GAAR implementation heading for delay beyond April 2013

The implementation of the controversial General Anti-Avoidance Rules (GAAR) appears to be heading for further delay, beyond the extended deadline of April 1, 2013, with the general tone of recommendations from the industry to the Parthasarathi Shome panel pointing out that the new framework should not be introduced at this juncture.

Finance ministry officials, in the know of the developments, indicated the underlying message on GAAR was to go slow, and there was a strong possibility that the Shome committee would ask for more time to submit the second draft guidelines.

The panel, set up by the prime minister, has to submit final guidelines to the government by September 30.

One of the leading industry chambers is slated to point out to the government that the transfer pricing adjustments in the last few years clearly indicates that income tax department officials have failed to handle the issues associated with international transactions, and a majority of the cases were going in favour of the companies.

The industry, in this backdrop, wants the administrative machinery to be toned up first before implementing the critical GAAR framework, which involves highly technical analysis of cross-border transactions.

The transfer pricing adjustments jumped from Rs 1,220 crore in 2004-05 to Rs 44,531 crore in 2011-12. The number of adjustment cases grew from 239 to 1,343 during this period.

With the committee headed by Shome, taxation expert and head of ICRIER (Indian Council for Research on International Economic Relations) and a former adviser to the finance minister during P Chidambaram’s tenure between 2004 and 2008, drafting fresh GAAR guidelines and preparing a roadmap for its implementation, the industry view is being seen as a critical input in this regard.

Within a fortnight of the finance ministry putting up the first draft guidelines in the public domain, the PM in July had approved the constitution of an expert committee on GAAR to hold consultations with the stakeholders.

As per the schedule, the committee has to first vet and rework the guidelines based on feedback and publish the second draft by August 31.

Former finance minister Pranab Mukherjee had proposed in the Budget for 2012-13 to implement GAAR in the current financial year as a measure to counter black money.

PAUSE MODE The transfer-pricing record
Financial Year	No of audits completed	No of adjustment cases	% of adjustment cases	Amount* (in Rs  cr)
2004-05	1,061	239	23	1,120
2005-06	1,501	337	22	2,287
2006-07	1,768	471	27	3,432
2007-08	219	84	39	1,614
2008-09	1,726	670	39	6,140
2009-10	1,830	813	44	10,908
2010-11	2,301	1138	49	23,237
2011-12	2,638	1343	52	44,531
Source: Finance ministry; *Adjustments are sums on which additional tax has to be paid

However, due to the stiff opposition from industry and dampening investor sentiment, GAAR implementation date was extended by him by one year to April, 2013.