overview of general anti-avoidance … yogesh thar...overview of general anti-avoidance rules...
TRANSCRIPT
The Chamber of Tax Consultants
OVERVIEW OF GENERAL ANTI-AVOIDANCE RULES
(“GAAR”)
Presentation by Yogesh Thar July 1, 2017
OVERVIEW
NEED FOR GAAR
Counteract and negate abusive tax avoidance arrangements which result in a serious loss ofrevenue to tax authorities
Codify the principle of ‘SUBSTANCE OVER FORM’
Examine cases of aggressive tax planning with use of sophisticated structures
Plugging loopholes that may result in tax avoidance
Critical examination of inbound/outbound transaction and check treaty shopping
Deterrent against use of legal constructions or transactions to violate horizontal equity
Preserve the tax base of the country from erosion
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TAX EVASION, TAX MITIGATION, TAX AVOIDANCE
Tax Evasion
Unlawful and is the result of illegality,
suppression, misrepresentation and
fraud
Prohibited by tax statute as well as judge made law (JAAR). Thus,
GAAR not relevant
Tax Avoidance
Outcome of actions taken by the assesse, none of which or combination
thereof is illegal or forbidden by the law as
such
GAAR applies if tax avoidance is the main purpose
Tax Mitigation
Situation where tax payer uses a fiscal incentive provided under the tax legislation fulfilling the
conditions and economic consequences thereto
Allowed under the tax statue itself. Ideally,
GAAR should not apply
4
Main objective
behind arrangement
is TAX
MITIGATION -
Whether GAAR
provisions apply!
Tax avoidance can
be ‘acceptable’ or
‘unacceptable’.GAAR intends to
cover only the
latter.
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FRAMEWORK OF GAAR – CHAPTER X-ASection/Rules Overview
95 Applicability of GAAR
96 Impermissible Avoidance Arrangement (“IAA”)
97 Arrangement of lack commercial substance
98 Consequences of IAA
99 Treatment of connected person and accommodating party
100 Application of Chapter X-A
101 Chapter X-A to be applied in accordance with guidelines to be framed
102 Definitions
144BA Administration of GAAR
Rule 10U Exclusions from applicability of Chapter X-A
Rule 10UA Determination of consequences of IAA
Rule 10UB Notices and forms
Rule 10UC Time Limits
Circular No. 7 of 2017 FAQs on GAAR
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GAAR PROVISIONS – A SNAPSHOT
Is there an ARRANGEMENT
MAIN PURPOSE of the
whole/step in/part of the arrangement
is TAX BENEFIT
Does the arrangement contain any of the
following TAINTED ELEMENTS:a) Not at ARMS’ LENGTHb) MISUSE/ABUSE of tax provisions
c) Lacks COMMERCIAL SUBSTANCE
d) Not for BONAFIDE PURPOSE
The arrangement is an IAA
The arran
gem
ent is N
OT
an IA
A
Yes
Yes
Yes
No
No
No
CONSEQUENCES*:
disregarding, combining or recharacterising any
step in/part/whole of the IAA; treating the IAA as if it had not been entered into
or carried out; disregarding any accommodating party or treating
any accommodating party and any other party as
one and the same person; deeming connected persons to be one and the same
person for the purposes of determining tax
treatment of any amount; reallocating income, expenditure, deduction, relief,
rebate;
reassigning place of residence, situs of asset or
transaction;
disregarding corporate structuring
*For this purpose equity, debt, expenses, accrual or
receipt, relief or rebate may be recharacterisedGAAR applicable subject to
exclusions under Rule 10U
GA
AR
is no
t app
licable
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INTERPLAY WITH JUDICIAL ANTIAVOIDANCE RULES (“JAAR”)
Duke of Westminster vs. IRC (19 TC 490)(HC)
Avoidance of tax is not tax evasion and it carries no ignominy with it, for it is sound lawand certainly not bad morality for anybody to so arrange his affairs as to reduce the bruntof taxation to a minimum.
