FinMin moots GAAR monetary threshold

To address investor concerns,FinMin proposed monetary limit for invoking controversial GAAR.

To address investor concerns over taxation issues,the Finance Ministry proposed a monetary limit for invoking the controversial General Anti-Tax Avoidance Rules GAAR in its draft guidelines issued late in the night.

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

8220;Where an FII chooses to take a treaty benefit,GAAR provisions may be invoked in the case of the FII,but would not in any case be invoked in the case of the non-resident investors of the FII,8221; the draft guideline said.

The provisions,it said will apply only to the income arising to taxpayers on or after April 1,2013.

The draft guidelines also proposed setting up a three-member Approving Panel to decide whether a particular case would attract the provisions of the GAAR.

The guidelines has proposed time limits for completion of various actions under the GAAR.

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The GAAR provisions were proposed by former Finance Minister Pranab Mukherjee in his Budget to prevent tax evasion.

The provisions,however,invoked sharp criticism from the foreign and domestic investors,following which the government constituted a high-level committee to look into their concerns.

The committee,which is headed by Director General of Income Tax international taxation,looked into the concerns of the investors and came out out with draft guidelines to seek comments of the stakeholders.

8220;We have finalised the GAAR draft rules after three meetings with the stakeholders. The draft will have examples for what would be deemed as permissible and impermissible arrangement,8221; Finance Secretary R S Gujral had said earlier in the day.

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Ketan Dalal,Joint Tax Leader,PwC India says,8221;What has emerged is a draft of the guidelines for GAAR,which is anyway mandated as per the provisions of the Act. There is no reference to further deferment. Also,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. Negative impact for FIIs and private equity,in particular.

There are 21 examples outlined in the draft guidelines,which do provide some clarity. This will,to some extent,reduce uncertainty. However,its more that a very painful provision with very wide discretion has been made slightly less painful. A question of degree,rather than anything substantive8221;.