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| Anti-avoidance rules proposed, but without details |
| BS Reporter / New Delhi Aug 31, 2010, 02:14 IST |
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The Direct Taxes Code Bill has proposed General Anti-Avoidance Rules (GAAR) to check arrangements with obtaining tax benefits as the main objective but has not spelt out the details. In addition, anti-abuse provisions have been inserted into the legislation.
The government did provide some comfort to industry by providing that the rules can only be invoked by a commissioner-rank officer and a final order can be passed only after a ruling by a Dispute Resolution Panel. But the details of how GAAR will apply are yet to be spelt out.
“If you ask me, GAAR and Controlled Foreign Companies are the two important changes that the DTC proposes to put in place compared to the Income Tax Act. But the suggestions made by us and the industry have not been considered so far,” said PricewaterhouseCoopers Executive Director Ajay Kumar.
In the Bill, introduced in Parliament today, the government has only put in place the definitions.
In the revised discussion paper released in June, the government had tried to comfort the industry by saying that every arrangement for tax mitigation would not be liable to be classified as impermissible avoidance arrangement. GAAR will be put to use only if an entity, apart from obtaining tax benefit, undertakes a transaction which is not at arm’s length.
Alternatively, if the tax authorities find that there has been a misuse or abuse of the provisions of DTC, or a transaction lacks commercial substance, the officials can use GAAR. The fourth condition in which the provisions will come into effect is if a deal is done in a manner which is not normally employed for bona fide business purposes.
Also, it said, the provisions would be invoked only if the deal was above a prescribed threshold.
Once GAAR is invoked, the provisions of a Double Taxation Avoidance Agreement will not be applicable.
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