Followed in:
CIT vs. Keshavlal Patel (55 ITR 637)(SC);
CIT vs. A Raman and Co. (67 ITR 11)(SC);
CIT vs. B. M. Kharwar (72 ITR 603)(SC)
8
Legal effect can’t be ignored
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Gregory V/S. Helvery (1935) (US Supreme Court)
9
Steps:
1. Individual owns Co. A; Co. A owns Co. B
2. Individual floats a new company – Co. C
3. Co. A transfers shares of Co. B to Co. C
4. Co. C is liquidated; Individual holds Co. B (Corporate
Reorganisation)
5. Individual sells shares of Co. B and receives cash
Individual
Co. A Co. C
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Co. B
1
1
3
3
24
5
&
Origins of Anti-tax Avoidance Doctrine
Gregory vs. Helvery (1935) (US Supreme Court)(contd…)
US – Court of Appeals
Purpose of the Legislation:
o readjustment shall be undertaken for reasons germane to the conduct of the venture in hand
o To dodge the shareholders taxes is not one of the transactions contemplated as Corporate‘Reorganisation’
US – Supreme Court
Intention of the taxpayer:
o Simply an operation having no business or corporate purpose
o A mere device which put on the form of corporate reorganisation as a disguise forconcealing real character
And
Purpose of legislation: Approved Court of Appeals observations
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Ramsay vs. IR (54 TC 101)(HL);
Substance over form:
‘Sham’ cases of ‘ready made schemes’ Series of inter connected transactions which were ‘self cancelling’ Loss ‘manufactured’ or ‘created’ to set off gains Several transactions – commercially inert, only fiscally active
House of Load cautioned against pre-ordained, pre-arranged
scheme having no commercial substance apart from tax avoidance
Followed in:
IRC vs. Burma Oil (54 TC 200)(HL) – case of self cancelling transactions (circular transactions)
Furniss vs. Dawson (55 TC 324)(HL) – case of transaction division (linear transactions)
11
Befitting burial of Duke of Westminister doctrine – Follows PURPOSIVE APPROACH
Emergence of FISCAL
NULLITY DOCTRINE
The tax consequences of
the interlocking,
interdependence, and pre-
determined transactions
are to be judged by
reference to their
substance.
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McDowell & Co. Ltd vs. Commercial Tax Officer(154 ITR 148)(SC)
Main judgment of Ranganath Misra, J. (on behalf of Full Court)
Tax planning may be legitimate provided it is within the framework of law
Colourable devices cannot be part of tax planning it is wrong to encourage the belief that it ishonourable to avoid payment of tax by resorting to dubious methods
It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges
Supplementing decision by Chinappa Reddy, J. ( post concurrence with decision of‘majority’) Blurred distinction between “tax avoidance” and “tax evasion” Dismissed observations in Raman & Co
12
Chinappa Reddy J.’s view: Reopened debate of Ramsay vs. Duke of Westminister
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UOI vs. Azadi Bachao Andolan (263 ITR 706)(SC)
An act which is otherwise valid in law cannot be treated as non est merely on the basisof some underlying motive supposedly resulting in some economic detriment orprejudice to the national interests.
Duke of Westminster principle is very much alive and kicking. A Raman’s case (supra)is very much relevant even today;
Rest of the Judges of the Constitutional Bench in McDowells (supra) did not contributeto ‘radical’ thinking of Chinappa Reddy, J.
13
Duke of Westminster doctrine resurrected
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CIT vs. Walfort Share and Stock Brokers (P.) Ltd. (326 ITR 1)(SC)
After referring to case of McDowell (supra) and Azadi Bachao Andolan (supra) it washeld that a citizen is free to carry on its business within the four corners of the law.
