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Attack on Delhi Chief Secretary turning into street fights & legal battlesDAE Health Scheme notified for Sec 80D benefitsIssuance of Certificate of origin retroactively - period enhanced to twelve months from the date of shipment - Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Partnership Agreement between the Republic of India and Japan) Rules, 2011 amendedSummons in GST (See 'JEST GST on GST Home Page')I-T - When Revenue had accepted assessee as investor in previous year, it cannot change his status to trader merely because he made some profit on shares: ITATEmployee Benefits - An OverviewST - Transport of goods by air Tax payable during period 10.09.2004 to 16.09.2004 and 16.6.2005 to 14.07.2005 as there was no exemption from payment of such tax during said period: CESTATComposition scheme eligibility, process and benefitsCX - There is no provision under CCR, 2004 for denial of credit on ground that assessee has admittedly deployed inputs in excess of ideal for achieving desired output level: CESTATIAS Association condemns attack on Delhi Chief Secretary; demands immediate actionICAI removes name of O P Tulsyan from register of Members for five years in compliance with Allahabad HC orderST - Supreme Court agrees with Larger Bench CESTAT decision in Bhayana Builders - Revenue appeals dismissedCabinet clears bills on illicit deposit & chit funds regulations (See 'TIOLCorplaws')Cabinet nod for Tribunal on river disputeCabinet nod for bus bay near Indian Defence UniversityCabinet nod for coal mining methodologyCabinet okays Indo-Moroccan railway pactFive IRS officers appointed as CESTAT Members - Sanjiv Srivastava (Mumbai) + P Anjani Kr (Mumbai) + P Venkata Subba Rao (Hyderabad) + Bijay Kr (Delhi) + C L Mahar (Delhi)CBDT issues transfer order of four CITsI-T - Incriminating evidences obtained prior to date of search, cannot be roped in to make additions in case of unabated assessments: ITATPNB scam should pave road for financial transparencyBurdensome registration requirement under GST law be done away withST World Bank and International Finance Corporation are part of United Nations, therefore, there is no need to resort to definition of International Organization for extending benefit of notification 16/2002-ST: CESTATAnti Profiteering Application - An analysisCX - Merely on basis of statement given by one employee to police that raw materials worth Rs.2 crore were destroyed in fire, same cannot be taken as gospel truth: CESTATGovt keen to make agri schemes 'income-centric' rather than 'production-centric': MinisterKolkata DRI seizes 12.4 kg elephant tusk being smuggled from Assam to NepalDigital India successing becoz of people's pull: PMFish eats plastic & humans eat fish - serious health hazard: MinisterI-T - When assessee was only a licensee, not having exclusive rights over a property, vide unregistered document, it cannot claim to be owner of property for purpose of Sec 22: HCRailways relaxes upper age limit for Group C postsNo GST is leviable on goods sold/transferred while remaining in Customs bonded warehouseLeviability of IGST and as well as Compensation cess under Customs ActAG expresses concern over CBEC cases being dismissed by SC on ground of delayTime to shift focus from acronyms to gaps in performanceGST - Industry reports cumbersome procedures & high cost of compliance
 
Budget should throw fresh light on GAAR and BEPS

FEBRUARY 10, 2016

By TIOL Edit Team

TIME has come for the Finance Ministry to revisit twice-deferred General Anti Avoidance Rule (GAAR) under Income-Tax Act keeping in view latest developments abroad.

Three such major developments are: 1) International Monetary Fund's (IMF's) technical note introducing GAAR issued on 3 rd February 2016; 2) European Commission's anti-avoidance directive dated 28 th January 2016 factoring in final package of Base erosion and profit shifting (BEPS) and 3) Australia's amendments to its GAAR to factor BEPS concerns.

Final BEPS package was issued by Organisation for Economic Co-operation and Development (OECD) in October 2015 and later endorsed by G20 Summit. India, as G20 member, is committed to implementing BEPS package.

Another reason why the Ministry should rework GAAR is its plan to phase-out many tax incentives. This coupled, with any specific anti-avoidance rules (SAAR), should pave way for smaller, simpler and effective GAAR.

The Ministry might like to compare the notified but deferred GAAR with the sample GAAR that appears as annexure in IMF's technical note. It would be prudent on part to see how Australia has made its GAAR complaint with BEPS package.

As put by the IMF note, "Whatever the form of a GAAR, it should give effect to a policy that seeks to strike down blatant, artificial or contrived arrangements which are tax driven. However, the GAAR should be designed and applied so as not to inhibit or impede ordinary commercial transactions in respect of which taxpayers can legitimately take advantage of opportunities available to them when structuring or carrying out those transactions."

A more relevant observation made in the technical note relates to GAAR's applicability to bilateral treaties. The Note says: "A GAAR when introduced in domestic law needs to be carefully designed and drafted to achieve consistency with the country's existing international legal obligations such as those embodied in existing tax treaties."

This has direct implication for ‘treaty shopping' loopholes that India created by design or oversight in different bilateral Double Taxation Avoidance agreements (DTAA). The Ministry must expedite completion of negotiations with concerned countries to amend respective DTAAs to prevent aggressive tax avoidance strategies by multinational corporations.

India, for instance, must complete immediately its negotiations with Mauritius for amending bilateral DTAC. The negotiations have dragged for almost a decade under the framework of a Joint Working Group (JWG).

Any further laxity in amending DTAAs might be construed by GAAR-committed countries as India's unwillingness to embrace BEPS in letter and spirit.

A generic concern on this count has already been emphatically stated by European Commission (EC). In its recommendations to EU member states on the implementation of measures against tax treaty abuse, EC observes: "Tax treaties should not create opportunities for non- or reduced taxation through treaty shopping or other abusive strategies which only frustrate the purpose of such conventions and undermine the tax revenues of the Contracting States. The European Commission lends its full support to the efforts to tackle tax treaty abuse."

EC, in its recommendations/directive has also pitched for General anti-avoidance rule based on a principal purpose test (PPT).

With this background in view, corporate tax payers would naturally expect Finance Minister Arun Jaitley to provide fresh insights into India's maiden GAAR regime. When would it be revised for implementation with effect from 31March 2017, a revised timeline that was announced by Mr. Jaitley in 2015-16 budget?

Noting the concern voiced by stakeholders over GAAR, the Budget indicated that the Government would like to incorporate in GAAR the final BEPS recommendations from OECD.

The budget documents stated: "Accordingly, it is proposed that implementation of GAAR be deferred by two years and GAAR provisions be made applicable to the income of the financial year 2017-18 (Assessment Year 2018-19) and subsequent years by amendment of the Act. Further, investments made up to 31.03.2017 are proposed to be protected from the applicability of GAAR by amendment in the relevant rules in this regard."

Apart GAAR, there are several other elements of BEPS. The forthcoming Budget should thus shed some light on the timelines for implementation of 15 action points of BEPS package.

Put simply, Mr. Jaitley must strike a balance between wooing investment and plugging revenue leakages. We expect him to keep in mind the trade-off between additional investments and additional revenue.


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