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