Mere tax planning, without any motive to evade taxes through colourable devices, is notfrowned upon even by the judgment of the Supreme Court in McDowell (supra)
14
Azadi Bachao Andolan reaffirmed
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Vodafone International Holdings B.V. vs. UOI (341 ITR 1)(SC)
Reaffirmed cardinal principal of Duke of Westminster - given that a document or transaction isgenuine, the court cannot go behind it to some supposed underlying substance
No conflict between McDowell (supra) and Azadi Bachao (supra)
Chinnappa Reddy, J.’s view in McDowell’s (supra) clearly only in the context of artificial andcolourable devices
‘Look at’ approach preferred over ‘Look through’ approach
Revenue can invoke 'substance over form principle' or piercing corporate veil' test only after it isable to establish on basis of facts and circumstances surrounding transaction that impugnedtransaction is a sham or tax avoidance
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The Final Verdict!
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INTERPLAY
JAAR essential involves SUBSTANCE vs. FORM
Characteristic of the scheme of GAAR reflects the principle laid down in McDowellemphasis on Substance over Form
Main Purpose + Tainted element test [Section 96(1)]
Arrangement deemed to lack commercial substance (Section 97)
GAAR codifies and gives legal recognition to JAAR
16
GAAR is extended
and codified
version of JAAR
Whether JAAR can be invoked to the extent of exclusions provided under GAAR!
Arrangements where the tax benefit in a financial year is less than threshold of Rs.3 cores;
Income accruing or arising from transfer of investments made before April 1, 2017
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INTERPLAY WITH SPECIFIC ANTI-AVOIDANCE RULES (“SAAR”)
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OVERVIEW Sections Provisions
2(22) Deeming certain transactions with
shareholders/their related parties as dividend
9 Explanation 5 – Indirect Transfer
14A Disallowance of expense in relation to exempt
income
40A(2) &
92
Expenses or payments not deductible in certain
circumstances involving related parties
50C,
50CA,
50D
Deeming sales consideration in case of transfer of
land, building, unquoted shares or where such
consideration is not ascertainable or determinable
56(2) Treating any receipt of property at NIL or
inadequate consideration as income of recipient
60 Transfer of income without transfer of assets
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Sections Provisions
61 & 62 Taxation of revocable and irrevocable trust
64 Transfer of income by husband to wife vice versa
79 Carry forward and set off of losses in case of
change of shareholding
80IA,
80IB, 80IC
Tax Holiday – Inter company/Intra company
transfers
Chp X Transfer Pricing
93 Avoidance of income-tax by transfer of income to
non-residents through transfer of assets, rights,
interest
94 Dividend Stripping/ Bonus Stripping
94B Thin Capitalisation
94CE Secondary Adjustments, etc.
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DRAFT GUIDELINES FOR GAAR IMPLEMENTATIONUNDER DIRECT TAX CODE BILL, 2010 (“DTC”)
Concerns have been raised that there could be interplay between the SAAR and GAAR.The committee examined this issue and gave the below recommendation:
19
“While SAARs are promulgated to counter a specific abusive behavior, GAARs
are used to support SAARs and to cover transactions that are not covered by
SAARs. Under normal circumstances, where specific SAAR is applicable, GAAR
will not be invoked. However, in an exceptional case of abusive behavior on the
part of a taxpayer that might defeat a SAAR……., GAAR could also be invoked.”
(Underlined for emphasis)
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SHOME COMMITTEE REPORT
The report observed that the statement made by the earlier committee in the draftguidelines for DTC came under criticism. The committee stated as under
20
“It is a settled principle that, where a specific rule is available, a general rule will not
apply. SAAR normally covers a specific aspect or situation of tax avoidance and provides a
specific rule to deal with specific tax avoidance schemes. For instance, transfer pricing
regulation in respect of transactions between associated enterprises ensures determination
of taxable income based on arm‘s length price of such transactions. Here GAAR cannot be
applied if such transactions between associated enterprises are not at arm's length even
though one of the tainted elements of GAAR refers to dealings not at arm‘slength…………………………
In view of the above, the Committee recommends that that where SAAR is applicable to a
particular aspect/element, then GAAR shall not be invoked to look into that
aspect/element.”
