Transcript Direct Tax Code

Exchange of Information
Indian legal perspective
6th Asia / Africa IFA Conference
Mauritius
May 11, 2012
Mahesh Kumar
Senior Associate, Nishith Desai Associates
Assisted by
Professor Roy Rohatgi
Nishith Desai Associates
Mahesh Kumar/ Professor Roy Rohatgi
Legal & Tax Counseling Worldwide
Mumbai | Silicon Valley | Bangalore | Singapore | Mumbai-BKC | New Delhi
Source: Times of
India
ILLICCIT FINANCIAL FLOWS OF AROUND USD 500 BILLION
Mahesh Kumar/ Professor Roy Rohatgi
Exchange of Information under DTAAs &TIEAs
• 82 DTAAs in force.
• Exchange of information as is necessary for carrying out
provisions of DTAA.
• Confidentiality of information disclosed.
• Specific exclusions.
• Limitations: Need for specific TIEAs.
Mahesh Kumar/ Professor Roy Rohatgi
New provisions for Notified
Jurisdictions -- Sec 94A
• Sec 90 (Explanation 2) enables central government to list specified countries or
territories to enter into TIEA with India. April 2010 list includes Jersey – “an
enabling provision”
• Sec 94A added in 2011 Finance Act with a tool box of counter measures on cross
border transactions with notified jurisdictions without effective TIEA with India
• India plans to sign around 30 such TIEAs in cases of fiscal crime and in civil tax
matters.
• Jurisdictions without TIEA will be notified under Sec. 94A of the Act as noncooperative jurisdictions
• Sec 94A applicable from June 1, 2011 – “a blacklist provision”
India is also renegotiating tax treaties to overcome bank secrecy rules and
provision of information without domestic interest - so far completed
36 out of 65 DTAAs in the pipeline.
(Some countries do not wish to provide past banking information)
Mahesh Kumar/ Professor Roy
Rohatgi
Sec. 94A – “Blacklist” provisions for
notified jurisdictions (e.g. if no TIEA)
• Transaction deemed to be an international transaction and subject to transfer
pricing rules
• Expense deduction on payment to any financial institution not allowed unless
taxpayer provides authorisation to revenue authorities to seek relevant
information
• Deduction for other expenses or allowance (incl depreciation) not allowed
unless taxpayer maintains and provides prescribed information
• Any sum received requires satisfactory explanation of source of money - other
wise deemed to be income
• Any payment by taxpayer is subject to withholding tax at prescribed rate or 30%
whichever is higher.
Punitive measures e.g. application of controlled foreign company rules,
expense deduction rules, special tax rules and capital gains realized by
nonresident entities
Mahesh Kumar/ Professor Roy
Rohatgi
TIEA – Isle of Man
(October 7, 2010) – Salient features
• Based on international standards of transparency and exchange of information
• Information must be foreseeably relevant to the adminstration and enforcement
of the domestic tax laws of the requesting state
• Must provide some minimum details about information requested to justify
foreseeably relevance criteria
• To be treated as secret and disclosed only to specified person or authorities;
provides for disclosure to other with written consent of its competent authorities
• Information shall be provided upon request even if not needed for own tax
purposes
• Specific provision for providing banking and ownership information
• Allows exchange of past information in criminal tax matters
•
Mahesh Kumar/ Professor Roy
Rohatgi
Indian Policy on TIEA –
Some Indian Press Comments
• “These agreements should ensure the actual flow of information and benefits for
countries entering them to counter domestic laws on privacy protection to check
tax evasion, black money and money laundering (e.g. round tripping by its
residents)
• Improve the quality of information that is sought under TIEAs to make such
agreements more meaningful e.g. to pressure tax havens into revealing more
information on black money and tax evasion
• Allow participation in tax examinations abroad to the extent permitted under
local laws, to interview individuals and examine records with prior written
permission of individuals or other persons concerned (TIEA – Bahamas)
• Perhaps allow fishing expeditions!
Mahesh Kumar/ Professor Roy
Rohatgi
Indian Finance Minister’s Speech
New Delhi – June 13, 2011
(Some comments on IFCs)
• Tax havens have helped individuals to park substantial undisclosed
income outside their countries; hence denying legitimate tax
revenues to the country – India negotiating TIEAs with tax, low tax
and no tax countries
• Tax havens and low tax jurisdictions were important actors in the
global financial crisis – tax havens and their non compliant
behaviour is a matter of serious concern in protecting tax base and
national security
• Although era of banking secrecy was over, some countries not
willing to exchange past banking information
They reflect the government of India’s present and future policy
towards IFCs - Compliance with Indian rules can give an
advantage to IFCs
Mahesh Kumar/ Professor Roy Rohatgi
TIEAs
• 13 signed (negotiations underway for several new TIEAs)
• 5 currently in force
o Bermuda
o Bahamas
o Isle of Man
o British Virgin Islands
o Cayman Islands
Mahesh Kumar/ Professor Roy Rohatgi
Exchange of Information upon Request
•
Request by Competent Authority (CA) for specific information.
