Black money: Govt says hands are tied, defers signing of tax treaty

Written by Shruti Srivastava | Shruti Srivastava | New Delhi | Updated: Oct 30 2014, 19:07pm hrs
Black moneyNDA government puts off the signing of a crucial multilateral agreement aimed at facilitating access to financial information on taxpayers abroad.
On a day when it furnished before the Supreme Court the full list of 627 Indians having accounts in foreign banks, the NDA government put off the signing of a crucial multilateral agreement aimed at facilitating access to financial information on taxpayers abroad.

This has been prompted by the uncertainties on whether India can commit to maintaining the confidentiality of inputs received from foreign countries in accordance with the international pact, specifically in the wake of the apex courts ruling on Tuesday wherein it sought a full disclosure by the government of illegal accounts held by Indians abroad.

The proposed pact called Competent Authority Agreement (CAA) was scheduled to be signed on Wednesday in Berlin at the OECDs global tax forum and India was to be represented by a joint secretary of the foreign tax division of the tax department, who is the competent authority for the forum.

However, due to the turn of events in the ongoing proceedings on black money in the SC, a junior officer a director was sent to attend the two-day event with the mandate to effectively explain that India is not in a position to sign the agreement currently due to internal issues, a senior official told The Indian Express.

Black-money-pact

The department is still not clear on whether it can go ahead with this agreement as it requires a commitment for maintaining confidentiality in accordance with the international laws. The SCs order to disclose all the names of Indians holding illegal foreign accounts has the department in a quandary, the official said. He added that India would revisit the issue after formulating a strategy to deal with the subject of the confidentiality clause.

Earlier, the government had filed an affidavit seeking a clarification from the apex court on whether it could enter into treaties that demand commitment to maintaining the confidentiality of information received as per international standards. The absence of such a commitment, the government had argued, would put the country at a disadvantage as it will not be able to receive information about Indians hiding their money in other countries including offshore financial centres and tax havens through multi-layered entities with non-transparent ownership.

The CAA is a prelude to an annual automatic exchange of information between governments on financial accounts including balances, interest, dividends and sales proceeds from financial assets, held by individuals, trusts or foundations. In September, Minister of State for Finance Nirmala Sitharaman, at the G-20 meeting in Australia, had extended full support to the automatic exchange of tax and banking information and had agreed to a common time to exchange information automatically by 2017. Though not a legal document, the CAA will act as a template for inter-governmental agreements and the members will be expected to streamline their legislation accordingly.

At the Berlin meeting on Wednesday, although India did not sign the agreement, it committed to implementing the first information exchange by September 2017. According to the OECDs website, more than 65 countries and jurisdictions have publicly committed to its implementation, while more than 40 have committed to the first automatic information exchange in 2017.

The fact that so many jurisdictions have agreed today to automatically exchange financial account information shows the significant change that can occur when the international community works together in a focused and ambitious manner. The world is quickly becoming a smaller place for tax cheats, and we are determined to ensure that developing countries also reap the benefits of greater financial sector transparency, Angel Gurria, OECD secretary general, said after the signing ceremony.