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CIRCULAR NO. 7 of 2017 dated 27/01/2017
Central Board of Direct Taxes (“CBDT”) has issued the said circular providingclarification on implementation of GAAR
21
“Question no. 1: Will GAAR be invoked if SAAR applies?
Answer: It is internationally accepted that specific anti avoidance provisions
may not address all situations of abuse and there is need for general
anti-abuse provisions in the domestic legislations. The provisions of
GAAR and SAAR can coexist and are applicable, as may be
necessary, in the facts and circumstances of the case.”
Co-existence of GAAR & SAAR depends on necessity, facts and circumstances of the case
Circular creates AMBIGUITY
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ILLUSTRATION (1/2)
22
Hold Co.
Sub Co.
Sub Co. has substantial carried forward losses
where as Hold Co. is a profit making company
The scheme is a qualifying amalgamation u/s
2(1B)
Transfer exempt u/s 47(vi)
Hold Co. will be allowed to set – off the losses
u/s 72A
Predominant intention behind the arrangement is
set off of losses
Can GAAR provisions be invoked?
Merger51%
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ILLUSTRATION (2/2)
23
Hold Co.
Sub Co.
Sub Co. is a trading company
It has substantial carried forward losses where as
Hold Co. is a profit making company
Sub Co. starts a new consultancy business
Sub Co. demerges trading division to Hold Co.
The scheme is a qualifying demerger u/s
2(19AA)
Transfer exempt u/s 47(vib)
Hold Co. will be allowed to set – off the losses
u/s 72A(4)
Can GAAR provisions be invoked?
Demerger51%
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INTERPLAY WITH LIMITATION OFBENEFIT CLAUSE (“LOB”) IN TREATIES
ACTION PLAN – 6 - AN OVERVIEW
Action Plan 6 provides safeguard against ‘Treaty Abuse’ and in particular ‘TreatyShopping’
Three-pronged approach recommended to address treaty shopping arrangements:
25
Clear statement of intent in tax
treaties to avoid creation of
opportunities for non-taxation or
reduced taxation through tax
evasion or avoidance, including
through treaty shopping
arrangements
Introduction of specific anti-
abuse rule, for instance, the
Limitation-of-Benefits
(“LOB”) rule, that limits
availability of treaty benefits to
entities meeting certain
conditions
Conditions based on legal
nature, ownership in, and
general activities of entity to
ensure sufficient link between
entity and State of residence
Introduction of a more general
anti-abuse rule based on the
principal purposes test
(“PPT”)
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ACTION PLAN – 6 (contd…) Minimum Standard – to include in the tax treaties an express statement that common
intention is to eliminate double taxation without creating opportunities for non-taxation,tax evasion or avoidance
In order to implement the minimum standard the treaties should include
LOB
PPT
Simplified LOB supplemented by PPT
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WHAT IS LOB?
It is a SAAR aimed at treaty shopping
Treaty benefits to be denied to a resident of a Contracting State who is not a ‘Qualified Person’
‘Qualified Person’ to include An individual
The State, its political subdivision, entities owned by the State
Certain charities and pension funds
Certain publically entities and their affiliates
Certain entities that meet certain ownership requirements and/or turnover requirements
Certain collective investment vehicles
Entities permitted by competent authorities
Other SAARs in treaty - Beneficial Ownership, Arms Length principles, Force of Attraction, Special relationships, alienation of shares in real estate entities, etc.
