General anti-avoidance rule (India)

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General anti-avoidance rule (GAAR) is an anti-tax avoidance law under Chapter X-A of the Income Tax Act, 1961 of India. [1] It is framed by the Department of Revenue under the Ministry of Finance. GAAR was originally proposed in the Direct Tax Code 2009 and was targeted at arrangements or transactions made specifically to avoid taxes. GAAR provisions were also present in the Direct Tax Code 2010 and Direct Tax Code 2013. However, the Direct Tax Code did not see the light of the day and was not implemented in India. GAAR was finally introduced in India by then Finance Minister, Pranab Mukherjee, on 16 March 2012 during the Budget session introduced vide Finance Act, 2012. [2] However, it was considered controversial because it had provisions to seek taxes from past overseas deals involving local assets retrospectively . [3]

India Country in South Asia

India is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the south, the Arabian Sea on the southwest, and the Bay of Bengal on the southeast, it shares land borders with Pakistan to the west; China, Nepal, and Bhutan to the north; and Bangladesh and Myanmar to the east. In the Indian Ocean, India is in the vicinity of Sri Lanka and the Maldives; its Andaman and Nicobar Islands share a maritime border with Thailand and Indonesia.

Ministry of Finance (India) finance ministry of India

The Ministry of Finance is an important ministry within the Government of India concerned with the economy of India, serving as the Indian Treasury Department. In particular, it concerns itself with taxation, financial legislation, financial institutions, capital markets, centre and state finances, and the Union Budget.

Pranab Mukherjee 13th President of India

Pranab Mukherjee is an Indian politician who served as the 13th President of India from 2012 until 2017. He is a Bharat Ratna awardee, awarded in 2019 by President of India Ram Nath Kovind. In a political career spanning five decades, Mukherjee has been a senior leader in the Indian National Congress and has occupied several ministerial portfolios in the Government of India. Prior to his election as President, Mukherjee was Union Finance Minister from 2009 to 2012.

Contents

During the 2015 Budget presentation, Finance Minister Arun Jaitley announced that its implementation will be delayed by 2 years. [4] GAAR is finally applicable from assessment year 2018-19. [5]

2015 Union budget of India

2015 Union budget of India refers to 2015–2016 Union budget of India. The beginning of the budget printing began on 19 February 2015 with the traditional halwa ceremony. From 20 February until the presentation of budget about 100 government employees remained locked up in the North Block of the Secretariat Building, New Delhi, which houses the budget printing press, to maintain secrecy. The budget was presented on 28 February by Finance Minister Arun Jaitley.

Arun Jaitley Indian politician

Arun Jaitley is an Indian politician and attorney, who was the Minister of Finance and Corporate Affairs of the Government of India from 2014 to 2019. A member of the Bharatiya Janata Party, Jaitley previously held the cabinet portfolios of Finance, Defence, Corporate Affairs, Commerce and Industry and Law and Justice in the Vajpayee government and Narendra Modi government. From 2009 to 2014 he served as the Leader of the Opposition in the Rajya Sabha. He is a Senior Advocate of the Supreme Court of India. Arun Jaitley decided not to join the Modi Cabinet in 2019 due to health issues.

Background

The Parthasarthy Shome Panel was set up in 2012 for drawing up the final guidelines on GAAR. In 2007, Vodafone entered the Indian market by buying Hutchison Essar. The deal took place in Cayman Islands. The Indian government claimed over US$ 2 billion were lost in taxes. [6] In September 2007, a notice was sent to Vodafone. Vodafone claimed that the transaction was not taxable as it was between two foreign firms. The government claimed that the deal was taxable as the underlying assets involved were located in India. In India, the real discussions on GAAR came to light with the release of draft Direct Taxes Code Bill (popularly known as DTC 2009) on 12 August 2009. It contained the provisions for GAAR. Later on the revised Discussion Paper was released in June 2010, followed by tabling in the Parliament on 30 August 2010, a formal Bill to enact the law known as the DirectTaxes Code 2010. The same was to be made applicable wef 1 April 2012. However, owing to negative publicity and pressures from various groups, GAAR was postponed to at least 2013, and was likely to be introduced along with the Direct Tax Code (DTC) from 1 April 2013. Moreover, an Expert Committee has been set by Prime Minister (Manmohan Singh) in July 2012 to vet and rework the GAAR guidelines issued in June 2012. The latest reports (September 2012) indicates, it may not be implemented even for 3 years i.e. this will be postponed for 3 years (2016–17).

