 "UFIA Bill could impact Make in India policy: Sonu Iyer")
The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015, popularly called the "anti-black money bill" has been in the news for its stringent and sweeping provisions. Sonu Iyer, partner and national leader, human capital services, EY India, shares with Sudipto Dey the concerns of expat professionals and multinational companies in India about provisions of the Bill. Edited excerpts:
As a measure to curb black money, how does the UFIA Bill compare to similar international legislation, such as Fatca (Foreign Account Tax Compliance Act)?
Theoretically, the Bill is a great move as a deterrent to curb the growth of black money outside India, and is in line with global trends and similar international legislations across multiple countries. But that's where it stops. The law is inspired by these legislations in other countries, but what is missing in our country is the same quality of tax administration. The worry is now growing that earnest tax payers may be pulled up and harassed, especially expats.
My biggest concern is about expat assignees that come to work here for three-four years, and have a lifetime of savings, assets, wealth, everything overseas. The question they are raising is: "Are we the target for this law? And if targets are Indians who have stacked away their unaccounted wealth in assets abroad, should there not be some carve-outs?"
The legislation is not training the tax administration to behave differently with expats. While the Prime Minister is trying to create a friendly and non-adversarial tax regime, the tax administrators are not in line with the policy. This could directly impact our 'Make in India' policy. If the experience on the ground is "We are being harassed" we might end up creating a situation where nobody wants to come here to work. This also applies to Indians who have lived and worked in foreign countries for many years and now want to come back.
We must take into consideration that the foreign nationals are here to work for three-four years, subject to compliance of reporting requirements in respect of assets held overseas under the asset reporting provisions introduced by the government in 2012 to track "black money". The fear is that they could well end up as being the unintended victims of the foreign anti-black money Bill and the asset reporting provisions. It will also lead to more litigation between expats and tax administration. The expat community is very cagey about their private financial information floating around in the corridors of Indian tax office. Data privacy is very important to them. The feedback that they give to their global boards could well create a negative picture for India.
We have to ensure that tax administration is trained and should buy-in to the policy vision of a non-adversarial tax regime.
Many companies are concerned that it may become difficult for them to attract expats to work in India. They already face a challenge in terms of attracting woman expats due perceptions around law and order situation.
Could an expat assessee invoke safe harbour provisions under Double Taxation Avoidance Agreements?
Our sense is that this does not seem to have legislative acceptance considering that Bill has specifically taken power to sign fresh treaty with other countries in relation to the new law.
Are there any safeguards - from HR perspective - for a company to avoid harassment due to unintended lapses in disclosure?
There has to be change in HR policies to help people and defend themselves in such situations. There has to be education that even inadvertent non-disclosure of foreign asset can lead to penalty and imprisonment. The threshold for non-disclosure is just Rs 5 lakh or $10,000 which is very low for a foreign national.
Our first advice to companies is to ensure compliance, but the concern remains about self-protection from harassment. The stakes are high as any inadvertent non-disclosure could lead to prosecution, imprisonment and penalty. They have to review any returns filled to avoid inadvertent non-disclosure. Companies also have to review and amend their tax equalisation policy.
The "abettor" of any undisclosed asset is also liable for prosecution. How do you expect that to play out?
I understand that "abettor" needs to be interpreted along the lines of Section 278 of the Income Tax Act .The intention appears to cover those people who are actively supporting the crime.
As a measure to curb black money, how does the UFIA Bill compare to similar international legislation, such as Fatca (Foreign Account Tax Compliance Act)?
Theoretically, the Bill is a great move as a deterrent to curb the growth of black money outside India, and is in line with global trends and similar international legislations across multiple countries. But that's where it stops. The law is inspired by these legislations in other countries, but what is missing in our country is the same quality of tax administration. The worry is now growing that earnest tax payers may be pulled up and harassed, especially expats.
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What are the key concerns among the expat community in the country working for MNCs and Indian companies?
My biggest concern is about expat assignees that come to work here for three-four years, and have a lifetime of savings, assets, wealth, everything overseas. The question they are raising is: "Are we the target for this law? And if targets are Indians who have stacked away their unaccounted wealth in assets abroad, should there not be some carve-outs?"
The legislation is not training the tax administration to behave differently with expats. While the Prime Minister is trying to create a friendly and non-adversarial tax regime, the tax administrators are not in line with the policy. This could directly impact our 'Make in India' policy. If the experience on the ground is "We are being harassed" we might end up creating a situation where nobody wants to come here to work. This also applies to Indians who have lived and worked in foreign countries for many years and now want to come back.
We must take into consideration that the foreign nationals are here to work for three-four years, subject to compliance of reporting requirements in respect of assets held overseas under the asset reporting provisions introduced by the government in 2012 to track "black money". The fear is that they could well end up as being the unintended victims of the foreign anti-black money Bill and the asset reporting provisions. It will also lead to more litigation between expats and tax administration. The expat community is very cagey about their private financial information floating around in the corridors of Indian tax office. Data privacy is very important to them. The feedback that they give to their global boards could well create a negative picture for India.
We have to ensure that tax administration is trained and should buy-in to the policy vision of a non-adversarial tax regime.
Many companies are concerned that it may become difficult for them to attract expats to work in India. They already face a challenge in terms of attracting woman expats due perceptions around law and order situation.
Could an expat assessee invoke safe harbour provisions under Double Taxation Avoidance Agreements?
Our sense is that this does not seem to have legislative acceptance considering that Bill has specifically taken power to sign fresh treaty with other countries in relation to the new law.
Are there any safeguards - from HR perspective - for a company to avoid harassment due to unintended lapses in disclosure?
There has to be change in HR policies to help people and defend themselves in such situations. There has to be education that even inadvertent non-disclosure of foreign asset can lead to penalty and imprisonment. The threshold for non-disclosure is just Rs 5 lakh or $10,000 which is very low for a foreign national.
Our first advice to companies is to ensure compliance, but the concern remains about self-protection from harassment. The stakes are high as any inadvertent non-disclosure could lead to prosecution, imprisonment and penalty. They have to review any returns filled to avoid inadvertent non-disclosure. Companies also have to review and amend their tax equalisation policy.
The "abettor" of any undisclosed asset is also liable for prosecution. How do you expect that to play out?
I understand that "abettor" needs to be interpreted along the lines of Section 278 of the Income Tax Act .The intention appears to cover those people who are actively supporting the crime.