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GAAR v/s TREATY
28
Article 51 – The State shall endeavor to:
(c) Foster respect for international law and
treaty obligation in the dealings of organized
peoples with one another
Constitution of India
Article 26 – Every treaty in force is binding upon
the parties to it and must be performed by them in
good faith – “PACTA SUNT SERVANDA”
Vienna Convention
Notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A of the Act shall apply to
the assessee even if such provisions are not beneficial to him
Section 90 (2A)
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GAAR v/s TREATY (contd…)
29
Where SAAR is applicable, GAAR will not be
invoked;
In an exceptional case of abusive behavior which
might defeat SAAR, GAAR could be invoked;
DTC – Draft Guidelines
Where anti-avoidance rules are provided in a tax
treaty in the form of limitation of benefit (as in
the Singapore treaty) etc., the GAAR provisions
shall not apply overriding the treaty.
Shome Committee
Recommendations
Question no. 2: Will GAAR be applied to deny treaty eligibility in a case where there is compliance with LOB
test of the treaty?
Answer: Adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance
strategies and the same are required to be tackled through domestic anti-avoidance rules. If a
case of avoidance is sufficiently addressed by LOB in the treaty, there shall not be an
occasion to invoke GAAR.
Circular No 7 of 2017 - FAQ
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ANALYSIS
Section 90(2A) and 90A(2A) of the Act contain overriding provisions
Section 100 states that GAAR would apply in addition to or in lieu of any other basis oftaxation
Mere tax benefit under a tax treaty would not automatically lead to application of GAARunless other conditions prescribed u/s 96(1) are also fulfilled;
GAAR provisions are in addition to LOB or other anti-abuse provisions in DTAA
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INTERPLAY WITH PRINCIPAL PURPOSETEST (“PPT”) IN ACTION PLAN – 6 OF BEPS
ARTICLE – X(7) UNDER ACTION PLAN – 6
“Notwithstanding the other provisions of this Convention, a benefit under this Conventionshall not be granted in respect of an item of income or capital if it is reasonable toconclude, having regard to all relevant facts and circumstances, that obtaining that benefitwas one of the principal purposes of any arrangement or transaction that resulted directlyor indirectly in that benefit,
unless
it is established that granting that benefit in these circumstances would be in accordancewith the object and purpose of the relevant provisions of this Convention”
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ANALYSIS
33
Benefits of a tax convention should not be available
where one of the principal purposes of certain transactions orarrangements is to secure a benefit under a tax treaty
and obtaining that benefit in these circumstances would becontrary to the object and purpose of the relevant provisionsof the tax convention
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PPT – BURDEN OF PROOF
Obtaining tax benefit is one of the principal purposes – Onus on the tax department
Arrangement is in accordance with the object and purpose of the treaty – Defenceavailable with the tax payer
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PPT V/S. INDIAN GAAR
35
“arrangement or transaction” to include any:• Agreement
• Understanding
• Scheme
• Transaction
• Series of transactions
• Whether or not they are legally
enforceable [explained in Article X.7(9)]
X.7(9) gives an example of “arrangement”• “Where steps are taken to ensure that meetings
of the Board of Directors of a company are held
in a different country in order to claim that the
company has changed its residence”
Action Plan 6
“arrangement” means:
• Any step in, or a part or whole of any:o Transaction
o Operation
o Scheme
o Agreement
o Understanding
• Whether enforceable or not
• And includes:o Alienation of any property in such
transaction/operation/scheme/agreement/
understanding
Section 102(1) of the Act
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HOW TO DETERMINE WHETHER THE PRINCIPALPURPOSE IS TO OBTAIN TREATY BENEFITS? Undertake an objective analysis of aims and objects of all persons involved in putting
arrangement / transaction in place
Why are all of them a party to it?
