India's avidity for exchange of information
In this era of digitalisation where the world has become a global village and distances are no longer a challenge, flow of capital has become easier and faster. Albeit, this globalisation fuelled by technological advancement has led to seamless transfer of goods, services, money and man, the same has also stimulated international tax evasion and avoidance, in particular through tax havens and non-co-operative jurisdictions.
Where the world has recently witnessed the illegitimate stashing of money in foreign jurisdictions and banking scandals, co-operation between tax administrations of different sovereigns has been considered to be critical in this fight against tax-evasion and in protecting the integrity of tax systems.
A key aspect of such co-operation shall be the effective and seamless exchange ofinformation ('EOI'), between the jurisdictions, to curb the practice of tax evasion followed by taxpayers around world.
The 1998 OECD report 'Harmful Tax Competition: An Emerging Global Issue'1 identified the lack of effective exchange information as one of the key characteristics of harmful tax practices and recommended member countries to remove impediments to the access of bank information.
The scope of national tax authorities is restricted to the territorial limitations of the country and hence their powers are also restricted. Thus international co-operation and mutual assistance for tax purposes is most important which makes exchange of information an effective worldwide system for recovery of taxes in cross-border scenarios.
The G20 leaders stated their commitment to the automatic exchange of information and called for a new single global standard (Multilateral Convention on Mutual Administrative Assistance on Tax Matters) for automatic exchange of Information. Many countries namely Austria, Luxemburg, Singapore, Switzerland etc have signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matter designed by Organisation for Economic Co-operation and Development ('OECD'), which inter alia, allowed for exchange of information on request.
India has also signed the aforesaid Multilateral Convention on June 3, 2015.
United States of America ('US') has introduced Foreign Accounts Tax Compliance Act ('FATCA'), a per se unilateral action of the US government to combat the menace of undisclosed money and wealth of US persons2 stashed in foreign jurisdictions. FATCA at the outset is an attempt of US to fight against the instances of tax evasion by US taxpayers through concealment of their direct or indirect interest in offshore financial accounts and assets.
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