Tainted Element Test of Section 96

Tax avoidance: GAAR applies where arrangements show tainted elements like non arm's length pricing or lack of commercial substance.

The Tainted Element Test under section 96 identifies four independent tainted elements which, when present and where the main purpose is to obtain a tax benefit, permit application of GAAR: (1) non-arm's length dealings for transactions outside transfer pricing coverage, allowing price reallocation to arm's length values subject to overall net benefit; (2) misuse or abuse of tax provisions to achieve unintended consequences, including artificial entity arrangements to obtain treaty benefits; (3) lack of commercial substance; and (4) abnormal manner of carrying out transactions, with section 96(2) presuming tax-motivated purpose from any step taken to obtain benefit.