Draft GAAR guidelines would reduce uncertainty, say experts

New Delhi: The draft guidelines on General Anti Avoidance Rules (GAAR) issued last week would bring about clarity in the controversial provisions aimed at checking tax evasion and misuse of tax treaties, industry and experts have said.

“There are 21 examples outlined in the draft guidelines, which do provide some clarity. This will, to some extent, reduce uncertainty,” said Ketan Dalal, Joint Tax Leader, PwC India.

With an aim to address investor concerns, the Finance Ministry issued draft guidelines on GAAR. Although the draft did not specify the monetary limit, it said that those deals which are over a prescribed limit should be covered by GAAR provisions.

The Prime Minister’s Office (PMO) has said that final call on GAAR will be taken by the Prime Minister after proper feedback.

Industry body Assocham said the draft would provide a platform for debate, but asked the government not to “rush in” with the provisions, scheduled to be implemented from April 2013.

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“We would urge the government not to rush in. Instead, let the stakeholders – government, tax-payers, stock market, industry and even foreign players – get into informed debate before we get an acceptable view, win-win for all,” Assocham President Rajkumar N Dhoot said.

Commenting on the draft, Mudigonda Vishweshwar, Senior Director with Deloitte said the recommendation on “following principles of natural justice, if followed in letter and spirit will help in reducing litigation from application of GAAR”.

He also suggested that GAAR Panel should consider the challenges experienced in functioning of Dispute Resolution Panel and learn from those experiences, for demonstrating its effectiveness while granting approvals.

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Dalal further said that “indirect references” to Mauritius (and, to some extent) Singapore treaties seems to indicate a resolve to attack tax exemption claims based on GAAR, unless there is commercial substance in such companies.

The draft guidelines said that GAAR provisions would be invoked only in cases where FIIs choose to take the benefit of double tax avoidance treaties.

On Friday Sensex surged by a whopping 439 points, its biggest single-day gain in 2012 so far, on the back of clarity on tax-avoidance rules, besides other factors.

Amid widespread apprehensions, the government has deferred implementation of GAAR by one-year to the next fiscal.

PTI