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International Cooperation and effective use of data obtained under EOI – An Indian Perspective • • • • • • • Why EOI ? Legal Basis For EOI (India) Inbound requests for EOI from Foreign Tax Authorities Outbound requests for EOI to Foreign Tax Authorities Automatic EOI Spontaneous EOI Security of information received under EOI A presentation by Mrs Nishi Singh, IRS Member (P & V) Central Board of Direct Taxes Ministry of Finance Government of India Need for Exchange of Information Globalization and Liberalization Cross border tax evasion and Avoidance Information beyond barriers Implementation of domestic laws becoming difficult 2 Legal basis for EOI In India, EOI is effected through the following: • • • • • Double Taxation Avoidance Agreements/Conventions (DTAAs/DTACs) (94 Countries) Tax Information Exchange Agreements (19 Countries) Multilateral Convention on Mutual Administrative Assistance in Tax Matters (Multilateral Convention) Mutual Legal Assistance Treaties (MLATs)- Information is obtained through MLATs particularly with countries/jurisdictions with which there is no tax treaty. Egmont Group of Financial Intelligence Units (FIUs) Informal network of FIUs established with a view to have international cooperation including information exchange in the fight against money laundering and financing of terrorism. 3 EOI Cell – A Brief Profile • Established in 2012 in the Foreign Tax and Tax Research Division, Ministry of Finance. • All requests made to Foreign Tax Authorities and all requests received from abroad channeled through EoI Cell • Headed by Joint Secretary (FT&TR-I) and Joint Secretary (FT&TRII) as Competent Authority, both having separate territorial jurisdiction. • Participation in meetings for development of standards and overseeing compliance with standards such as Working Party 10 of OECD, Global Forum of Transparency and Exchange of Information for Tax Purposes • Organisation of Programmes for sensitization and training • Manual on Exchange of Information: issuance & upgradation 4 Exchange of Information – A Two Way Process Inbound Request Outbound Request 5 Outbound EOI EOI Request 4 Indian CA Foreign CA Makes Reference to Indian C.A. 8 Info provided to field 7 Collecting Information 3 FEEDBACK Providing Information 6 Assessment Unit / Investigation Unit/ Departmental Appellate Authority 1 Scrutiny/ Investigation Suspicious Transaction Entity Y Entity X 2 5 Outbound EOI – Process in India • Request can be made by the Assessing Unit, Investigation Unit or departmental Appellate authority. • Request to be made in a prescribed proforma. • Several instructions and a manual issued for assistance of field authorities. • Request to be made through Competent Authority Checks at the CA’s Office Whether there is a legal instrument for exchange of information in place Does the information relate to taxes covered by the EOI instrument Does the information relate to tax years covered by the EOI instrument Is the information requested foreseeably relevant to an ongoing tax examination, investigation or inquiry Is the request detailed enough, i.e. sufficient background information provided to understand the request and the information is sufficient to identify a taxpayer or group of taxpayers etc. Outbound EOI – Increasing Trend Year wise statistics of outbound EOI Sl No F.Y. No of Outbound EOI 1 2013-14 888 2 2014-15 1,673 3 2015-16 1,376 4 2016-17 (upto September) 330+ 9 Inbound EOI Requests CA of a Treaty partner send request to India CA of India receives request letter and check the contents Information available with EOI Cell DGIT(Systems) IT Database Assessing Officer Collect requested information Send to CA EOI Cell prepares reply letter with the requested information Investigation Wing Enquiry from taxpayer DGIT(Intelligence & Criminal Investigation) Enquiry from information holder Send information to requesting country CA approves letter and signs letter 10 Forwarding the Request for Gathering of Information • Simple Information like copies of Tax returns and current address which can be accessed by the central database – Head of database division known as DGIT (Systems) • Field enquiries needed – Head of Investigation having territorial jurisdiction known as DGIT (Inv) • Jurisdiction uncertain – Member (Inv), for coordinated action by two or more DGIT(Inv)s Availability and Collection of Information Information Requested Sources Collection of Information Ownership of legal entities Banks and Financial Institutions Summons Accounting Other Organisations, RoC Survey Banking Taxpayer, or ARs Search Timelines • Standard timeline – 90 Days! • Basic information from database - 15 days • Enquiries involved – Nodal officer to submit report within 30 days of receipt of request in his office • Complex cases – Interim