06 September 2012

Key recommendations of expert committee on GAAR

Key recommendations of expert committee on GAAR

The expert committee on GAAR, as constituted by the Prime Minister, has submitted its report. Inter-alia, the key recommendations of expert committee are as under:
1) GAAR should be deferred by three years;
2) GAAR should be applicable only if a tax benefit of Rs. 3 crore and above has been obtained by the taxpayer;
3) In case of deferral of tax benefit, present value of tax benefit should be considered;
4) Non-applicability of GAAR on a resident of Mauritius holding valid tax residency certificate;
5) GAAR should not be applicable if FII offers to be taxed under domestic laws;
6) GAAR should not be applicable if non-resident invests in listed securities through FIIs;
7) Abolition of tax on gains arising from transfer of listed securities (both capital gains and business income);
8) Grandfathering of existing structures or investment. In other words, only income arising after implementation of GAAR should be subject to provisions;
9) GAAR should not be allowed to over-ride the anti-avoidance provisions of treaties (i.e. limitation of benefit, etc.);
10) Onus should be on revenue to prove if a transaction is impermissible avoidance agreement;
11) Amendment to the Act to provide that only arrangements with sole purpose (and not one of the main purpose) of obtaining tax benefit should be covered under GAAR;
12) Tax consequences of 'impermissible avoidance arrangements' should be limited to the tainted part of the transaction;
13) Definition of 'connected person' under Sec. 99 should be restricted to 'associated person' and 'associated enterprise' only;
14) AAR should decide the GAAR cases within 6 months;
15) A 'negative list' for the purpose of invoking GAAR should be provided;
16) 'Tenure of arrangements, payment of taxes and an option to exit' should be given due weightage while deciding if arrangements lack commercial substance;
17) GAAR not to be invoked if taxpayer submits a satisfactory undertaking to pay tax along with interest in case GAAR provisions are made applicable in relation to the remittances;
18) Tax auditor should report the probable transaction which may accrue to the tax payer a tax benefit of Rs. 3 crore and above;
19) Extensive training of Assessing officer to be placed in the regime of International Taxation; and
20) Various illustrations have been given where GAAR will be considered as applicable or not applicable.
(View report of Committee)

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