23 March 2016
GAAR or General Anti Avoidance Rules is an anti avoidance measure which empowers tax authorities to call a business arrangement or a transaction ‘impermissible avoidance arrangement’ and thereby denying tax benefits to the parties. Avoidance is legal provision which allows investors to legally reduce their tax liability. GAAR is a concept which generally empowers the Revenue Authorities in a country to deny the tax benefits of transactions or arrangements which do not have any commercial substance or consideration other than achieving the tax benefit. Whenever revenue authorities question such transactions, there is a conflict with the tax payers. Thus, different countries started making rules so that tax cannot be avoided by such transactions. Australia introduced such rules way back in 1981. Later on countries like Germany, France, Canada, New Zealand, South Africa etc too opted for GAAR.
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