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Expert panel recommends deferment of GAAR

11th September, 2012

The Expert Committee headed by Mr. Parthasarathi Shome has called for deferring the implementation of GAAR by three years. It has also sought tax exemption to gains arising from transfer of listed securities.

The panel has submitted its draft report on the General Anti-Avoidance Rules (GAAR) and comments on the same can be provided by 15-9-2012. Distinguishing between tax mitigation and tax planning, while conceding that tax avoidance is an issue of concern, the committee has made recommendations for certain amendments, guidelines and clarifications.

The definition of an impermissible arrangement has been recommended to be amended to cover only arrangements which have the main purpose (and not one of the main purposes) of obtaining tax benefit.  It has suggested that the Approving Panel to which the matter regarding the impermissible tax arrangement is to be referred to by the Commissioner, should consist of  a retired Judge of High Court, persons of eminence drawn from the fields of accountancy, economics or business, with knowledge of matters of income-tax and Chief Commissioners of Income Tax.  It was originally proposed to have not less than 3 members from income tax authorities only.

The report suggests that an illustrative list of tax mitigation or negative list for purposes of invoking GAAR should be specified and calls for a monetary threshold of Rs 3 crore of tax benefit (including tax only, and not interest etc) to a taxpayer in a year to invoke provisions of GAAR. Non-application of GAAR when specific provisions are available in a tax treaty and in cases where valid Certificate of Residence issued by Mauritius is available and pre-announcement of  the date of implementation to remove uncertainty are the other significant  recommendations.
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