Government notifies rules for blacklisting tax havens

Indians transacting with such countries will have to share details with tax dept

The central government on Friday notified amendments to the Income Tax Rules, allowing it to blacklist countries that don’t cooperate in sharing information about suspected tax evaders. Indian residents will find it tough to do business with these countries, as they stand to lose the tax benefits provided otherwise.

According to the new rules, an assessee will need to submit an ‘authorisation’ to claim deduction in respect of a payment made to any financial institution located in a jurisdiction notified as non-cooperating. Therefore, people who have stashed their money in these countries might find it difficult to conceal it anymore.

Form 10FC has been prescribed for submitting the authorisation for waiving all protections provided under any law and allowing the tax department to obtain the information and records of the foreignaccounts. These include documents identifying the account holder, the beneficial owner, authorised persons, account opening documents, correspondence between the bank and the customer/beneficial owner or third parties in relation to the account, account statements, and statements of assets.

Such assessees will also have to maintain some additional documents such as description of the person they are dealing with in the blacklisted jurisdiction, including their name, address, location; a profile of the multinational group of which the specified person is a part, and a broad description of the business of the person and the industry he operates in.

“The information and documents will have to be kept and maintained for eight years from the end of the relevant assessment year,” said the Central Board of Direct Taxes in the notification.

According to officials, Switzerland, United Arab Emirates (UAE), Hong Kong, Singapore, Samoa, and Seychelles are some of the countries India has requested for information but they haven’t done  so effectively. While the government might consider blacklisting a small country to send a signal, it would be difficult to take any action against important trading partners, such as the UAE, as it could spoil India’s relationship with them.

In Budget 2011-12, the finance ministry inserted Section 94A in the Income Tax Act to notify countries  not cooperating in exchange of information. While the provision came into effect from June 2011, the government did not notify the rules as it  wanted to use the provision as a threat .

Recently, India approached about half a dozen foreign jurisdictions, including Singapore, Samoa, British Virgin Islands, Cayman Islands and Cook Islands, for banking and other financial details of about 500 individuals and entities that might have ‘secret offshore accounts’ there. The names and listed addresses of 505 India-linked entities were made public after a global expose on secret offshore accounts by a US-based rights group, the International Consortium of Investigative Journalists.