Conclusive proof – not required
“reasonable to conclude” after objective analysis
Looking merely at the “effect” not sufficient
What is a reasonable explanation of:
“Why you have done what you have done?” Mere denial not sufficient
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How to determine Object and Purpose of relevantprovision of Treaty? Title of the Treaty
Convention between (State A) and (State B) for the elimination of double taxation with respect to taxes on income and on capital and the prevention of tax evasion and tax avoidance
Preamble of a Treaty
“Intending to eliminate double taxation with respect to the taxes covered by this agreement without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this agreement for the indirect benefit of residents of third jurisdictions),”
Reading the Treaty as a whole
Commentary on Model Convention (if no reservations)
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INTERPLAY BETWEEN LOB AND PPT
LOB is SAAR, PPT is GAAR
PPT supplements LOB
PPT does not restrict LOB
Even if LOB Test is passed, PPT can apply (commentary to Article X.7 – Para 4)
Example – Public listed company – Passes LOB Test but if involves in Treaty Shopping – PPTwill deny benefit
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ILLUSTRATIONS
India – Ireland DTAA definition of royalty includes use of CIS equipment (excludingaircraft). Major hub for aircraft leasing business across the globe. Whether GAARapplies?
India – Philippines DTAA no separate article of FTS. Philippines is a major hub forrepairs and maintenance of plant and machinery for various equipment manufacturesacross the globe. Whether GAAR applies?
India – UK DTAA restricts the scope of FTS. It excludes managerial services. Whetherusing UK for providing managerial services could be hit by GAAR.
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ILLUSTRATIONS (contd…) R. Co. for expanding its business globally has identified three different countries with
similar economic and political environments. It selects State S for setting up its businesson account of favourable treaty with State R. Will PPT apply? Expansion of business inthe principal purpose.
R. Co is a collective investment vehicle managing diversified portfolios of investmentglobally. It has significant investments in State S on account favourable treaty ondividend taxation. Whether PPT applies? The intent of treaties is to provide benefit toencourage cross border investments
Would GAAR apply if PPT is cleared?
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CASE STUDIES
41
CASE STUDY (1/2)
42
A Ltd.
Mechanics :
It is proposed to covert A Ltd into a Limited Liability
Partnership – ‘LLP’ However, the turnover of the A Ltd, in one of the three
preceding previous years, exceeds the threshold limit of
Rs. 60 lakhs.
Thus, the conditions stipulated in section 47(xiiib), is
not satisfied. Thus, conversion of A Ltd into LLP would
not be regarded as exempt transfer u/s 47;
Plausible Option:
Now, A Ltd to be merged with a newly incorporated
company ‘B Ltd.’, whose turnover is below the
prescribed limit in previous three years and post merger,
B Ltd. to be converted into ‘B LLP’Can GAAR provisions be invoked?
Merger
A LLP
A Ltd. B Ltd.
A LLP
Conversion
Conversion
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CASE STUDY (2/2)
43
A Ltd.
Mechanics :
It is proposed to sell the shares of “C Ltd” to another company “D Ltd”;
In case the shares of C Ltd are directly sold to D Ltd, B
Ltd would be liable to tax in the Country of
incorporation;
Plausible option :
B Ltd. is liquidated and the A Ltd being the shareholder of
B Ltd would be liable to tax u/s 46(2) of the Act ; but A
Ltd. can avail the treaty benefit and such liquidation
proceeds would be taxable in country of residence –Country A;
Subsequently, A Ltd. sells shares of C Ltd. to D Ltd.
There would be no capital gains on such transfer in India,
since A Ltd being a non-resident of India, will avail the
treaty benefit and tax on transfer, if any would be payable
in Country A, by A Ltd
Can GAAR provisions be invoked?
100%
C Ltd.
B Ltd.
49%
Country A
India
Transfer of shares not chargeable to tax in
Country A
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BURDEN OF PROOF
44
SHOME COMMITTEE REPORT
“The onus of demonstrating that -
(A) there is an arrangement, (B) the arrangement leads to a tax benefit, (C) the main purpose of thearrangement‘ is to obtain a tax benefit‘, and (D) the arrangement has one or more of the specifiedtainted elements, is on the Revenue………….
