General Anti-Avoidance Rule and Principal Purpose Test – New Era of Anti-Abuse Law

General anti-avoidance rule (GAAR) provisions and the principal purpose test (PPT) rule have become operational in most jurisdictions. The criteria for their application may differ across jurisdictions. A taxpayer’s obligations under each rule vary, making them vulnerable to one obligation though they manage to comply with the other, as both rules can be applied concurrently in a particular case. Can a taxpayer, having passed the litmus test of one rule, justifiably claim immunity from the other? This article provides insights into the intricacies of interpretating both rules and explores some unanswered issues. As both rules usher in a new era of anti-abuse law, their interplay is examined in a limited manner from the Indian perspective. Ultimately, the commercial substance of the transaction or arrangement, if properly documented and presented, remains the strongest safeguard for the taxpayer.