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CBDT disagrees with Shome panel, wants GAAR from next fiscal
November, 09th 2012

Disagreeing with the Shome panel's recommendation, the CBDT is believed to have favoured implementation of the anti-tax avoidance rules GAAR from the next financial year.

The Central Board of Direct Taxes (CBDT), which submitted its report to Finance Minister P Chidambaram, according to sources is against bringing into GAAR net the existing business structures and wants the provisions to override Double Taxation Avoidance Agreements (DTAA).

The board was mandated with the task of analysing the report of Parthasarathi Shome Committee, which had suggested that the implementation of General Anti-Avoidance Rules (GAAR) be deferred by three years to 2016-17.

In view of wide-spread concerns by foreign investors, the government had earlier postponed implementation of GAAR, which was introduced by the then Finance Minister Pranab Mukherjee in his Budget for 2012-13 to check tax evasion.

The Shome panel in its report had suggested that if GAAR was introduced it should grandfather the existing business arrangements, which means that the provisions should not apply to past business arrangements.

Earlier, CBDT had come out with draft guidelines on GAAR which did not find favour with Prime Minister Manmohan Singh, who was looking after the Finance portfolio. He had announced setting up of Shome panel to come up with fresh report after talking to stake holders.

In order to address the concerns of Mauritius-based investors, the Shome panel has suggested that the provisions of the GAAR should not be invoked to "examine the genuineness of the residency of an entity set up in Mauritius".

India has been expressing concern over misuse of DTAA by foreign investors who route their investments from Mauritius to avoid tax liability.

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