GAAR deferment on expected lines: E&Y

Satya Poddar, tax partner, Ernst & Young says that today's announcement for deferment of GAAR was anticipated and the deferment is good news.

“A GAAR-type instrument should only be used in very advanced jurisdictions where there is clarity of law and in few cases where there is ambiguity and possible misuse of the law that’s when the GAAR is to be invoked. The need for all these amendments, procedural changes will not even arise if they constrict the scope of GAAR very severely in advance, which the government has not done,” said Poddar. Below is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video. Q: Will the GAAR proposal come into impact along with the Direct Taxes Code, but is this enough? A: The finance minister's announcement was anticipated. The announcement of GAAR deferment is good news but we need to see how exactly the GAAR is modified, then providing the guidelines is the absolute minimum the government should have done before they announced it. The other features of the GAAR which need to be incorporated are yet to come. The guidelines themselves are yet to come and if the guideline applies to a large number of transactions then today’s announcement will come to naught. Q: What is your view on the two points which the FM made? One, that investors or transaction dealmakers can seek a view of the authority on advance rulings and secondly that an independent member will be brought into the GAAR implementation panel? A: The independent member may be the joint secretary equivalent of the law ministry. Now, it is independent of the revenue department, but that’s hardly the degree of independence the public was asking for. Advance authority rulings are also helpful. A GAAR-type instrument should only be used in very advanced jurisdictions where there is clarity of law and in few cases where there is ambiguity and possible misuse of the law that’s when the GAAR is to be invoked. The need for all these amendments, procedural changes will not even arise if they constrict the scope of GAAR very severely in advance, which the government has not done. Q: On GAAR, effectively the finance minister and the Government of India are not backing down despite the serious objections of the global community? A: Yes, correct. They are not backing down. Adjustments they are making, announcing, to me a procedural adjustments which were serious omissions from day one. The very fundamental issue as to which transactions where the GAAR can be applied are not there yet. The government is sticking to its guns for the original proposal in the Budget. Q: The government is also sticking to its guns as far as Vodafone tax issue is concerned? The finance minister not providing any hint that Vodafone is going to get any wavier of any sort? A: Yes, and there is some confusion. In fact the clarification was needed to his clarificatory statement today. The FM said assessment closed for the budget night will not be reopened, the important question is hasn’t the Vodafone assessment closed before the Budget because after the Supreme Court’s decision there was no ambiguity left about the obligations of Vodafone, so one way to encipher the minister statement is to say no need to open that assessment again because everything was done. It’s the optimistic view of the management. Apart from Vodafone issue another topic which are still caught with this retrospective amendment, are P-note. The FM announced that the GAAR will not apply to any transactions including the P-note transactions, but the P-notes have a number of legs of the transactions, which happen in advance jurisdictions like USA where the GAAR was not an issue at all, hoping that these portfolio transactions will be removed from the scope of the indirect transfer route, but the FM has not done so. Let’s hope that in tomorrow’s final statement by the minister there will be some more news about removing the portfolio transactions from the indirect transfer route.