GAAR applies to an arrangement where the main purpose is to obtain a tax benefit, and which, among others, lacks commercial substance. “Judicial” GAAR has been around and applied in the past in India, but the introduction of the “legislative” GAAR gives a new twist to this interesting topic of tax discussion, and requires both taxpayers and tax practitioners to realign their approach to tax planning. India has tax treaties with certain countries where specific anti-avoidance conditions need to be met before treaty benefits can be claimed—an example would be the minimum expenditure threshold test under the Singapore and Mauritius treaties. On the aspect of whether GAAR would apply where specific conditions are included in a treaty, the Central Board of Direct Taxes (CBDT) has clarified that where a case of avoidance is “sufficiently addressed” by the treaty, GAAR should not be invoked. As is commonly understood, GAAR applies to an arrangement where the main purpose is to obtain a tax benefit, and which, among others, lacks commercial substance.

Source: Mint October 22, 2017 17:48 UTC