Navigating India's proposed GAAR

India's Finance Act, 2012 that was recently approved by the Indian Parliament introduces a GAAR in the Income Tax Act, 1961. A GAAR will be effective from April 1, 2013. The provisions are to be applied in accordance with guidelines and would be subject to the conditions and the manner, as may...

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Bibliographic Details
Published in:International tax review 2012-09
Main Author: Nayak, Rajendra
Format: Magazinearticle
Language:English
Subjects:
Controlled foreign corporations
Court decisions
Foreign investment
General anti-avoidance rule-GAAR
Jurisdiction
Legislation
Proposals
Provisions
Substance over form
Tax avoidance
Tax benefits
Tax legislation
Tax planning
Taxpayers
Transfer pricing
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Summary:India's Finance Act, 2012 that was recently approved by the Indian Parliament introduces a GAAR in the Income Tax Act, 1961. A GAAR will be effective from April 1, 2013. The provisions are to be applied in accordance with guidelines and would be subject to the conditions and the manner, as may be prescribed. Draft guidelines for implementation of GAAR were released for public comments on June 28 2012. The purpose of introducing GAAR is to enable the Revenue to counteract tax avoidance achieved by contrived transactions. Introduction of GAAR recognises the impossibility of foreseeing every possible contingency to be covered by SAAR. GAAR is the shotgun approach of the legislators attempting to cover a wide range of tax avoidance practices. The Act contains a provision that enables a taxpayer to seek an advance ruling on applicability or otherwise of GAAR to a proposed transaction. The Act also puts the burden of proof for establishing that an arrangement is an impermissible one on the Revenue. While these two elements may have addressed some concerns on GAAR, taxpayers were expecting that the draft guidelines would provide more clarity on the application of GAAR.
ISSN:0958-7594