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Abbreviation: General Anti – Avoidance Rules
Tax avoidance is a major area of concern across the world. Rules framed by different countries to minimize avoidance of tax, in simple terms are named as GAAR.
GAAR is a concept which empowers the revenue authorities to deny the tax benefits which do not have any commercial substance or consideration.
There were conflicts between tax payers whenever revenue authorities question on such transactions. In a nutshell, GAAR is a set of rules which are based on general principles to check the potential avoidance of tax in general.
Tax havens are countries which have low tax regimes which provide individuals and business opportunities of tax avoidance or tax evasion.
There are roughly 45 tax havens in the world today. In Indian context, Mauritius is considered to be the most significant tax havens or tax evading route.
The Mauritius route can be described as a channel used by individuals and MNC’s to evade paying taxes in India. The tax evasion in India through this route is estimated to be in tune with 55 billion dollar.
Increased litigations.
Implementation of GAAR provides tremendous powers to deny tax benefit to an entity if a transaction has been carried with the sole intention of tax avoidance. Due to powers in the hand of taxmen, now innocents may be harassed by them.
–Here there is an arrangement and one of the main purposes is a tax benefit.
This is a case of tax mitigation where the tax payer is taking advantage of a fiscal incentive offered to him by submitting to the conditions and economic consequences of the provisions in the legislation. So this would not invoke GAAR.
–Here there is an arrangement and there is a tax benefit. The transaction lacks commercial substance and there is misuse of the tax provisions and thus revenue would invoke GAAR.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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