Addressing Tax Avoidance: Cross Country Experience and an Indian Case Study

Abstract

There has been considerable debate on General Anti Avoidance Rules (GAAR) as countries have introduced legislation on it, revealing significant diversity in practice. The paper reviews GAAR legislation (or the absence of it) in Australia, the European Union, the United Kingdom and the United States among advanced countries and Brazil, China, India and South Africa among emerging economies. It provides a detailed examination of the background and development of GAAR legislation in India. As an example of the probable application of GAAR, the paper continues with India’s experience with the taxation of indirect transfers. It nevertheless questions any retrospective formulation or application of tax law including to check tax avoidance. It draws on the experience of the litigation between the Indian tax authority and Vodafone.

The OECD’s Base Erosion and Profit Shifting (BEPS) project has recommended extremely detailed reporting requirements by MNC’s to all tax authorities in countries where they operate. While the objective of extracting information from MNC’s to minimise their global tax avoidance is understandable, such policy has to be designed with perspicuity. By differentiating tax mitigation, tax avoidance and tax evasion, the paper cautions against ignoring taxpayer rights in the quest to minimise tax avoidance, and against tax authorities to operate irrespective of any deleterious effects on global—or individual country—economic growth and prosperity.