GAAR to incorporate OECD initiative’s norms on tax avoidance

Government proposes to come out with a modified General Anti-Avoidance Rules by incorporating provisions of the OECD’s BEPS project so as to effectively deal with the problem of tax avoidance 

by MNCs.

The BEPS initiative aims to ensure that taxes are paid where profits are made. Multinational companies use a wide range of cross border tax planning techniques that result in little or tax liability and such results are referred to as ‘Base Erosion and Profit Shifting’.

India has been at the forefront in raising the issues concerning tax avoidance and automatic exchange of information with a view to curbing tax evasion.

Finance Minister Arun Jaitley in his Budget for 2015-16 on Saturday had postponed by two years to April 1, 2017 the implementation of the controversial GAAR. It said: “The report on various aspects of BEPS and recommendations regarding the measures to counter it are awaited. It would, therefore, be proper that GAAR provisions are implemented as part of a comprehensive regime to deal with BEPS and aggressive tax avoidance.”

The implementation of GAAR provisions has been reviewed and concerns have been expressed regarding certain aspects.

Besides, the BEPS under the Organisation of Economic Cooperation and Development (OECD) is continuing and India is an active participant in the project. The government had earlier proposed imposing the GAAR from April 1, 2015, for those claiming tax benefit of over Rs 3 crore. The rules are aimed at minimising tax avoidance for investments made by entities based in tax havens.

Jaitley had said that general rules of avoidance have now been redefined globally. “Now the new rules of interpretation have been completely done away with this distinction of tax avoidance and tax evasion. And it is that rule which will have to be applied,” Jaitley had said. The leaders of 20 developing and developed countries at their summit in Brisbane in November 2014 had endorsed the action plan to tackle BEPS, to make sure companies pay their fair share of tax. The G20 action plan on BEPS is expected to be finalised by 2015.

The G20 countries include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russian Federation, Saudi Arabia, South Africa, Turkey, United Kingdom, United States and the European Union.