Explain the MNCs taxation issues and government decision to defer General Anti Avoidance Rule (GAAR) for two years.

MNCs Taxation issues: An MNC operates with different companies located in different countries under the same management group. They transfer finished and semi-finished goods, raw materials, spares and services among the group companies. 40% of international trade consists of transfers between related business companies which involve transfer pricing. In many cases, there are charges against MNCs on the usage of transfer pricing for dubious activities. Hence, it becomes a source of conflict between the MNC and the host government. However, the adverse effects of transfer pricing can be checked to a great extent by indirect regulations which may be applied in different forms like: Harmonization of tax and tariff between home and host country. Compensation for the loss of corporate tax revenues on account of transfer pricing. Apportionment of the consolidated profit of the MNC among the relevant units on the basis of total assets, sales and labour and capital employed, etc. General Anti-Avoidance Rule (GAAR) is an anti-tax avoidance regulation of India. This regulation allows tax officials to deny tax benefits if a deal is found without any commercial purpose other than tax avoidance. It allows tax officials to target participatory notes. Under GAAR, the investor has to prove that the participatory note was not set to avoid taxes. It also allows officials to deny double taxation avoidance benefits if deals made in tax havens like Mauritius are found to be avoiding taxes. It has provisions to seek taxes from past overseas deals involving local assets retrospectively, because of which it has been postponed by two years to April 2017.