TaxTMI 
TaxTMI 
Exchange of Information for Tax Purpose with Foreign Jurisdictions – Guidelines for inbound and outbound requests
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....n of the Income-tax Act, 1961, may make requests for information in conformity with the relevant provisions of the DTAAs/TIEAs/Multilateral Agreements, if they are of the view that information received from a foreign jurisdiction would be helpful in assessment and determination of income, collection and recovery of taxes, investigation of tax matters or prosecution in relation to tax matters. The guidelines for making such requests have been provided in the Manual on Exchange of Information (hereinafter referred to as Manual), a copy of which is enclosed. 3. As stated in the Manual, the request for information from tax authorities of the foreign jurisdictions with which India has entered into DTAAs/TIEAs/Multilateral Agreements, should be routed through the Competent Authority, i.e., JS(FT&TR-I), CBDT, in case of North America (including countries of Central America and Caribbean), Europe and Japan and JS(FT&TR-II), CBDT, in case of rest of the world (Refer Annexure-A of the Manual for identifying the Competent Authority). This reference should be made in a prescribed Proforma (Annexure-D of the Manual) and sent to JS (FT&TR-I) or JS (FT&TR-II) as the case maybe, by the Commissi....
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....8. Information under "Automatic Exchange of Information" and "Spontaneous Exchange of Information" is being received from foreign jurisdictions under the DTAAs by the Competent Authority. Such information is being forwarded to field formations as per the procedure laid down in the Manual. Officers concerned are expected to send a feedback on usefulness of the information as per Proforma prescribed in Annexure-I of the Manual. The first feedback should be provided within two months of receipt of the information by the officers concerned. If on verification of the information, it is found that the information is useful for tax purposes, supplementary report in Annexure-I should be sent by the officers concerned whenever new developments take place, such as completion of assessments, collection of taxes, levy of penalty, Initiation of prosecution proceedings, etc. The DGIT (Systems) shall facilitate online dissemination and feedback in respect of the information/data by providing the necessary platform. 9. Where information received, either under "Automatic Exchange of Information" or "Spontaneous Exchange of Information" is likely to result in an undisclosed income below Rs. 50,00....
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....Avoidance Agreements (DTAAs), Tax Information Exchange Agreements (TIEAs) and Multilateral Agreements for Exchanging Information. 1.2 The need for effective co-operation amongst jurisdictions with consequent defensive measures against non-cooperative offshore jurisdictions was felt even more after the 2008 global financial crisis in order to tax revenues through co-ordinated global efforts. India has been a strong proponent of transparency and exchange of information for tax purposes and is playing a major role in international forums to exert pressures on countries that do not confirm to the international standards of transparency. These global efforts have resulted in many countries/jurisdictions coming on board and they are now willing to cooperate with other jurisdictions for exchanging information as per internationally agreed standards. 1.3 Simultaneously and along with the global efforts, effective steps have been taken in the last three years for creating an appropriate legislative framework for receiving and effectively utilizing of the information received from foreign jurisdictions. These steps include renegotiating the existing DTAAs to update the provisions on ex....
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.... in due course. 1.5 The content of this Manual on Exchange of Information has been organized in the following manner. After Introduction in the present Chapter, the legislative framework of Exchange of Information and other forms of Administrative Assistance under India's DTAAs and TIEAs have been explained in Chapter-II. Chapter-III provides the guidelines and the Proforma which the field formations should follow while making any specific request from foreign tax administrators. Chapter-IV provides the guidelines to be followed in case a request is received from abroad, which is equally important as all the tax treaties are bilateral and if India want to continue receiving assistance India must provide assistance to them timely and efficiently. Chapter-V provides the guidelines in case of requests made/received under the provisions of Assistance in Collection of Taxes while Chapter-VI discusses other forms of administrative assistance under the treaties such as Automatic and Spontaneous Exchange of Information, Tax Examination Abroad, Simultaneous Examination and Joint Audits. Chapter-VII provides guidelines for utilization of information received from a foreign jurisdictio....
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....y relevant for carrying out the provisions of the DTAAs or to the administration and enforcement of the domestic laws concerning taxes of every kind. The text of Article 26 of the OECD Model Tax Convention on Income and on Capital and its Commentary (as updated by OECD on 17th July, 2012), http://www.oecd.org/ctp/exchangeofinformation/latestdocuments/120718_Articles%2026-ENG_no%20cover%20(2).pdf and Article 26 of the UN Model Double Taxation Convention between Developed and Developing Countries and its Commentary (2011 version), http://www.un.org/esa/ffd/documents/UN_Model_2011_Update.pdf are publically available. Article 26 in India's DTAAs is modelled on the basis of the above with some minor differences in individual DTAAs. 2.2.2 In 2005, in the OECD Model Tax Convention, two new paragraphs have been added. The new paragraph 4 provides the obligation to exchange information in situations where the requested information is not needed by the requested State for its domestic tax purposes while the new paragraph 5 stipulates that a Contracting State shall not decline to supply information to a treaty partner solely because the information is held by a bank or other financial ....
