GENERAL ANIT-AVOIDANCE RULE [“GAAR”]

GAAR is an anti-tax avoidance rule which deters the tax evaders, from making the investment through tax-heaven countries like Switzerland, Luxemburg, Mauritius, and Cyprus etc. The Shome committee proposed the implementation of GAAR, but the provisions of GAAR has not been notified so far. The proposal to apply GAAR will be checked first by the Principal Commissioner of Income Tax / Commissioner of Income Tax and at the second stage by an Approving Panel headed by a judge of High Court. The stakeholders have been assured that adequate procedural safeguards are in place to ensure that GAAR is invoked in a uniform, fair and rational manner.

Applicability of GAAR:

As per GAAR provisions, an arrangement entered into by a taxpayer may be declared to be impermissible avoidance arrangement and consequences of tax arising shall be dealt as per GAAR provisions.

Non-Applicability of GAAR:

I. If at the time of sanctioning the arrangement, the court has explicitly and adequately considered the tax implication, then GAAR will not apply to such arrangement.

II. GAAR will also not be applicable if an arrangement is held as permissible by the authority of the advance ruling

Definitions of Some important terms used in GAAR provisions:

I. Arrangement: An “arrangement” means any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not and includes the transfer of any property in such transaction, operation, scheme, agreement or understanding.

II. Impermissible avoidance arrangement: An impermissible avoidance arrangement is defined to mean an arrangement, the main purpose of which is to obtain a tax benefit.

What do you mean by Tax Heaven?

Tax havens are those countries or territories which have zero or low tax rates. These countries are used as a channel to avoid payment of tax.