What is GAAR, Transfer Pricing, & BEPS? Arbind Modi-Led Panel Sanctioned to Overhaul (Download PDF)

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Government has formed a task force under top taxman Arbind Modi to draft a new direct tax law to replace the existing Income Tax Act, which has been in force since 1961. Central Board of Direct Taxes (CBDT), will steer a six-member panel on the issue.

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Created with Highcharts 6.0. 3YearIndian Income Tax (%) Direct Tax As Percentage of Total Taxes36.3136.3137.137.138.5238.5241.4241.4243.7243.7245.3245.3248.848.852.9752.9755.3455.3460.7860.7856.4856.4855.8255.8254.1754.1756.3256.3256.1656.1651.0551.05Indian Income Tax (%) 2000 - 012001 - 022002 - 032003 - 042004 - 052005 - 062006 - 072007 - 082008 - 092009 - 102010 - 112011 - 122012 - 132013 - 142014 - 152015 - 160204060802004 - 05Indian Income Tax (%): 43.72
  • Chief Economic Advisor Arvind Subramanian will be a permanent special invitee on the panel.

  • Aims to simplify direct taxes both income and corporate

Undertakings of the Task Force

  • Submit report to the government within six months

  • Draft direct tax laws in line with tax laws prevalent in other countries, incorporating international best practices

  • Change the law according to economic needs of the country.

Earlier 2009 Proposal

  • Former finance minister P Chidambaram in 2009 proposed the original direct taxes code to replace the IT law for keeping taxes low and removing exemptions.

  • The Direct Taxes Code (DTC) Bill, 2010, introduced in Parliament in 2010, lapsed with the dissolution of the 15th Lok Sabha.

What is Anti-avoidance Rules GAAR?

GAAR is General Anti Avoidance Rule aimed to curtail tax avoidance. GAAR empowers the revenue authorities to deny tax benefits to arrangements not having any commercial substance other than achieving the tax benefit.

What is Transfer Pricing?

  • MNCs (Multi National Concerns) structure their investments and business strategy to maximize profits in jurisdictions with low tax rates, giving them minimum bill. This is known as transfer pricing.

  • India made provisions under the Income Tax Act to tackle the issue of transfer pricing by inserting section 92A to 92F in the Finance Act, 2001.

What is BEPS?

Base Erosion and Profit Shifting or BEPS is a broader term than Transfer Pricing. BEPS concerns with all strategies to move profits to where they are taxed at lower rates and expenses to where they are relieved at higher rates. Key issues include:

  • International mismatches in the way entities and instruments are characterized by different jurisdictions

  • Digital delivery of goods and services, and how this relates to tax treaty rules

  • Inter-group financial transactions such as related party loans and captive insurance

  • Transfer pricing, in particular in relation to the shifting of risks and intangibles, the artificial splitting of ownership of assets between legal entities within a group, and transactions between such entities that would rarely take place between independents

  • The effectiveness of anti-tax avoidance measures

  • Preferential regimes

- Published/Last Modified on: December 9, 2017

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