SPECIFIC ANTI AVOIDANCE RULE (SAAR),GENERAL ANTI AVOIDANCE RULE (GAAR),ARM LENGTH PRICE PRINCIPLE, Advance Pricing Agreement ,Safe Harbor

 

To deal with the issues of Tax evasion by MNC's, various methodologies were adopted by Governments across the world .Various anti avoidance rules were implemented by  the Government of India to check the Tax avoidance. Specific Anti Avoidance Rule (SAAR), General Anti Avoidance Rule (GAAR), Arm Length Pricing, Advance Pricing Agreement and Safe Harbor were such prominent methodologies  to deal with Tax Avoidance.

SPECIFIC ANTI AVOIDANCE RULE (SAAR):

• Anti avoidance rules are basically divided into two categories—General and specific.
• Specific Anti Avoidance Rule (SAAR) was operational before General Anti Avoidance Rule  (GAAR).
• General Anti Avoidance Rule (GAAR) refers to legislation dealing with “general” rules, while Specific Anti Avoidance Rule (SAAR) refers to legislation dealing “specific” avoidance. 
• The prevailing law deals with instances of specific tax abuse and the general tax avoidance is addressed by judicial doctrine.
• Specific Anti Avoidance Rule (SAAR ) provides for a set of rules which target specific ‘known’ arrangements of tax avoidance. 
• They specifically lay down the conditions where they may be invoked.

GENERAL ANTI AVOIDANCE RULE (GAAR):

• General Anti Avoidance Rule (GAAR) is an umbrella tool for checking aggressive tax planning especially those business transactions which are entered into with the objective of avoiding tax. 
• The General Anti Avoidance Rule  (GAAR) itself is an unconventional type of tax legislation; bringing tax avoidance under the scrutiny of tax officials.
•  It has been introduced in India due to VODAFONE case ruling by the Supreme Court. 
• General Anti Avoidance Rule  (GAAR) has been implemented from 1^st of April 2017 on the recommendation of Shome committee.

ISSUES WITH GENERAL ANTI AVOIDANCE RULE (GAAR):

• The concern is about the arbitrary usage of the powers that the officers might have under General Anti Avoidance Rule  (GAAR) 
• The line of difference between an objectionable and a permissible avoidance is very thin.
•  There is also another fear that tax officers can harass people using this law.

ARM LENGTH PRICE (ALP)  PRINCIPLE:  

• ARM LENGTH PRICE (ALP) is the price at which two independent unrelated business entities execute business/economic transaction in natural/uncontrolled conditions usually corresponding to fair market price. 
• Fair Price means if the transaction is taking place as if sub.A was having transaction at same rate as if it was having with any another MNC Let it be MNC-Y. 
• The price at which such transaction takes place  is ALP.

              

In the image, sub.A and sub.B are subsidiaries of MNC X. If there is any economic transactions between sub.A and sub.B at fair price or market price ,then it is ARM LENGTH PRICE.

Advance Pricing Agreement (APA):

• Advance Pricing Agreement (APA) is an agreement between the government authorities and the MNC which determines in advance the most appropriate Transfer Pricing (TP) methodology or the arm's length price (ALP) for any  inter-subsidiary international transactions for a future period of time. 
• In case of India, this time period is five years as per the Indian Advance Pricing Agreement  regulations. 
• The main objective of the Advance Pricing Agreement (APA) is to provide tax certainty by determining an advance set of criteria applied to transfer pricing 
• Advance Pricing Agreement (APA) reduce disputes and enhances the tax revenue.

Safe Harbor wrt Income Tax: 

• Safe Harbour provide for methodologies adopted by companies in which a certain category of taxpayers can follow a simple set of rules under which transfer prices when applicable are automatically accepted by the revenue authorities.
•  A 'safe harbour', in a Transfer Pricing  regime, relieves eligible taxpayers from certain complicated obligations which are otherwise imposed by a jurisdiction's general Transfer Pricing rules.

SAFE HARBOR Provisions wrt Information Technology  Act  : 

• The safe harbour provision has been given under Section 79 of the IT Act 2000. 
• It states that "an intermediary shall not be liable for any third-party information, data, or communication link made available or hosted by him". 
• Ex. Facebook will not be liable for any legal charges if any individual post any illegal comment on it .