General Anti-Avoidance Rule

Tax Glossary Definition

General Anti-Avoidance Rule

The General Anti-avoidance Rule (GAAR) is a principle that typically grants the Revenue Authority in a country the authority to negate tax advantages resulting from transactions or arrangements lacking commercial substance, where the sole intention is to secure tax benefits.

Example 1: Round-Tripping Investment

Scenario:

A company routes funds abroad and brings them back as Foreign Direct Investment (FDI) to claim tax exemptions.
No real economic activity occurs outside the country.

GAAR Action:

Tax authorities may disregard the arrangement and levy taxes as if funds were directly invested domestically.

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