General Anti-avoidance Rules (GAAR)

Abstract

The GAAR comprise the most recent developments in the status v contract battle described in the preceding chapters. Two strategies are used by governments the world over to impose status over contracts. First, governments introduce deeming provisions in tax statutes to ensure that status dominates contracts through a legal fiction. Second, if the first strategy fails, governments recharacterise the contractual relationship using a broad spectrum set of rules called ‘General Anti- Avoidance Rules’ or GAAR. Over the last decade, the Indian government has used the first strategy extensively, as discussed in Chaps. 4, 5, 6 and 7. The tax provisions relating to FTS & Royalty as well as the area of capital gains and transfer pricing demonstrate the Indian government’s attempt to establish, through legislation, the dominance of status over contract. Recently, the Indian government embarked on the second strategy. The Indian GAAR is the last throw of the dice in the status v contract battle.