I-T dept asks taxman to place info request to tax havens

Amid investigation into Panama Papers leak, the income tax (I-T) department has issued detailed guidance to taxman on how to place information request to tax havens such as British Virgin Islands (BVI), for better outcome. The note guides taxman to avoid seeking voluminous details as it might not receive adequate attention by the BVI authorities.

It further asked officers to respond to the clarification sought by the BVI authorities within 15 days of receipt.

The note advises officers on what information to seek from BVI including details of beneficial ownership, besides the process to be followed such as specifically listing out the information required.

"The standard provides that the Contracting States are not at liberty to engage in 'fishing expeditions' or to request information that is unlikely to be relevant to the tax affairs of a given taxpayer," the note pointed out.

The move comes at a time when the government is investigating names of nearly 500 Indians, including Bollywood actors and corporate honchos who figure in the documents leaked from Mossack Fonseca, the Panama law firm. The I-T department has sent out written notices to all Indian residents mentioned in the Panama Papers, followed by a detailed questionnaire. A committee under Revenue Secretary Hasmukh Adhia has been set up, which is investigating the case.

"…A lot of requests are likely to be made to the BVI in the near future in view of the investigations being carried out in the Panama Papers. Even though the Exchange of Information (EOI) Cell of India has been making continuous efforts to improve the efficiency and efficacy of the information exchange process with BVI, a large number of deficiencies are being observed in the EOI requests sent by field officers," said the note.

In a lot of cases it has been found that investments by Indian residents were routed through the British Virgin Islands.

"In view of the investigations carried out in Panama Papers, the I-T department foresees increased EOI requests to BVI in the near future," said Rakesh Nangia, managing partner at Nangia & Co.

The note asked officers to refrain from making vague requests and instead ensure that relevant facts and background of the case are clearly brought out and are backed by details pointing out of the relevant information for the purposes of administration and enforcement of Indian tax laws.

"This will help the BVI authorities provide the information requested, prevent legal challenges to proceedings in accessing information, if any, and will, therefore, obviate the need for further clarifications sought from the Indian authorities by BVI.

The guidance has provided background to field officers on the procedure for incorporating a company in the BVI and shareholding or directors of BVI companies.