'GAAR should be administered by an independent committee'

While the finance minister claims to have bridged the trust deficit created by the previous government, the General Anti-avoidance Rules (GAAR) has always been a concern among investors, and instrumental in creating an atmosphere of tax uncertainty. To this end, the promise by the finance ministry to release guidance that would provide more clarity is very welcome.

To instil trust and confidence in the international community, here are some key safeguards that the government may like to take while providing the much-needed guidance:

• Every structure need not be subjected to GAAR
   
• The tax officers must use GAAR as an exception, rather than the rule, in every tax proceeding
  

 

The difference between tax mitigation strategy and tax avoidance must be viewed with an open mind. For instance, merely claiming benefit under a tax treaty should not be considered as tax avoidance

 

The scope of GAAR provisions should be clearly defined, leaving very little discretion, such as what should constitute 'substance'. The guidance must provide detailed explanations and the rules must provide protection to ensure that the same amount is not taxed in the hands of both the parties to a transaction
 

Threshold of tax benefits for application of GAAR should be reviewed. The present limit of Rs 3 crore may seem to be too low since while GAAR is essentially aimed at avoiding large evasions. It is recommended that the threshold be raised upwards of Rs 10 crore

 

GAAR should be administered by an approving panel/ independent committee, members of which should have no bias for revenue. Even the Shome Committee had observed that every case of tax avoidance should not be considered under GAAR, unless it is an abusive, artificial and contrived arrangement
 

A negative list of transactions may be specified, where GAAR may not be invoked. Also, the benefit of obtaining advance ruling should be extended to any proposed transaction structure that could be subjected under the GAAR provisions

The author is partner, direct tax, BDO India