It seems ironic that when it is fighting to bring tax evaders to book, the Indian government has pulled out at the last moment from the multilateral tax-evasion agreement initiated at Organisation for Economic Co-operation and Development (OECD). Interestingly, India was proactive in terms of suggestions for the agreement.
Fifty-one member countries of OECD on Wednesday signed an agreement in Berlin to automatically exchange tax information so that tax evaders could no longer take shelter under bank secrecy agreements. The governments agreed to implement the automatic exchange mechanism by the beginning of 2017.
According to legal tax practitioners, the main reason for India pulling out stems from the fact that the Supreme Court on Wednesday had said it was for the special investigation team (SIT) to decide on which government departments need to probe on tax evasion list it had submitted, be it the Income Tax or Enforcement Directorate or the Central Bureau of Investigation.
Having been given a rap on its knuckles, tax practitioners say the government now is probably mulling that information through the tax treaty will be only to the extent of tax evasion and no further.
"There is ambiguity now on how the information can be used. In that sense, there is restriction on the government," said a senior tax consultant.
"Now that the apex court has interpreted the manner in which information can be used, the government is now doing a re-think on the tax treaty," he said.
According to another tax practitioner, in the last three years India has signed Tax Information Exchange Agreement (TIEA) with 14 countries, and this being a cumbersome procedure the multilateral agreement with OECD was evolved in the interest of all member countries to net the tax evaders.
TIEAs provide for the exchange of information on request relating to a specific criminal or civil tax investigation or civil tax matters under investigation. The global forum has been the multilateral framework which created the standards of transparency and exchange of information for tax purposes carried out by both OECD and non-OECD economies.
Cayman Islands, Argentina, Bahamas, Principality of Liechtenstein, Isle of Man are a few countries with whom India has TIEAs.
"Now with the government showing seriousness in bringing black money back to India, there is some re-thinking on whether it restricts the information exchange only to the extent of tax-recovery, when there are issues like money laundering, terrorist funding, etc," said a legal tax-practitioner.
"The SIT knows its job and may devise their own procedure if required," the apex bench had told the government on Wednesday.
"There is a well-defined boundary within which the government must operate in a democracy. So the right to get the information can also lead to undue harassment," said another tax practitioner.
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