The uncertainty over maintaining confidentiality in revealing the names of those who are alleged to have black money stashed abroad but have not been prosecuted so far will have repercussions in the tax treaties between India and other nations. This was evident after India failed to sign a treaty for automatic exchange of information, signed by 51 countries, in Berlin on Wednesday. Here is how the drama unfolded:
- In an order dated April 1, 2014, the Supreme Court (SC) asks the Centre to give names of eight people — against whom investigations had been concluded — to petitioner Ram Jethmalani, despite the fact that no evidence of wrongdoing was found against them
- The names relate to accounts in LGT Bank in Liechtenstein, information on which was given to India by Germany in 2009 under a tax treaty which has a confidentiality clause
- In June 2014, Germany writes to India expressing surprise at this revelation and asks it to provide an explanation of how this information was disclosed
- The government believes SC’s directive contradicts its own order of 2011, which says only after the state arrives at a prima facie conclusion of wrongdoing based on material evidence, only then the question arises of the right of the public to be informed
- On October 27, while revealing names of seven people and an entity from the HSBC Geneva list, the government seeks clarification on the order
- The clarification is also sought because SC’s interpretation of confidentiality obligations is different from how these are interpreted internationally
- SC’s interpretation is that names received from foreign countries can be used in hearings before the apex court
- General and international interpretation of the confidentiality clause in the treaties is that information received from foreign countries can only be used for tax purposes and tax assessment and enforcement
- On October 28, SC tells the govt it would not change even a word of the order. It further asks the govt to provide the entire list of 627 people
- On October 29, the govt gives the entire list to SC in sealed envelopes. The SC, in turn, gives it to the Special Investigative Team (SIT), formed on May 27 by the new govt
- The govt feels the combined effect of all of this is that foreign countries, with which India still doesn’t have any treaty or arrangement to exchange information, or countries which shared some information, are developing cold feet for further cooperation
- India’s efforts to sign a treaty for automatic exchange of information has already become a casualty. India failed to sign it in Berlin on Wednesday, while 51 other countries have inked it
- The SIT is to give a status report, including its interpretation of the confidentiality clause, by November end this year
- The apex court will hear the matter on December 3
- India has to sign an agreement with the US on the Foreign Account Tax Compliance Act by December end. If the ruling does not agree with international interpretation, there could be a problem in signing the pact. Even if these issues are resolved, not much time will be left for the Cabinet to approve it. Not signing it would mean remittances from the US to India are subjected to 30 per cent withholding tax
