The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill 2015, commonly referred to as the black money Bill, was passed by Parliament last week. An interesting legislation that has wide-ranging implications, the black money Bill puts India in the league of many developed countries that systematically seek and analyse information related to transactions and assets of taxpayers in overseas jurisdictions. While a number of countries require taxpayers to voluntarily disclose foreign bank accounts, what makes this Bill interesting is the quantum of penalties and the action contemplated for false disclosures or violations of the proposed legislation.

There are three areas critical to the success of this Bill. These will require deliberation and consideration by the administrative or enforcement machinery that the government will put into place.

Extensive international cooperation:

The Indian government will require cooperation and interaction with other countries both from a government-to-government connect perspective and in setting up protocols for exchange of information. In this regard, while India and the G20 countries have committed to a global framework for information exchange, the key will be making quick and efficient progress in operationalising arrangements and cooperation agreements. In addition, there will be a certain amount of navigation around compliance with privacy laws in foreign jurisdictions as well as addressing concerns on “sweeping requests” for information as compared to information on actual violation of the Indian law.

Data gathering and analysis:

For collecting intelligence and determining violations of the Bill, the government will have to set up financial intelligence units as well as surveillance mechanisms around transactions and individuals. Significant effort would be required in terms of determining information points, setting up databases, tools for mining of information, etc, and also making these systems world-class in terms of technologies, methodologies and analytical techniques. These will be critical aspects for the government to consider in identifying and investigating potential violations of the Act.

Aiding and abetment:

A very interesting and unique part of the legislation is around abetment or inducement of another person and that extends to individuals, entities, banks and financial institutions. These provisions may require organisations to enhance and update their compliance programmes to ensure that they do not contravene the provisions of the Bill.

For example, a company, while making payments overseas, may have to do more due diligence on its business partners or beneficiaries of payments, and a bank or a financial institution may have to do more around the KYC compliance programmes, and so on. The penalties proposed under the Bill are stringent and there will be a number of steps both individuals and entities would need to take to ensure effective compliance.

In summary, the black money Bill covers some very important grounds in terms of covering the international aspects of black money held abroad. When augmented with the proposed amendments and enhancements to other Indian laws that deal with unaccounted income held within India, the Bill will not only result in increased tax collections but will also significantly enhance the investment climate in the country. It will be interesting to see the follow-up rules under this Bill and the proposed amendments to other Indian laws that will become the front line for India’s fight against black money.

The author is leader, Forensics Services, PwC India

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