CBDT sets up panel for tax anti-avoidance

The CBDT, India™s apex body for administration of taxes, has formed a six-member committee to draft guidelines for enforcing the general anti-avoidance rules (GAAR) introduced in the Union budget to crack down on tax cheats.

The panel, headed by CBDT chairman Laxman Das, is expected to submit the draft norms to the finance ministry within 2 months. The proposed guidelines will be put up for public feedback before they are finalized by the committee, which held a meeting early this week in New Delhi. GAAR will help the tax authority deal with commercial transactions that are structured essentially to circumvent tax laws and avoid paying taxes. If the revenue authority concludes that a transaction by any entity is aimed primarily at avoiding taxes, it will be able to deny tax benefits claimed by the entity.The key challenge for the committee is to formulate the rules to determine whether the arrangement lacks commercial purpose or was made to obtain a tax benefit.The CBDT committee is currently studying the Australian tax practice statement that lists eight key factors such as the form and substance of an arrangement, time at which the arrangement was entered into, length of the period during which it was carried out and the change in the financial position of the taxpayer or a related entity due to the scheme, to determine whether a transaction has been entered into for the purpose of obtaining a tax benefit, said a revenue official .

The draft, according to this official, is still at a nascent stage, but will be similar to the Australian tax practice statement in identifying the purpose of any arrangement/transaction.The rules will also provide a threshold of tax benefits above which GAAR can be invoked.

Experts believe the draft guidelines should curtail the unlimited powers sought to be given to an income-tax officer under GAAR and reduce the time frame for deciding a case.

Under GAAR, an assessing officer has the discretion to refer a case to the commissioner if he considers a transaction an impermissible tax avoidance arrangement. If the commissioner agrees with his stand, he can refer the case to a three-member approving panel of GAAR comprising income-tax commissioners for a final decision.