The G20 nations committing themselves to automatic exchange of tax information on a reciprocal basis will create a better atmosphere for handling black money and tax evasion in cross-border transactions, but it is far from a done deal. A lot of groundwork and coordination is required before a functional system is in place for providing bank account data on an annual basis. If it was that easy, such automatic exchanges would have started happening at the bilateral level much earlier. India and Switzerland have an agreement of this type, but both countries are still grappling with the issue. The critical part to be addressed in the exchange of tax information is the mode and the possibility of getting what is required under the laws of a particular country. India has signed an exchange of information instruments?tax information exchange agreements, double tax agreements and multilateral conventions?with 130 jurisdictions. But the problem with these instruments is they can be accessed only in the cases of suspected tax evasion cases, so the country providing information has to be convinced that there is a legitimate case; the G20 is not proposing a fishing expedition, so the Indian taxman will still need to go the extra mile to prove tax evasion.
Which is why the G20 communique says ?we will begin exchanging information automatically between each other and with other countries by 2017 or end-2018, subject to the completion of necessary legislative procedures?. The complete framework may or may not be in place even by 2018, though it helps that all countries are on the same page in terms of the need to tackle base erosion and profit shifting (BEPS) and cross-border transactions. While a legislative backing will make the whole process automatic, tax authorities working together would start acting as a deterrent for the entities looking for tax avoidance. For the process to really work, though, tax authorities need to have a similar approach, and nothing typifies that better than the current dispute that over 200 US firms have with the Indian taxman. While the cases are being discussed under the mutual agreement procedure (MAP), the US authorities feel the appropriate profit margin should be 12-13% while the Indian side is pushing for 18-19%?though it has been several months, a solution of this has evaded both sides. The good news, of course, is that with all countries agreeing on the need for BEPS, hiding in tax havens and treaty shopping will soon be a thing of the past.
