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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Location of Business

Which of the following is a permitted consequence of an arrangement declared an impermissible avoidance arrangement under section 181?

Equity may be treated as debt or vice versa. Section 181 allows recharacterisation of equity and debt, capital and revenue receipts, and deductions, as well as looking through corporate structures. It does not provide for imprisonment, cancellation of incorporation or extension of the financial year.

  1. ATreating equity as debt or debt as equityCorrect
  2. BImposing imprisonment on the directors automatically
  3. CCancelling the incorporation of the company
  4. DExtending the financial year of the parties

Explanation

Section 181(3)(a) states that any equity may be treated as debt or vice versa. Other permitted steps include recharacterising receipts as capital or revenue and looking through corporate structures. The Act does not provide for imprisonment, cancellation of incorporation or extension of the financial year as consequences here.

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