The AO is empowered to initiate GAAR proceedings only during the course of pending assessmentproceedings. He may collect all the relevant information and documents from the taxpayer about anarrangement, examine them, and then come to a finding based on facts of the case. Thereafter, heshould inform the taxpayer of his finding along with the information he possesses and his detailedreasons thereof. He should not simply ask the taxpayer as to why a particular arrangement shouldnot be treated as impermissible. In his letter to the taxpayer, he should specify in addition to thecomponents already recommended above-
(i) what is the arrangement; (ii) why it results in any tax avoidance in the case of the taxpayer;
(iii) what is the amount of likely tax benefit and how it is initially calculated;
(iv) why obtaining the tax benefit is the main purpose of the arrangement, with the detailedexplanation thereof, including full and exhaustive background information in the possession of theRevenue so that it may be presumed that the Revenue has no additional information on the matter;
(v) the show cause notice should specify what are the tainted element(s) of the arrangement;”
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“MAIN PURPOSE” – S. 10A of EXCESS PROFITSTAX ACT
“10A. (1) Where the Excess Profits Tax Officer is of opinion that the main purpose forwhich any transaction or transactions was or were effected whether before or after thepassing of the Excess Profits Tax (Second Amendment) Act, 1941 was the avoidance orreduction of liability to excess profits tax, he may, with the previous approval of theInspecting Assistant Commissioner, make such adjustments as respects liability to excessprofits tax as he considers appropriate so as to counteract the avoidance or reduction ofliability to excess profits tax which would otherwise be effected by the transaction ortransactions.”
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R. C. Rangaswamy Chetty (31 ITR 941)(Mad)
“The purport and scope of the phrase 'the main purpose of the transaction being theavoidance or reduction of liability to excess profits tax ' used in section 10A had been thesubject of several decisions and the following points may be taken as clearly established:
(1)The mere fact that a new business was started at a time when by such starting therewould be a reduction of liability is not by itself proof, that it was started with the mainobject of avoiding the excess profits tax liability within the meaning of section 10A. In otherwords, the point of time when these businesses are started or a transaction takes place doesnot by itself furnish proof that the transaction was effected with a sinister motive.
(2)The burden is on the Department to prove that this was the main purpose with whichthe transaction was effected.
(3)The relationship between the parties to the transaction is not by itself conclusive to provethat the motive of the actors in that transaction was the avoidance of liability.
(4)It is not sufficient if this was an incidental advantage which might have accrued to anassessee; it must be the main motive to compass which the transaction was brought about.”
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SECTION 96(2)
“(2) An arrangement shall be presumed, unless it is proved to the contrary by theassessee, to have been entered into, or carried out, for the main purpose ofobtaining a tax benefit, if the main purpose of a step in, or a part of, thearrangement is to obtain a tax benefit, notwithstanding the fact that the mainpurpose of the whole arrangement is not to obtain a tax benefit.”
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SECTION 144BA
(1) If, the Assessing Officer, at any stage of the assessment or reassessment proceedingsbefore him having regard to the material and evidence available, considers that it isnecessary to declare an arrangement as an impermissible avoidance arrangement and todetermine the consequence of such an arrangement within the meaning of Chapter X-A,then, he may make a reference to the 98[Principal Commissioner or] Commissioner inthis regard.
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RULE 10UB
“(1) For the purposes of sub-section (1) of section 144BA, the Assessing Officer shall,before making a reference to the Commissioner, issue a notice in writing to the assesseeseeking objections, if any, to the applicability of provisions of Chapter X-A in his case.
(2) The notice referred to in sub-rule (1) shall contain the following:—(i) details of the arrangement to which the provisions of Chapter X-A are proposed
to be applied;
(ii) the tax benefit arising under the arrangement;
(iii) the basis and reason for considering that the main purpose of the identifiedarrangement is to obtain tax benefit;
(iv) the basis and the reasons why the arrangement satisfies the condition providedin clause (a), (b), (c) or (d) of sub-section (1) of section 96; and
(v) the list of documents and evidence relied upon in respect of (iii) and (iv)above.”
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THANK YOU!!!