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Executive Committee Recommendations on GAAR
To address concerns of foreign and domestic investors on General Anti Avoidance Rules (GAAR), an Expert Committee was constituted to engage in extensive consultation process and finalise GAAR guidelines. Taxand India investigates the changing format of GAAR regulations in the country.
The Finance Act 2012 had incorporated anti avoidance provisions in the form of GAAR under the Income-tax Act, 1961 (the Act) which were proposed to be implemented with effect from 1 April 2013.
In February 2012, the Central Board of Direct Taxes constituted a committee for formulating guidelines for the implementation of GAAR and to provide clarity on the provisions to safeguard taxpayers against the indeterminate use of the said provisions. The draft recommendations were released for public consultation and recommendations on 28 June 2012.
On 1 September 2012, the Expert Committee submitted its draft report after analysing the GAAR provisions and noting the concerns expressed by various stakeholders. The following amendments, amongst others, were voiced:
- Abolish tax on gains arising from transfer of listed securities for both residents as well as non-residents irrespective of the nature of such income
- GAAR should cover only arrangements where the main purpose is to obtain tax benefit
- Dactors such as existence of an arrangement, payment of taxes, exit route may be relevant but may not be "sufficient" in forming a holistic assessment to apply GAAR to any arrangement
- The GAAR approving panel should consist of five members and has proposed that the Chairman should be a retired judge of the High Court
The recommendations of the Expert Committee have clearly taken into account the international experience on the implementation of GAAR. The various illustrations provided to clarify the GAAR provisions are a significant improvement compared to the analysis provided in the previous guidelines and seem to follow key principles from past judicial precedents. The clarification will be a relief to multinationals doing business in India.