•
No fishing expeditions: Specific details to be provided to demonstrate foreseeable relevance of
information
•
Information disclosure extends to:
o
Information held by banks, other financial institutions, and any person, including nominees and
trustees, acting in an agency or fiduciary capacity
o
Information regarding the legal and beneficial ownership of companies, partnerships, collective
investment funds or schemes, trusts, foundations and other persons
•
Information to be provided within 90 days. Specific difficulties, obstacles or inability to provide
information to be disclosed in writing.
•
Specific grounds for denying request.
•
Confidentiality of information disclosed.
Mahesh Kumar/ Professor Roy Rohatgi
Automatic Exchange of Information
•
India in favour of automatic exchange of information.
•
Governments to collect from financial institutions data on income, gains, and property paid to nonresident individuals, corporations, and trusts.
•
Data collected automatically be provided to the governments where the non-resident entity is
located.
•
Automatic exchange of information (also called routine exchange) involves the systematic and
periodic transmission of “bulk” taxpayer information by the source country to the residence country
concerning various categories of income (e.g. dividends, interest, royalties, salaries, pensions, etc).
•
Automatic exchange can also be used to transmit other useful types of information such as changes
of residence, the purchase or disposition of property, etc.
Mahesh Kumar/ Professor Roy Rohatgi
Convention on Mutual Administrative Assistance
•
Ratified by India in June 2011.
•
First non-OECD country to become a party to the Convention.
Source: OECD
Mahesh Kumar/ Professor Roy Rohatgi
2010 Peer Review
•
In 2009 India had committed to implement the agreed international standard for tax transparency and
exchange of information.
•
DTAAs provide for effective exchange of information.
•
Exchange of information provisions in line with international standards.
•
Treaty policy complimented by wide ranging powers to request for information, search premises and
seize documents.
•
Powers to obtain accounting records and information from banks, financial institutions, nominees,
trustees, partnerships, trusts, etc.
•
No bank secrecy laws limiting such disclosure.
•
Information available regarding owners of companies, partners of general and limited liability
partnerships, settlors of trusts, etc.
•
Entities required to maintain underlying documentation for sufficient period of time.
Mahesh Kumar/ Professor Roy Rohatgi
Liechtenstein Controversy
•
2008: CD stolen by ex-employee of Liechtenstein bank containing details of 1400 account holders.
•
Information supplied to German tax authorities.
•
18 Indians in the list.
•
Liechtenstein initiated prosecution against ex-employee for violating banking secrecy laws.
•
India secured relevant details under EoI provisions in India – German tax treaty.
•
2009: Citizen India (NGO) filed writ petition before Supreme Court to direct the Government to take
legal action and recover monies / taxes.
•
Petitioner demands that Government disclose names of account holders and other details.
•
Government argues that names cannot be disclosed due to obligations under EoI provisions.
Mahesh Kumar/ Professor Roy Rohatgi
Article 26, India - Germany Tax Treaty
1. The competent authorities of the Contracting States shall exchange such information as is necessary
for carrying out the purposes of this Agreement. Any information received by a Contracting State shall be
treated as secret in the same manner as information obtained under the domestic laws of that State and
shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in
the assessment or collection of, the enforcement or prosecution in respect of, or the determination of
appeals in relation to, the taxes covered by this Agreement. They may disclose the information in
public court proceedings or in judicial proceedings.
2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the
obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of that or of
the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the
administration of that or of the other Contracting State;
(c) to supply information which would disclose any trade, business, industrial, commercial or
professional secret or trade process, or information, the disclosure of which would be contrary to public
policy (order public)
Mahesh Kumar/ Professor Roy Rohatgi
Government’s Argument
“Public court proceedings or in judicial proceedings”
limited to
“Proceedings in relation to tax matters”
Mahesh Kumar/ Professor Roy Rohatgi
Supreme Court’s View
“Public court proceedings or in judicial proceedings”
Refers to
“Court proceedings other than those in connection with tax assessment,
enforcement, prosecution etc., with respect to tax matters.”
Mahesh Kumar/ Professor Roy Rohatgi
Balancing Conflicting Rights (Disclosure & Privacy)
•
Fundamental right under Article 21 of the Constitution (Right to Life).
•
Revelation of bank account details without finding of wrongdoing violates right to privacy.
•
Mere fact that a citizen has a bank account in a specific jurisdiction cannot be a ground for revelation
of details.
•
State cannot compel citizens to reveal, or itself reveal bank accounts to the public at large unless it
has carried out proper investigations and established wrongdoing.
Mahesh Kumar/ Professor Roy Rohatgi
Supreme Court’s Directions
•
Government to disclose details of account holders where investigations have concluded.
•
No disclosure required in pending investigations or where there is no evidence of wrongdoing.
•
Special investigation team to expeditiously conduct investigations and initiate prosecutions.
•
SIT to comprise senior officers of :
o
Department of Revenue, Ministry of Finance
o
Reserve Bank of India
o
Enforcement Directorate
o
Central Bureau of Investigation
o
Narcotics Control Bureau
Mahesh Kumar/ Professor Roy Rohatgi
Thank You
Mahesh Kumar
[email protected]
Nishith Desai Associates
Legal & Tax Counseling Worldw ide
Mahesh Kumar/ Professor Roy Rohatgi
Mumbai | Silicon Valley | Bangalore | Singapore | Mumbai-BKC | New Delhi