India’s feat in revising tax treaties with 81 countries, including Switzerland, may not significantly help the government in bringing back the money stashed abroad. It may, though, prove a little helpful in nailing tax evaders who have already shifted their bank accounts from tax havens.
Experts agree that the much-hyped treaty with Switzerland, which came into effect recently, could allow for better sharing of information for tax collection purposes. But the larger issue of unearthing black money and checking corruption and money laundering may remain unaddressed for mulitple reasons, they add.
Firstly, the provisions of the treaty do not include past banking details — only information after January 2011 will be provided. Secondly, India will have to give specific details of tax evaders to get information about their secret accounts in Switzerland. Seeking information under the treaty would hugely depend upon strengthening revenue intelligence in India where tax evaders have made money.
“In a treaty, you can’t ask for fishing and roving enquiries,” notes K R Girish, partner, BSR & Co. “You have to specifically give the details of people about whom information is needed. The Indian government can ask Swiss authorities to collect taxes on its behalf in cases of tax evasion, but can’t insist on repatriation of the money. That has to be done at a diplomatic level.” India will have to use its revenue intelligence and tell tax havens about the amount which is due and required to be remitted, he adds.
The Double Taxation Avoidance Agreement (DTAA) between India and Switzerland contains provisions on exchange of banking information (including information without domestic interest) and assistance in collection of taxes. Earlier, India could seek bank details only in relation to tax fraud cases.
“The treaty does improve the level of exposure to information,” concedes Vijay Iyer, partner, Ernst & Young. “But this is not blanket sharing of information. People who have already shifted their accounts to other places can’t be traced if past banking information is not shared. The success of these treaties depends upon how effectively Indian authorities can build a case in seeking information.”
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Ashutosh Chaturvedi, executive director of PwC, also says the important part is the quality of information shared by Swiss authorities and the way India uses it.
Experts argue that people who have stashed money abroad are unlikely to leave a trail behind for tax authorities to nab them. As for the secret accounts that could be still active in tax havens, it is believed that there might not be many since tax rates have moderated in India over the years.
Besides, it has been reported that even now India can file requests for mutual legal assistance in corruption and money laundering cases before the Switzerland, but it has filed only 10 requests for judicial assistance over the past five years.
At the recent G20 summit in Paris, Finance Minister Pranab Mukherjee had stressed that information need not be confined to prospective details and past information should also be given. He succeeded to an extent when the G20’s draft communiqué for the first time took note of New Delhi’s concerns and resolved to address the issues relating to the importance of “comprehensive” tax information exchange.
The word “comprehensive”, as suggested by Germany, was added to the paragraph on black money, but India wants to highlight the issue further at the G20 summit in Cannes.
India is also renegotiating its tax treaty with Mauritius, but that may also not mean much if the tax haven does not agree to review the clause on capital gains tax. Officials have indicated that the treaty may be revised with some changes, which may not include taxation of capital gains.