilateral instrument and bilateral treaty wording.

Why it comes up

The PPT is a major BEPS-era treaty rule that can affect withholding tax, capital gains, business profits, and treaty access.