The General Anti Avoidance Rule
The General Anti-Avoidance Rules
Direct Taxes Code Bill, 2009
Background
Avoidance – An attempt to reduce tax liability through legal means, i.e. to regulate your affairs in such a way that you pay the minimum tax imposed by the Act as opposed to the maximum
Example – Mr. A forms a company to sell his products. The company pays 25% tax, but if he himself sold the products he would pay 30%
Evasion – Use of illegal means to reduce tax liabilities, i.e. falsification of books, suppression of income, overstatement of deductions, etc.
Example – Mr. B sells his products for cash and does not bank the cash.
“Every man is entitled to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be”
– Lord Tomlin (IRC v. Duke of Westminster)
2
Direct Taxes Code Bill, 2009
©2009 Deloitte Haskins & Sells. All rights reserved.
Anti-avoidance
Anti Avoidance rules can be classified into following: ‒ Measures based on general principles in the law
• This refers to principles which are not codified in the legislation (non-statutory) • They include a range of philosophies and approaches including “substance over form” “abuse of law”
‒ General Anti Avoidance rules
• It has same meaning as “anti avoidance rules based on general principles in law” except that it is codified and included in the legislation
‒ Specific Anti Avoidance rules
• These are the specific anti-avoidance rules which applies to the specific situations- CFC, Thin Capitalization rules, Exit Tax etc.
India moved from the first stage to the second stage by introducing GAAR under Domestic Tax Laws.
3
Direct Taxes Code Bill, 2009
©2009 Deloitte Haskins & Sells. All rights reserved.
General anti-avoidance provisions introduced
The Commissioner empowered to declare an arrangement as an impermissible avoidance arrangement (IAA) if: • The whole, a step or a part of the arrangement has been entered with the objective of
Direct Taxes Code Bill, 2009
Background
Avoidance – An attempt to reduce tax liability through legal means, i.e. to regulate your affairs in such a way that you pay the minimum tax imposed by the Act as opposed to the maximum
Example – Mr. A forms a company to sell his products. The company pays 25% tax, but if he himself sold the products he would pay 30%
Evasion – Use of illegal means to reduce tax liabilities, i.e. falsification of books, suppression of income, overstatement of deductions, etc.
Example – Mr. B sells his products for cash and does not bank the cash.
“Every man is entitled to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be”
– Lord Tomlin (IRC v. Duke of Westminster)
2
Direct Taxes Code Bill, 2009
©2009 Deloitte Haskins & Sells. All rights reserved.
Anti-avoidance
Anti Avoidance rules can be classified into following: ‒ Measures based on general principles in the law
• This refers to principles which are not codified in the legislation (non-statutory) • They include a range of philosophies and approaches including “substance over form” “abuse of law”
‒ General Anti Avoidance rules
• It has same meaning as “anti avoidance rules based on general principles in law” except that it is codified and included in the legislation
‒ Specific Anti Avoidance rules
• These are the specific anti-avoidance rules which applies to the specific situations- CFC, Thin Capitalization rules, Exit Tax etc.
India moved from the first stage to the second stage by introducing GAAR under Domestic Tax Laws.
3
Direct Taxes Code Bill, 2009
©2009 Deloitte Haskins & Sells. All rights reserved.
General anti-avoidance provisions introduced
The Commissioner empowered to declare an arrangement as an impermissible avoidance arrangement (IAA) if: • The whole, a step or a part of the arrangement has been entered with the objective of