Mumbai: India has slipped from a rating of 'compliant' to an overall rating of 'largely compliant' as regards its meeting international standards for exchange of tax information, according to a peer review. A set of peer review reports covering six countries, including India, were released recently by the Organisation for Economic Co-operation and Development (OECD).
A pertinent suggestion for India, is to "ensure the quality of the exchange of information (EoI) requests sent to tax authorities of other countries and an efficient communication with its EoI partners, in all cases". A peer review of a country is periodically conducted by officials representing other countries to check the implementation of the OECD-stipulated standards of transparency and exchange of information, which helps combat offshore tax evasion.
EoI requests made by India's tax authorities to its counterparts worldwide have resulted in India detecting over Rs 1,900 crore in undisclosed bank accounts and 171 prosecutions in 123 cases. This covers cases where details of hundreds of offshore accounts were disclosed by the International Consortium of Investigative Journalists (ICIJ) in April 2013, and details of alleged unaccounted HSBC bank accounts in Switzerland which were uncovered via another leak in February 2015, cites the peer review report.
In the wake of recent exposes, such as the Panama Papers and more recently Paradise Papers, which have brought to light unaccounted money stashed in tax havens by the rich and powerful, exchange of information among tax authorities has gained further importance.
The current peer review covers the period July 1, 2013 to June 30, 2016. The report notes that the earlier review (report released in 2013) did not take into account the quality of information exchange requests sent by India to other countries or its communication with foreign tax authorities. The earlier report also did not factor the availability of information in India relating to beneficial ownership. Both these new parameters, on which India was judged as 'largely compliant', also pulled down its overall rating.
While India has legal and regulatory norms in place for disclosure of beneficial ownership in e-tax returns and under anti-money laundering regulations, the peer review group has suggested that India's tax authorities monitor the quality of information collected via income tax (I-T) returns. As regards EoI requests, the report calls for greater clarity of such requests made by India's tax authorities. They should also demonstrate the relevance of their requests and improve communications with the tax authorities in other countries, notably where bulk requests or complex requests are concerned, adds the report.India extensively relies on the EoI mechanism. During the peer review period, it received 298 requests largely from tax officials in Belgium, Norway, US, Singapore and Indonesia. On the other hand, 3,787 requests were sent by India's tax authorities to officials, mainly in British Virgin Islands (BVI), France, Singapore, Mauritius and UAE.
A retired government official said, "In the initial period covered by the review, Indian tax authorities lacked adequate expertise and experience in framing EoI requests. It was only in May 2015 that the Central Board of Direct Taxes (CBDT) issued a revised comprehensive manual on exchange of information, as 'fishing expeditions' — cases where information was sought without any concrete basis — had given India a bad name." The peer review report concedes that since 2015, India has shown improvements in the quality of its requests and is also implementing an action plan.
Government officials point to CBDT's action plan for 2017-18, which provides for training of tax officials in drafting EoI requests. CBDT's action plan also calls for timeliness in seeking information, addressing any clarifications and also in providing high quality comprehensive information. Delays in addressing EoI requests will be a thing of the past, say government officials.
Going forward, the G20 countries, including India, are moving towards a mechanism of automatic exchange of information, where countries will exchange information without specific requests being made.
Source: timesofindia.indiatimes.com