15.12         ndian    onom
     decided to advance the introduction of GAAR                  Committee on DTC has specifically
     and implement it from the financial year 2013–14             recommended that the onus of proving
     itself. More than 30 countries have introduced               the existence of a tax-avoidance motive
     GAAR provisions in their respective tax codes to             and a transaction lacking commercial
     check such tax evasion.                                      substance, should rest with the revenue
           The objective of the GAAR provisions is to             invoking GAAR and not shifted to the
     codify the doctrine of ‘substance over form’ where           taxpayer. This is essentially to ensure that
     the real intention of the parties and purpose                the revenue authorities exercise proper
     of an arrangement is taken into account for                  discretion, proper application of mind
     determining the tax consequences, irrespective of            and gather enough credible data and
     the legal structure of the concerned transaction or          evidence before attempting to invoke far-
     arrangement. It essentially comes into effect where          reaching provisions such as GAAR.
     an arrangement is entered into with the main            (ii) An arrangement will be deemed to lack
     purpose or one of the main purposes of obtaining             commercial substance under GAAR if it
     a tax benefit and which also satisfies at least one of       involves the location of an asset or of a
     the following four tests:                                    transaction or of the place of residence
           (i) The arrangement creates rights and                 of any party that would not have been so
               obligations that are not at arm’s length,          located for any substantial commercial
                                                                  purpose other than obtaining tax
          (ii) it results in misuse or abuse of provisions
                                                                  benefit. This again is an amazingly wide
               of tax laws,
                                                                  provision that provides a great weapon
         (iii) lacks commercial substance or is deemed            in the armoury of the tax authorities
               to lack commercial substance, or                   to challenge almost every inbound or
         (iv) it is not carried out in a bona fide manner.        outbound transaction with respect to
           Thus, if the tax officer believes that the             India, made        through any of the
     main purpose or one of the main purposes of an               favourable tax treaties that India has
     arrangement is to obtain a tax benefit and even              entered into. The governments intention
     if one of the above four tests are satisfied, the tax        becomes clear visibly by one of the
     officer has powers to declare it as an impermissible         finance ministry replies to the Standing
     avoidance arrangement and re-characterise                    Committee on DTC, where it has made
     the entire transaction in a manner that is more              it clear that the GAAR provisions will
     conducive to maximising tax revenues. There                  check treaty shopping by the taxpayer for
     are many troubling aspects of this provision that            avoidance of payment of tax in India.
     will make doing business in India even more            (iii) GAAR allows tax authorities to call a
     challenging, than what it already is from a tax              business arrangement or a transaction
     perspective—                                                 ‘impermissible avoidance arrangement’
           (i) It is presumed that obtaining tax benefit          if they feel it has been primarily entered
               is the main purpose of the arrangement             into to avoid taxes. Once an arrangement
               unless otherwise proved by the taxpayer.           is ruled ‘impermissible’ then the tax
               This is an onerous burden that under a fair        authorities can deny tax benefits. Most
               rule of law should be discharged by the            aggressive tax avoidance arrangements
               revenue collector and not the taxpayer.            would be under the risk of being
               In fact, the Parliamentary Standing                termed impermissible. It has a provision