Thursday, February 25, 2016

Information Exchange on Tax Matters - Important Development in Indian legislation

As a part of a global drive to exchange information freely between countries, India has signed various agreements with other countries for information exchange. For instance, India has signed "Tax Information Exchange Agreements" with certain countries. Further, India has signed Inter-Governmental Agreement (IGA) and Memorandum of Understanding (MOU) on 9th July 2015 with the United States to improve international tax compliance and to implement FATCA. India has also joined Multilateral Competent Authority Agreement (MCAA) on 3rd June 2015.
The MCAA is a multilateral framework agreement that provides a standardized and efficient mechanism to facilitate the automatic exchange of information. As a step towards the implementation of FATCA provisions and with a view to provide automatic exchange of information to other countries under MCAA, necessary legislative changes have been made in India.1 
With the introduction of these provisions, specified financial institutions in India are under an obligation to furnish the details of reportable accounts to the prescribed income tax authorities. Financial institutions are required to carry out necessary due diligence procedures to identify reportable accounts and thereafter, furnish the statement of reportable account in Form No. 61B for every calendar year by 31st May following that year.
This Article provides an overview of certain measures adopted by the Organisation for Economic Co-operation and Development (OECD) and the amendments recently made in the Indian legislation with a view to exchanging information on tax matters.
Measures by the OECD
1.

OECD has come up with "Common Reporting Standard for Automatic Exchange of Information" (CRS). A Common Reporting Standard Implementation Handbook (CRS Handbook) has recently been issued in August 2015 to provide practical guidance to assist in the effective implementation of the Standard.
2.

Some of the relevant aspects of CRS Handbook are outlined below:

a.

The OECD model for standardised automatic exchange is built on the FATCA IGA to maximise efficiency and minimise costs. While the OECD model mirrors the FATCA IGA to a large extent, there are certain differences in terms of removal of US specificities and approaches less suited to multilateral context of the Standard.
b.

With respect to the modus operandi, OECD has outlined the following four core requirements to implement the Standard:

i.

Translating the reporting and due diligence rules into domestic law, including rules to ensure their effective implementation
ii.

Selecting a legal basis for the automatic exchange of information
iii.

Putting in place IT and administrative infrastructure and resources
iv.

Protecting confidentiality and safeguarding data


3.

CRS-related FAQs clarifying general reporting requirements, due diligence requirements, etc. have been issued by the OECD in August 2015.
4.

Portal on Automatic Exchange of Information has been launched in October 2015 to support the implementation of automatic exchange of information in tax matters.
5.

It is proposed to conduct a peer review process to review jurisdictions' legal and practical frameworks for compliance with the Standard and ensure globally consistent implementation of the Standard. The purpose is mainly to evaluate the effectiveness of implementation of the Standard, including meeting confidentiality and data safeguard requirements.
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