Column: The black money catch

Published: November 5, 2014 1:40 AM

The secrecy clause built in the treaties is for good reason and the government honouring this is necessary

Money stashed away by Indians in foreign banks has always invited public ire. The prospect of getting to know the names of such individuals whose deposits exist abroad has fired the imagination of the people. Conjecture is rife and there has, therefore, been a demand from many quarters for the release of such names to the public. The names of Indians who have these accounts in foreign banks has been given by unofficial sources in some countries. Official source would have been the competent authorities of a country where the deposit in the bank is located. The competent authority is an official authorised by a government for proper implementation of the double tax avoidance agreement. From what has been made public is one list of names received from a third party in respect of accounts in a bank located in another country. The other list of names has also been obtained by the Indian government in a similar manner.

The list of names are with the competent authority of India, and the tax department would be investigating each case. Proper investigation would reveal whether the name in the list is verified to be correct and whether the deposit is unaccounted and warrants any action being taken in India. If the latter position stands proved by the tax department, apart from raising taxes and levying penalties, launching of prosecution is likely to ensure. Before prosecuting the black money holders, evidence is required. Denial of such an account is a possibility. The courts dealing with such prosecution would, inter alia, require that the bank account has been officially verified by the government of the country where such account exists. What is more important today? Disclosing the names of the possible defaulters or effectively investigating the matter?

The list of names, if revealed at this preliminary stage, would infringe the international norms enshrined in the tax treaties and frustrate effective investigation. The secrecy clause built into the treaties is for good reason and the government honouring this is necessary not only in respect of the present imbroglio but for the future also. Not only might other governments not verify or give further clinching evidence cementing the present case against such accounts but they may also refrain from giving any information asked for in the future. Under the “Exchange of Information” article in the treaty, not only taxpayer-specific information but other sensitive information, for example tax avoidance or evasion schemes, could be elicited. Even our own domestic laws provide for secrecy and information can be parted with by the tax department only in certain situations. Be that as it may, the secrecy clause in the treaty rides supreme and, whether inherited or not or a norm followed by all countries, it should be followed.

In the event secrecy is not maintained till the prosecution is launched—when it goes public in any case—the outcome would be completely counterproductive. It is likely that no reliable information regarding the accounts would be forthcoming and the opportunity to get evidence required for making  proper investigation may be lost. The likely result would be investigation on inadequate basis with insufficient evidence leading to waste of resources and precious time of public institutions.

In fact, the tax department, in the event of not getting clinching evidence, may still seek to launch prosecution, but the fate of such action is anybody’s guess.

It is, therefore, of utmost importance that the government not only remains compliant in honouring the confidentiality protocol in letter and spirit but also not precipitate any circumstances that even give a ground, howsoever feeble, to the information giving countries to deny cooperation in investigation and the flow of information in the future.

Lastly, the crackdown on black money inside the country is equally important and the whole issue of the money stashed overseas should not distract the investigating agencies away from this mission.

By Rahul Garg
The author is leader, Direct Tax, PwC India

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