‘GAAR clarification after clearance of Finance Bill'

The government, on Wednesday, sought to assure foreign institutional investors (FIIs) that while their concerns on short-term capital gains tax would be addressed, clarification on GAAR (General Anti-Avoidance Rule) would be issued after approval of the Finance Bill by Parliament. Speaking to the media after a meeting with representatives of FIIs here, Finance Secretary R. S. Gujral said: “We have clarified verbally our intention. Obviously, rules will come [after] the Finance Bill, 2012, is passed. Our people are working on the rules. So there won't be any delay after the passage of Finance Bill.” The meeting with Mr. Gujral which was attended, among others, by representatives of JP Morgan, CLSA, Morgan Stanley, Goldman Sachs and Credit Suisse, came about in the wake of concerns expressed by FIIs over the applicability of GAAR provisions, as proposed by Finance Minister Pranab Mukherjee in the budget for 2012-13. In particular, the FIIs sought clarification on the activities that would be permitted while remaining outside the purview of GAAR. Besides, they viewed that certain aspects of the proposed law were not transparent and would provide discretionary powers to tax officials. Concern Noting that the primary concern of FIIs was with regard to taxation of short-term capital gains from equity trading, Mr. Gujral said: “We told them [FII representatives] that we will take those points on board and try and clear them … If they are permissible, clearly they are governed by the particular treaty [double taxation avoidance agreement or DTAA] and GAAR does not get invoked at all. If it is an impermissible arrangement, then yes ... GAAR gets invoked and then [the DTAA] treaty does not help them.” Keywords: foreign institutional investors, GAAR