Canada - English

India Enacts New GAAR Rules 

Global Tax Adviser

 

December 03, 2013

 

Alex Feness
Toronto, International Corporate Tax

 

India has introduced general anti-avoidance rules (GAAR) that may affect investments by Canadians and other foreign entities. Under the new GAAR, India may declare a taxpayer's arrangement to be an avoidance arrangement if the main purpose of the arrangement is to obtain a tax benefit (as specified under Indian tax law). The GAAR will apply to any arrangement, regardless of the date on which it has been entered into, that results in a tax benefit on or after April 1, 2015.

Background
India's 2013-14 budget announced that it would defer implementation of India's proposed GAAR to financial year 2015.

 

GAAR rules
India's GAAR may be invoked for arrangements that:

 

  • Create rights or obligations that are not ordinarily created between persons dealing at arm's length
  • Result, directly or indirectly, in the misuse or abuse of the provisions of the Indian tax law
  • Lack commercial substance or are deemed to lack commercial substance, in whole or in part
  • Are entered into or carried out by means or in a manner that is not ordinarily employed for bona fide purposes.

 

However, India's GAAR would not apply to:

 

  • An arrangement when the tax benefit arising to all the parties to the arrangement in the relevant Indian tax year does not exceed INR 30 million in the aggregate (approximately CDN $500,000)
  • A foreign institutional investor (FII) that
    • Is a taxpayer (assessee) under the Indian domestic tax law
    • Has not asserted a benefit under a tax treaty, and
    • Has invested in listed securities, or unlisted securities, as specified
  • A non-resident person who has invested by way of offshore derivative instruments or otherwise, directly or indirectly, in an FII
  • Any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from the transfer of an investment before August 30, 2010.

 

For more information, contact your KPMG adviser.

 

 

 

 

 

Information is current to December 03, 2013. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500