What is GAAR?
The full form of GAAR is : General Anti-Avoidance Rules Tax
Avoidance is an area of concern across the world. The rules are framed in
different countries to minimize such avoidance of tax. Such rules in simple
terms are known as " General Anti Avoidance Rules " or GAAR. Thus GAAR is a set
of general rules enacted so as to check the tax avoidance. Lord Tomlin has well
said "Every man is entitled to order his affairs so that tax attaching under the
appropriate Acts is less than it otherwise would be" (IRC v Duke of
Westminster). People adopt various methods so that they can reduce their total
tax liability. The methods adopted to reduce their tax liability can be broadly
put into four categories : "Tax Evasion"; "Tax Avoidance", "Tax Mitigation" and
"Tax Planning". The difference between these four methods some times becomes
blurred owing to the perception of the tax authorities and / or tax payer. GAAR
refers to the second category i.e. tax avoidance. GAAR is a concept which
generally empowers the Revenue Authorities in a country to deny the tax benefits
of transactions or arrangments which do not have any commercial substance or
consideration other than achieving the tax benefit. Whenever revenue authorities
question such transactions, there is a conflict with the tax payers. Thus,
different countries started making rules so that tax can not be avoided by such
transactions. Australia introduced such rules way back in 1981. Later on
countries like Germany, France, Canada, New Zealand, South Africa etc too opted
for GAAR. However, countries like USA and UK have adopted a cautious approach
and have not been aggressive in this regard. Thus, in nutshell we can say that
GAAR usually consists of a set of broad rules which are based on general
principles to check the potential avoidance of the tax in general, in a form
which can not be predicted and thus can not be provided at the time when it is
legislated.
What is Difference between GAAR and SAAR ?
Anti Avoidance Rules are
broadly divided into two categories namely "General" and "Specific". Thus,
legislation dealing with "General" rules are termed as GAAR, whereas legislation
dealing with "Speicifc avoidnace are termed as "SAAR" In India till recently
SAAR was in vogue i.e. laws were amended to plug specific loopholes as and when
they were noticed or were misused enmasse. However, now Indian tax authorities
wants to move towards GAAR but are facing severe opposition as tax payers fear
that these will be misused by tax authorities by giving arbitrary and wide
interpretations. We can say SAAR being more specific provide certainty to
taxpayers where as GAAR being general in nature can be misused and is subject to
arbitrary interpretation by tax authorities.
GAAR 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 12th 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 30th August, 2010, a formal Bill to enact the law known as the DirectTaxes Code 2010. The same was to be made applicable wef 1st 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 alongwith the Direct Tax Code (DTC) from 1st 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). Some of recent developments about GAAR are :- (a) 16th March, 2012 : Finance Minister, Pranab Mukherjee takes a tough stand and announces that the government will crack down on tax avoidance effective from fiscal year 2012-13 (b) 7th May, 2012 : Finance Minister, Pranab Mukherjee forced to eat his words and agreed to defer GAAR by a year as his announcements spooked oversea investors (c) 28th June, 2012 : Finance Ministry releases first draft on GAAR; There is wide criticism of the provisions. (d) 14th July, 2012 : PM, Manmohan Singh, forms review committee under Parthasarathi Shome, for preparing a second draft by 31st August and final guidelines by 30th September, 2012 (e) 1st September, 2012 : Shome Committee recommends to defer GAAR by three years. It also recommends some more investor friendly measures.
GAAR 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 12th 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 30th August, 2010, a formal Bill to enact the law known as the DirectTaxes Code 2010. The same was to be made applicable wef 1st 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 alongwith the Direct Tax Code (DTC) from 1st 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). Some of recent developments about GAAR are :- (a) 16th March, 2012 : Finance Minister, Pranab Mukherjee takes a tough stand and announces that the government will crack down on tax avoidance effective from fiscal year 2012-13 (b) 7th May, 2012 : Finance Minister, Pranab Mukherjee forced to eat his words and agreed to defer GAAR by a year as his announcements spooked oversea investors (c) 28th June, 2012 : Finance Ministry releases first draft on GAAR; There is wide criticism of the provisions. (d) 14th July, 2012 : PM, Manmohan Singh, forms review committee under Parthasarathi Shome, for preparing a second draft by 31st August and final guidelines by 30th September, 2012 (e) 1st September, 2012 : Shome Committee recommends to defer GAAR by three years. It also recommends some more investor friendly measures.
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