Shome panel recommendations on GAAR: Key points

The Standing Committee on Finance, headed by Parthasarathi Shome which submitted its report in Parliament on Saturday recommended that General Anti Avoidance Rules (GAAR) should be delayed by three years. The panel also recommended that Mauritius benefits be continued. The committee has 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 GAAR.

Here are the key points recommended by the Shome panel:

* Abolish Capital Gains tax on listed securities
* GAAR should be deferred by three years
* GAAR should apply from assessment year 20016-17
* Mauritius treaty to be upheld
* Tax mitigation be distinguished from tax avoidance before invoking GAAR
* GAAR not to be applicable on FIIs, capital market transactions
* GAAR not to apply to payment of dividends, buybacks
* GAAR not to apply to setting up branch/subsidiary
* GAAR not to apply to funding through debt/equity
* GAAR not to be invoked in intra-group transactions
* GAAR applicable only in cases of abusive, contrived, artificial deal
*A monetary threshold of Rs 3 crore of tax benefit (including tax only, and not interest etc) to a taxpayer in a year should be used for the applicability of GAAR provisions. In case of tax deferral, the tax benefit shall be determined based on the present value of money.
*All investments (though not arrangements) made by a resident or non-resident and existing as on the date of commencement of the GAAR provisions should be grandfathered so that on exit (sale of such investments) on or after this date, GAAR provisions are not invoked for examination or denial of tax benefit.