India's Tax Regulator Issues Clarifications Regarding The Implementation Of The GAAR Provisions

Recently, the Central Board of Direct Taxes ("CBDT") released a circular¹ ("Circular") providing clarifications on implementation of General Anti-Avoidance Rules ("GAAR"). The Circular provides responses to queries raised by various stakeholders in the context of the applicability of GAAR.

Background

The GAAR provisions, which were introduced in the ITA by the Finance Act, 2012, are slated to come into force from April 1, 2017. GAAR confers broad powers on the tax authorities to deny tax benefits (including tax benefits applicable under tax treaties), if the tax benefits arise from arrangements that are 'impermissible avoidance arrangements'

An 'impermissible avoidance arrangement' is an arrangement entered into with the main purpose of obtaining a tax benefit and satisfying one or more of the following: (a) non-arm's length dealings; (b) misuse or abuse of the provisions of the domestic income tax provisions; (c) lack of commercial substance²; and (d)