Parthasarathy shome committee GAAR

Scope of the Terms of Reference of the Expert Committee Headed by Dr.

Parthasarathi Shome on Gaar Expanded to Include all Non-Resident Tax Payers
Instead of Only FIIs:
The Standing Committee on Finance has presented its report on Current Economic
Situation and Policy Options to Parliament on August 30, 2012. The Committee has
inter alia found that the investment climate in the country has suffered serious
setback and investors confidence has been hit mainly because of the concerns over
the impact of retrospective tax laws and new General Anti Avoidance Rules(GAAR).
The Government had constituted an Expert Committee headed by Dr. Parthasarathi
Shome on GAAR on July 13, 2012. The Committee has now submitted its draft
report, which has been placed in public domain on September 1, 2012 for seeking
suggestions/opinion of the various stakeholders.
The Government had earlier on August 6, 2012 also requested the Expert
Committee to examine the applicability of the amendment on taxation of nonresident transfer of assets where the underlying asset is in India, in the context of
Foreign Institutional Investors (FIIs) operating in India purely for portfolio
investment. It has now been decided to expand the scope of the Terms of Reference
of the Committee to include all non-resident tax payers instead of only FIIs.
The terms of reference of the Committee are:
1. Receive comments from stakeholders and the general public on the draft
GAAR guidelines which have been published by the Government on its
website.
2. Vet and rework the guidelines based on this feedback and publish the second
draft of the GAAR guidelines for comments and consultations.
3. Undertake widespread consultations on the second draft GAAR guidelines.

4. Finalise the GAAR guidelines and a roadmap for implementation and submit
these to the government.
The Committee is mandated to work to the following time schedule:
1. Receive comments from stakeholders and general public till end-July 2012.
2. Vet and rework the guidelines based on this feedback and publish the second
draft GAAR guidelines by 31 August 2012.
3. Finalise the GAAR guidelines and a roadmap for implementation and submit
these to the government by 30 September 2012.
The Committee, chaired by Dr. Parthasarathi Shome, has submitted its draft report
after analysis of the GAAR provisions and noting the concerns expressed by various
shareholders. The draft report has recommended certain amendments in the
Income-tax Act, 1961; guidelines to be prescribed under the Income-tax Rules,
1962; circular to clarify GAAR provisions along with illustrations; and other
measures to improve tax administration specifically oriented towards GAAR
matters.
GAAR

The General Anti Avoidance Rule, or GAAR, was proposed in mid-March as

part of the budget for fiscal 2013.

GAAR aims to target tax evaders, partly by stopping Indian companies and
investors from routing investments through Mauritius or other tax havens for
the sole purpose of avoiding taxes.

However, the ambiguous language, the lack of details, and the sudden onset
of the provisions have been among the factors that have upset foreign
investors.

Finance Minister proposed to defer the rollout of GAAR by a year to the

financial year that begins in April 2013 to provide more time to both
taxpayers and the tax office to address all related issues.

A local or foreign taxpayer will also be able to approach authorities in

advance for a ruling on their potential tax liabilities, the Minister said.

An independent member would be in the GAAR approving panel, while one

member would be an officer of the level of Joint Secretary, or above, from
the Ministry of Law.

On the proposed retrospective amendment in tax rules, Mukherjee said the

changes will not override the provisions of double-tax avoidance treaties
India has with 82 countries.

The retroactive changes will only impact those cases where a deal has been
routed through low-tax and no-tax countries with whom India does not have
tax treaties.

The proposed retrospective changes in tax rules will not be used to reopen
cases where assessment orders have already been finalized.

Mukherjee proposed to reduce long-term capital gains tax on private equity

firms on the sale of unlisted securities to 10 percent, from 20 per cent
currently, and bring the tax rate in line with what is charged from foreign
portfolio investors.

The finance minister also proposed to cut the withholding tax to 5 per cent
from 20 per cent currently on funding through foreign loans for all
businesses. The budget in mid-March had proposed a lower withholding tax
for some sectors.

It is proposed to extend the tax exemption on long-term capital gains related

to the sale of unlisted securities in an initial public offering. The levy of the
Securities Transaction Tax would be levied at the rate of 0.2 per cent on the
sales of unlisted securities.