1. Introduction

Jurisdiction shopping and use of holding companies in multiple jurisdictions for ‘tax-optimized’ investment structuring has played major role in the field of international taxation since very long time. But can tax authorities invoke the general anti-avoidance rules (GAAR) under the domestic tax law for denying a tax treaty benefit? That was the central issue in the Canadian Federal Court of Appeal’s recent landmark decision, which the global taxpayers are likely to invoke in many ‘treaty shopping’ cases. Hence, that decision of the Canadian court deserves our attention.

This article analyses the above-mentioned court decision on a question of far-reaching implications: whether – and when – can a source state’s tax authorities apply the GAAR in a tax treaty situation? It also covers a very important question in the post-BEPS era: could that judicial precedent blunt the effectiveness of the ‘Principal Purpose Test’ (PPT) introduced in the Covered Tax Agreements (CTAs) through the OECD’s multilateral instrument (MLI)?