29 March 2012

CBDT sets up panel for tax anti-avoidance

CBDT sets up panel for tax anti-avoidance
The Central Board of Direct Taxes (CBDT), Indias apex body for administration of taxes, has formed a six-member committee to draft guidelines for enforcing the general anti-avoidance rules (GAAR) introduced in the Union budget to crack down on tax cheats.
The panel, headed by CBDT chairman Laxman Das, is expected to submit the draft norms to the finance ministry within two months. The proposed guidelines will be put up for public feedback before they are finalized by the committee, which held a meeting early this week in New Delhi.

GAAR will help the tax authority deal with commercial transactions that are structured essentially to circumvent tax laws and avoid paying taxes. If the revenue authority concludes that a transaction by any entity is aimed primarily at avoiding taxes, it will be able to deny tax benefits claimed by the entity.
The key challenge for the committee is to formulate the rules to determine whether the arrangement lacks commercial purpose or was made to obtain a tax benefit, said a revenue officer familiar with the development.
The new rules follow the Supreme Court ruling in January that the Vodafone Group Plcs $11.08 billion (around Rs. 56,400 crore today) transaction with Hutchison Whampoa Ltd that gained it entry into the Indian telecom market was outside the purview of the Indian tax law. The transaction was between Vodafones Netherlands subsidiary and Hutchisons Cayman Islands subsidiary.
In his ruling, Chief Justice S.H. Kapadia said: It is for the government of the day to have them (clear tax laws) incorporated in the treaties and laws so as to avoid conflicting views. Investors should know where they stand. It also helps the tax administration in enforcing the provisions of the taxing laws.

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