Vodafone plc is a British multinational telecommunications conglomerate with headquarters in London and Newbury, Berkshire. It predominantly operates services in the regions of Asia, Africa, Europe, and Oceania. Among mobile operator groups globally, Vodafone ranked 4th in the number of mobile customers as of 2018.

Cayman Islands British Overseas Territory in the Caribbean

The Cayman Islands are an autonomous British Overseas Territory in the western Caribbean Sea. The 264-square-kilometre (102-square-mile) territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located to the south of Cuba and northeast of Honduras, between Jamaica and Mexico's Yucatán Peninsula. As of spring 2018, the population of the Cayman Islands was estimated to be 64,420 making it the second-most populated British overseas territory after Bermuda. The capital city is George Town, situated on Grand Cayman, by far the most populous of the three islands.

United States dollar Currency of the United States of America

The United States dollar is the official currency of the United States and its territories per the United States Constitution since 1792. In practice, the dollar is divided into 100 smaller cent (¢) units, but is occasionally divided into 1000 mills (₥) for accounting. The circulating paper money consists of Federal Reserve Notes that are denominated in United States dollars.

Some of recent developments about GAAR are:

Thus now

On 20 January 2012, the Supreme Court of India gave the verdict in favour of Vodafone, saying that Vodafone did not owe any capital gain taxes. [7] On 16 March, GAAR was presented to the Parliament by Pranab Mukherjee, who stated that its objective was to counter aggressive tax avoidance schemes. [3]

Supreme Court of India Judicial body

The Supreme Court of India is the highest judicial court and the final court of appeal under the Constitution of India, the highest constitutional court, with the power of judicial review. Consisting of the Chief Justice of India and a maximum of 34 judges, it has extensive powers in the form of original, appellate and advisory jurisdictions.

A capital gain refers to profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price. Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price.

Summary

The regulation allows tax officials to deny tax benefits, if a deal is found without any commercial purpose other than tax avoidance. It allows tax officials to target participatory notes. Under GAAR, the investor has to prove that the participatory note was not set to avoid taxes. It also allows officials to deny double taxation avoidance benefits, if deals made in tax havens like Mauritius were found to be avoiding taxes. [3]

A participatory note, commonly known as a P-note or PN, is an instrument issued by a registered foreign institutional investor (FII) to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI).

Double taxation is the levying of tax by two or more jurisdictions on the same declared income, asset, or financial transaction. Double liability is mitigated in a number of ways, for example:

A tax haven is defined as a country or place with very low "effective" rates of taxation for foreign investors. In some traditional definitions, a tax haven also offers financial secrecy. However, while countries with high levels of secrecy but also high rates of taxation, can feature in some tax haven lists, they are not universally considered as tax havens. In contrast, countries with lower levels of secrecy but also low "effective" rates of taxation, appear in most § Tax haven lists. The consensus around effective tax rates has led academics to note that the term "tax haven" and "offshore financial centre" are almost synonymous.

Responses

Adrian Mowat of JP Morgan in May 2012 said that there were ambiguities in the law and that it may discourage foreign investors. [3] In May 2012, CLSA stopped issuing Indian participatory notes. [8]

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References

  1. ↑ "Tax Laws & Rules > Acts > Income-tax Act, 1961". www.incometaxindia.gov.in. Retrieved 21 October 2018.
  2. ↑ "Taxsutra". www.taxsutra.com. Retrieved 21 October 2018.
  3. 1 2 3 4 "5 facts about the general anti-avoidance rule (GAAR)". NDTV . 14 May 2012. Retrieved 7 March 2015.
  4. ↑ "Indian shares gain on GAAR delay, plan to reduce corporate tax rate". Reuters . 28 February 2015. Retrieved 7 March 2015.
  5. ↑ India, Press Trust of (27 January 2017). "GAAR will be effective April 1, 2017, onwards: CBDT". Business Standard India. Retrieved 21 October 2018.
  6. ↑ Siva, Meera (17 February 2014). "All you wanted to know about the Vodafone tax case". The Hindu Business Line . Retrieved 7 March 2015.
  7. 1 2 "Vodafone wins $2 bn tax case in Supreme Court". Business Standard . 20 January 2012. Retrieved 7 March 2015.
  8. ↑ "CLSA stops selling P-notes on taxation issue". Business Standard . 18 March 2015. Retrieved 7 March 2015.
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