[26358]
August 1, 2012
TO: TAX MEMBERS No. 30-12ICI GLOBAL TAX COMMITTEE No. 8-12 RE: ICI/ICI GLOBAL LETTER REGARDING INDIA’S DRAFT GAAR GUIDELINES
ICI and ICI Global sent the attached letter to Indian officials [1] urging that the draft guidelines to implement the General Anti-Avoidance Rule (“GAAR”), enacted as part of the 2012 Finance Bill, be revised and released for further comment. The letter highlights inadequacies in the guidance that, if left unremedied, will result in ongoing uncertainty regarding the application of GAAR.
The draft guidelines attempt to address concerns raised in the April 3 ICI/ICI Global letter to the Ministry of Finance. [2] Two important changes included in the draft guidelines are shifting the burden of proof to the Indian Revenue Authorities and applying the GAAR only to income arising on or after 1 April 2013. The draft guidelines, however, are ambiguous and provide only very narrow relief, such that foreign investors continue to face considerable uncertainties regarding the tax consequences of their Indian investments.
The ICI/ICI Global letter emphasizes that the draft guidelines must be revised to precisely illustrate how the GAAR will be administered and how it will be applied to investment structures. In particular, the letter critiques the draft guidelines’ substitution of conclusory statements for facts in the provided examples. The letter also reemphasizes our position that, to the extent certain types of investors, or the residency requirements of any specific country with which India has an income tax treaty, are viewed as problematic, narrowly-crafted solutions should be advanced. Finally, the letter urges that any change GAAR makes to investors’ settled expectations be applied only prospectively to new investments.
Ryan Lovin
Assistant Counsel – Tax Law
endnotes
[1] The letter was addressed to the Chairman of the Expert Committee on GAAR. Copies were sent to officials at the Ministry of Finance (“MOF”), the Department of Revenue (“DOR”), and the Securities and Exchange Board of India (“SEBI”).