The document discusses tax havens, GAAR (General Anti-Avoidance Rules), and their implications. GAAR aims to minimize tax avoidance by empowering officials to deny tax benefits to transactions without commercial substance that are solely aimed at achieving tax benefits. Some concerns discussed include GAAR being too sweeping, difficulties distinguishing avoidance from mitigation, and need for checks on arbitrary application. Investors were uncomfortable with GAAR's original form due to these issues.

1. RASHI WADHWA

2. What are Tax Havens?
 Tax havens are countries
which have low tax
regimes which provide
individuals and business
opportunities of tax
avoidance or tax evasion.

3. What is GAAR?
 GAAR which are framed to
minimize tax avoidance.
 The GAAR was introduced by
Finance Minister Pranab
Mukherjee in his Budget with the
objective to "counter aggressive
tax avoidance schemes."
 It empowers officials to deny the
tax benefits on transactions or
arrangements which do not have
any commercial substance or
consideration other than

4. What are its implications?
 It empowers officials to deny the
tax benefits on transactions or
arrangements which do not have
any commercial substance or
consideration other than
achieving tax benefit.
 It contains a provision allowing
the government to retroactively
tax overseas deals involving
local assets (like Vodafone).
 It could also be used by the
government to target
participatory notes (P-Notes).

5. Will P-Notes be targetted?
 Investments into Indian stock markets through
participatory notes might slow after the
introduction of GAAR
 "To avoid tax altogether under GAAR, an investor
may now have to prove the P-note was not set up
specifically to avoid paying taxes or to prove that
the deal has "commercial substance," Edelweiss
Financial Services Ltd. said.

6. What do investors say?
 Investors are very uncomfortable about GAAR in
current form.
 FIIs run global portfolios & some invest just 1% in
India.
 After this they might say its not worth the hassle.
The move is bad for Indian economy, bad for
Indian corporate, bad for Indian capital markets.

7. Facts about GAAR
 General Anti Avoidance Rules will come into effect from
April 1, 2013
 Non-resident investors of FIIs will be exempt from the
rules, and also called for a monetary threshold from
which GAAR will be implemented.
 FII not opting for treaty benefits and ready to pay taxes
will not come under GAAR, but those who do opt for dual
taxation avoidance agreements will come under its
purview.
 Data released showed that overseas entities, investing
in Indian markets through participatory notes, were
estimated to have pulled out over Rs 1 lakh crore in less

8.  This resulted in the quantum of money invested
through these P-Notes hit rock-bottom levels of 10
per cent of total FII.
 In May, while introducing the Finance Bill in the Lok
Sabha, the then finance minister Pranab Mukherjee
announced that the implementation of GAAR would
be deferred to April 2013.
 He stated he was not doing it out of fear.

10. What was the Basic Criticism of
GAAR ? Why GAAR is dreaded
?
 It is considered to be too sweeping in nature.
 There is only a fine distinction between Tax
Avoidance and Tax Mitigation.
 There was a hue and cry to put checks and balances
in place to avoid arbitrary application of the
provisions by the assessing authorities.

11.  May not always be feasible for the judiciary to
address the unforeseen implications of transactions
carried out for tax purposes
 The need to provide some semblance on the matter
of tax avoidance.

12.  Where tax benefit is to be considered as the sole
criterion (as is currently recognized under the
proposed new Code) for determining tax
avoidance, such a provision may undermine the
common denominator in determination of a tax
avoidance scheme.
 India has said all investments made by foreign
investors prior to August 2010 will not attract the
controversial tax rules, the General Anti-Avoidance
Rules or GAAR. The government on Thursday
notified the much-diluted GAAR provisions that will
come into effect from April 2016 and apply to
business arrangements with a tax benefit