Two year GAAR deferral good news, says ALMT Legal

The general anti-avoidance rules will apply from the year 2016-2017 and it will not be applicable to Foreign Institutional Investors (FIIs) and Non Resident Indians (NRIs). In an interview to CNBC-TV18, Aliff Fazelbhoy of ALMT Legal said that it will increase FII investment through GAAR.

Also read: GAAR deferred to April 2016, won't apply to NRI in FIIs: FM Now, there is a two year deferral on general anti-avoidance rules (GAAR). On this Aliff Fazelbhoy says, "Industry was asking for a 3-year deferral and my personal expectation was a one year deferral. So, a two year deferral is a good compromise." Below is the edited transcript of his interview to CNBC-TV18 Q: Does it mean that this whole jungle we went through of the Mauritius tax loophole will be plugged is not to be, you can merrily get a tax residency certificate from Mauritius and go on regardless and not pay any tax here, any FII could now bring in the money without any problem of taxation? A: We will have to see what exactly the letter of the amendments says. If it says what has been announced, if it says it doesn’t apply to FIIs at all then yes, they would be completely exempted. The possible logic for this is the FIIs trade on the stock markets. However, it is difficult to comment unless you see the letter of the law and what the actual amendments are. Maybe there are caveat and it will not apply in certain circumstances. I find it hard to say that blanket does not apply at all. Q: How much of a positive it would be if this, Chapter 10 (A) is applicable from April 2016. So, there is now perhaps a two year deferral on general anti-avoidance rules (GAAR) versus the expectation earlier on that it could be come into effect with respect to 2013 itself? A: My personal expectation was a one year deferral. So, a two year deferral is good news definitely. The industry was asking for a 3-year deferral. Thus, it is a good compromise at two. Q: Now that we understand it will not be applicable to FIIs and NRIs. How much of a relief do you think it would bring about and how much would it help increase FII investments? A: It will increase FII investment through GAAR. That is said not to apply to them at all, definitely it will increase. However, we will have to check what exactly the amendments say. I am sure there will be some conditions for non-applicability, but definitely a very positive signal. _PAGEBREAK_ Q: If FII takes benefits under Section 90-90A of the Income Tax (IT) Act, GARR will apply. Does that help? A: There are transactions designed to avoid tax. Q: It is not a blanket no for FII transactions? A: No. Q: There is also a monetary threshold that has been announced – threshold for anti-avoidance tax rule to stand at Rs 3 crore. Is there anything that you can make of this? A: I think there was always a proposal to have a threshold. Some may say, Rs 3 crore, is a decent limit and some may say it is too small. However, the Shome Committee has proposed that it should be introduced now. Whether Rs 3 crore is a right amount or not in today’s time it is difficult to say, but at least something. Q: There is clarity in terms of time that we have – investments before 2010 will be grandfathered, but investments between August 2010 and 2016 can be assessed for tax avoidance, fair deal you will say? A: When they talk about grandfathering yes, I think it is reasonably fair. Ideally, people would have hoped that investment right under 2016 would have been grandfathered. That was a bit too much to ask for. However, atleast 2010 is some kind of a relief. Investment between 2010-2015 was something that they expected for those investments to be restructured or to be divested if we have to escape a GAAR. I think that’s the only way you can get it. Q: Can you elaborate a little on how a lay person should understand this if investments are made under – or if an FII takes benefit under 90-90A? A: I think those are like specific rules where if you take benefit under one rule you can’t take blanket benefits. However, there will be a need to check exactly what it says. It reiterates my very first initial comment that there cannot be a blanket amendment, there has to be some conditions to it.