Principal Purpose Test (PPT)

In July 2026, India amended its Double Taxation Avoidance Agreement (DTAA) with Sri Lanka to incorporate the Principal Purpose Test (PPT), strengthening measures against treaty abuse and tax avoidance.

What is the Principal Purpose Test (PPT)?

  • PPT is an anti-avoidance rule that denies tax treaty benefits (such as reduced withholding tax rates) if one of the principal purposes of a transaction or arrangement is to obtain a tax advantage.
  • This rule is included in the OECD’s Multilateral Instrument (MLI) and applies to Covered Tax Agreements (CTAs) between countries that adopt the provision.

Why was the PPT Introduced?

  • The PPT was introduced ....
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