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January 2013

European Union wants member states to adopt common general anti-avoidance rules

By Tarunkumar Singhal, Raman Jokhakar
Chartered Accountants
Reading Time 2 mins
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Indian tax authorities have got support for the much criticised anti-tax avoidance rules from European Commission, giving it the necessary backing to take a decision on the stalled proposal.

The executive body of the 27-member European Union has drawn up an action plan to combat tax evasion and avoidance and wants member states 530 (2013) 44-B BCAJ to adopt a common general anti-avoidance rules, or GAAR.

India has deferred the implementation of GAAR by a year after domestic and foreign investors voiced concerns, and it could be pushed to 2016-17 if the country accepts recommendations of the review committee.

The recommendations are with Manmohan Singh, but a decision has been difficult because of opposition from tax authorities that are not in favour of any further delay in the rules that they feel is necessary to curb tax evasion.

Shome committee had suggested a three-year deferral, arguing that the administrative machinery was not ready. GAAR rules seek to deny tax benefit to any arrangement that is entered into with the sole objective of avoiding taxes. Though primarily targeted at foreign investors coming into India through the tax havens and Mauritius, the rule could well apply to domestic structures as well, which has worried the domestic industry. Worried foreign investors had pressed sales in stock markets fearing the law would apply to their investments routed through Mauritius. India Incs biggest fear was that the rules would leave too much discretionary powers in the hands of income tax officials leading to their harassment.

(Source: The Economic Times dated 10-12-2012)

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