report within 30 days • • • • Information collected so far Difficulties in collecting information Further efforts to be made Likely date for full information 13 Automatic Exchange of Information (AEOI) • Global consensus for exchange of information on automatic basis as per uniform standards • Uniform standards modeled on FATCA and developed by OECD in collaboration with non-OECD G20 countries including India • Endorsed by G20 as expected new international standard • Indian PM’s Speech at G20 Leaders’ Summit in Brisbane “India supports the new global standard on automatic exchange of information, which would be instrumental in getting information about unaccounted money hoarded abroad and enable its eventual repatriation.” AEOI (Contd.) • A contracting state regularly provides standardized information about various categories of income (interest, dividends, royalties, etc.) related to residents of the other contracting state. • Information provided is usually sourced from information returns stipulated in the domestic law of the first mentioned state. • Information gathering to meet the international commitment 15 AEOI (contd.) • India along with 44 other countries (early adopters) have also committed to implement the standards on an agreed date • September, 2017 New accounts (both individuals and entity) opened after 1.1.2016 Pre-existing (as on 1.1.2016) individual high value accounts (balance more than USD 1,000,000) • September, 2018 (or September, 2017 if systems are in place) Pre-existing (as on 1.1.2016) individual low value and entity accounts • Necessary legislative changes have been made through Finance (No. 2) Act, 2014, by amending section 285BA of the Income-tax Act, 1961, and necessary rules and guidelines are being formulated in consultation with financial institutions. AEOI (contd.) • Designed with Broad Scope – Financial Information to be reported would include all types of investment income (including interest, dividends, income from certain insurance contracts etc.) and would also include account balances and sales proceeds from financial assets – Reporting Financial Institutions include not only banks and custodians but also brokers, certain collective investment vehicles (e.g. mutual funds) and certain insurance companies – Reportable accounts include accounts held by individuals and entities (including trusts and foundations) and the standards include a requirement to look through passive entities to report on individuals that ultimately control these entities Spontaneous Exchange of Information • Provide information on a spontaneous basis • Effective tool to prevent global tax evasion and avoidance • Reciprocal assistance can be expected Spontaneous Exchange of Information India Info sent Country X spontaneously Scrutiny or search Taxable Info on a Non-resident B of Country X. Eg. Commission paid for technical services Taxpayer A Tax Return verified / Actions taken for nondeclaration Non Resident Taxpayer B Confidentiality Need for confidentiality • Commitments to the citizen that no information sharing with countries that do not protect confidentiality of the information. • Integral part of Taxpayers Charter in many countries. • Offshore Financial Centres sharing information on the condition that due confidentiality shall be maintained. 20 Confidentiality under Tax Treaties • Article 26(2) of OECD Model DTAA • Article 8 of Model TIEA • Information is to be treated as secret in same manner as information obtained under domestic laws of receiving State • Use and purpose and disclosure limited to persons or authorities involved in – – – – – Assessment Collection Enforcement Prosecution Determination of appeals 21 Domestic Provisions for Confidentiality • Section 138 read with notifications prohibits, subject to certain exceptions, disclosure of any information contained in any statement, return furnished, or accounts or documents produced under the Act • Section 280 provides for punishment of imprisonment upto six months and fine for contravention of section 138 22 Confidentiality – Right to Information Act • Commentary on OECD Model Convention: information may not be disclosed under domestic information disclosure laws • The domestic Right to Information Act is not applicable to the information received in confidence from foreign Government – explicit exemption. 23 Information received under EOI – Indian Experience • Information regarding 628 entities having bank account in a foreign bank under spontaneous EOI – Undisclosed income of INR 81.86 Billion – Penalty for concealment of INR 12.82 Billion – 164 Prosecution proceedings initiated • Information in 700 cases arising out of EOI requests on the basis of information in public domain – Undisclosed deposits of INR 50 Billion in foreign accounts detected – 55 prosecution proceedings initiated 24 Thank you 25