Concept: Round Tripping + Tax Evasion + Tax havens + GAAR
Topic: Economy, Paper III
Category: Black Money, Tax, FDI
Related News: FE, Jan 21
CNA mentions: 1(July 21)
Round Tripping + Tax Evasion + Tax havens +GAAR
Round-tripping, also known as round-trip transactions or “Lazy Susans”, is defined by The Wall Street Journal, as a form of barter that involves a company selling “an unused asset to another company, while at the same time agreeing to buy back the same or similar assets at about the same price.” Round trips are characteristic of the New Economy companies. They played a crucial part in temporarily inflating the market capitalization of energy traders such as Enron, CMS Energy, Reliant Energy, and Dynegy.
Tax evasion is the illegal evasion of taxes by individuals, corporations, and trusts. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions.
A tax haven is a jurisdiction where particular taxes, such as an inheritance tax or income tax, are levied at a low rate or not at all. It may also refer to a state, country, or territory which maintains a system of financial secrecy, which enables foreign individuals to hide assets or income to avoid or reduce taxes in the home jurisdiction. Earnings from income generated from real estate (i.e. by renting property owned in an offshore jurisdiction) can also be eliminated in this way.
General anti-avoidance rule (GAAR) is an anti-tax avoidance regulation of India. Originally proposed in the Direct taxes code 2010,are targeted at arrangement or transactions made specifically to avoid taxes. It was introduced by then Finance Minister, on 16 March 2012 during the Budget session. It was considered controversial because it had provisions to seek taxes from past overseas deals involving local assets retrospectively.