GAAR stands for General Anti-Avoidance Rule. It is a set of rules or provisions that give the tax authorities the power to deny tax benefits obtained by taxpayers through abusive tax arrangements. GAAR is designed to prevent taxpayers from exploiting loopholes or gaps in the tax laws to avoid paying taxes.
The objective of GAAR is to counteract tax avoidance schemes that are deemed to be abusive, artificial, and lack economic substance. GAAR provisions are generally applicable to any taxpayer who is attempting to reduce their tax liability by exploiting tax loopholes.
The specific rules and regulations governing GAAR can vary from one jurisdiction to another. However, the underlying principle remains the same, which is to ensure that taxpayers pay their fair share of taxes and prevent the abuse of the tax system.
In summary, GAAR is a measure taken by the government to curb tax avoidance practices, ensure compliance with tax laws, and promote tax fairness.
In most countries, GAAR is initiated and enforced by the tax authorities or the government. The tax authorities are responsible for identifying and investigating tax avoidance schemes that are abusive, artificial, or lack economic substance. They can then use the GAAR provisions to deny the tax benefits obtained through such schemes.
In some cases, GAAR may be triggered by a taxpayer who has voluntarily disclosed an abusive tax arrangement or sought a ruling from the tax authorities. This may be done to obtain certainty about the tax consequences of a particular transaction or to avoid penalties for non-compliance.
Overall, GAAR is a tool used by the tax authorities to promote tax compliance and prevent taxpayers from exploiting loopholes or gaps in the tax laws to avoid paying taxes.
Also read : Common Reporting Standard , The OECD ‘s Anti avoidance rule against Tax Planning