New comm should clarify on key focus areas of GAAR: KPMG

Prime Minister Manmohan Singh set up an expert committee on Friday to prepare fresh norms on the controversial GAAR rules. Headed by to be headed by ICRIER chief and taxation expert Parthasarathi Shome, this four-member committee is handed the responsibility to prepare a roadmap for General Anti-Avoidance Regulations by September 30 for its implementation.

According to deputy CEO and chairman of Tax at KPMG Dinesh Kanabar, this new committee has included experts from various spheres, which indicates that a lot of different views will be taken on board when the new guidelines come out. “I think the industry is looking for a broad based committee which can look at transactions from a business perspective, rather than a revenue official who sits and comments on tax issues, that would be a much-much welcome thing,” he said. Kanabar says that this committee should clarify on the key issues of GAAR, and how they will be implemented, apart from putting out a guideline frame work. Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Q: Can we expect a fairly concrete set of regulations for GAAR this time, because a deadline has been mentioned, or is it just another committee? A: Post the introduction of GAAR by Finance Act 2012, we had a committee which was set by erstwhile Finance Minister which was purely in-house administrative committee comprising of revenue officials. That committee met up, that committee had interactions with several people and they came out with a draft circular. As you know, within hours of that circular coming out the PMO came back to say that they did not have a chance to review the draft circular and it would not be finalized without their inputs. We now have a new committee being set up by the PMO. Fortunately, that committee does not merely comprise of revenue officials, but a broad spectrum of people. We have people within the revenue, we have people who are economists, we have the former CBDT member, so I think it is a broad based committee. Hopefully it should have better interaction, get the perspectives of people, but a lot of work has already happened and that can be taken on board by the new committee when they come out with new GAAR guidelines. Q: Given the composition of the committee this time around, do you think the focus would still be on revenue maximization or do you think the idea of this committee is to dispel some of the confusion that exists with foreign investors today? A: As you will recollect, the original circular which came out made a distinction between tax evasion, tax avoidance and tax mitigation and went on to say that tax mitigation within the four corners of law was still something which is very much permitted. Tax evasion was in any case never permitted, and therefore GAAR was only supposed to deal with tax avoidance. It did not make out a statement to say that GAAR is not a revenue maximization exercise, it is merely an exercise in ensuring that there is no linkage. Hopefully the new committee will be able to set out a statement of purpose, but there is one other issue which comes up and that is whether the government will be able to give a comfort that GAAR will be implemented in an even handed manner, apart from putting out a guideline frame work. For example, under the law we have a committee comprising of three people, two of whom are chief commissioners of Income Tax, one of whom is a secretary outside of finance. Can we really have a far more broad based committee? I think that is what the industry is looking at. That if we have a broad based committee which can really look at transactions from a business perspective, rather than a revenue official who sits and comments on tax issues, that would be a much-much welcome thing. Q: There were some comments from the deputy chairman of the planning commission saying that FIIs should be excluded from GAAR in its new ambit or new avatar. How do you think that will go down sentiment? A: That will be very positive on sentiment, but we already have a law in place. Unless that law is amended, all that the circular can do is to put a circumscribing kind of situation where GAAR will apply or not apply. In fact, the current draft circular says that FIIs are within the ambit of GAAR, so however long the FIIs are paying their own taxes, then the investors behind will not be looked at. I interact with the erstwhile GAAR committee as the member of the international tax and transfer pricing advisory group, and hopefully we will have an opportunity to do so with the new committee as well. The question really is if you can exempt a category of people from the applicability of GAAR because that is not something the law provides at all for today. All that you can do is to provide a set of circumstances, but it will be more important if really one can put some clarity around use of tax treaties. For example, if GAAR circular can really provide for an omnibus limitation of benefit clause, it is only under those circumstances that tax treaties will be denied, benefits will be denied. That could be a significant step forward and FIIs and all people will be really comforted.