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....ential and should be used only for tax purposes. The July 2012 update to Article 26 of the OECD Model Tax Convention has amended model paragraph 2 expanding its scope which provides that the information received by a Contracting State may be used for other purposes when such information may be used for such other purposes under the laws of both States and the competent authority of the supplying State authorizes such use. Since as a matter of policy, India prefers that exchanged information may be shared with other Government agencies, in all new DTAAs as also renegotiated DTAAs, this sentence or similar sentence are being included, which essentially means that most of the new DTAAs as well as renegotiated DTAAs have provisions which allow sharing of information with other law enforcement agencies with the authorization of the supplying State. This also stipulates that information received under the provisions of DTAAs/TIEAs cannot be shared with other agencies unless India's treaty partner specifically authorizes such sharing. 2.2.6 The July 2012 update of the OECD Model Convention has clarified that a group request for information can also be made under Article 26. Thus, i....
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....assets abroad, tax authorities generally cannot go beyond their borders to take action to collect taxes and thus these provisions provide a legal basis for collecting taxes by them beyond the boundaries of their country with the assistance of other countries. As of now, the Article on Assistance in Tax Collection is present in 32 of India's84 DTAAs, which are Estonia, Lithuania, Norway, Botswana, Romania, Denmark, Poland, Turkmenistan, Kazakhstan, Sweden, South Africa, Belarus, Trinidad and Tobago, Jordan, Czech Republic, Morocco, Portuguese Republic, Belgium, Kyrgyz Republic, Bangladesh, Ukraine, Uganda, Sudan, Armenia, Iceland, Tajikistan, Luxembourg, Qatar, Mexico, Uruguay, Mozambique and Georgia. 22.8 It may, however, be noted that while the matter of administrative assistance for the purposes of tax collection is dealt with in Article 27, exchange of information for the purposes of tax collection are governed by Article 26. 2.3 Tax Information Exchange Agreements 2.3.1 The basic legal framework for Exchange of Information under TIEAs is provided in "Article 5: Exchange of Information Upon Request". which obliges the competent authority of the requested Party to pr....
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....utual Administrative Assistance in Tax Matters on 26th January, 2012, which has become effective for India from 1st June, 2012. This Multilateral Convention was developed jointly by the European Council and the OECD in 1998. It was revised on 1^st June, 2011. In response to the call of G20 countries for a global instrument to fight international tax evasion and avoidance, the Convention was opened for signature of other countries also. India is the first country outside the block of OECD and European Council to ratify this Multilateral Convention. As on 31.10.2012, 42 countries have signed the Convention and for 16 countries, it has entered into force. Some of the countries, such as Ghana and Tunisia, which have signed the Multilateral Convention, do not have DTAA/TIEA with India and thus the Multilateral Convention extends India's treaty network for the purposes of Exchange of Information. 2.5.2 The Parties to the Convention are obliged to provide wide range of administrative assistance to each other subject to the reservations made by them, if any. These include exchange of information on request, automatic exchange of information, spontaneous exchange of information, simu....
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....come upto the recognized international standards. 2.7.2 The international standards of Global Forum on transparency, which have basically been developed on the basis of OECD Model Tax Convention and Model TIEA and their commentaries, requires that information must be available in a jurisdiction, competent authorities must have access to the information, and there must be a legal basis for exchanging the information with other countries. These standards have been developed with the underlying concept that exchange of information for tax purposes is effective when reliable information, foreseeably relevant to the tax requirements of a requesting jurisdiction is available, or can be made available, in a timely manner and there are legal mechanisms that enable the information to be obtained and exchanged. Thus, the transparency and exchange of information embraces three basic components • availability of information e.g. with tax authorities, public registries, money laundering authorities, banks etc. • appropriate access to the information by way of legislative and administrative powers in the hands of the authorities • the existence of exchan....
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....ontains useful information such as DTAAs and TIEAs entered into by various countries. CHAPTER-III: GUIDELINES FOR MAKING REQUEST FOR EXCHANGE OF INFORMATION 3.1 Introduction Revised Proforma for Making Requests A Proforma in which request can be made to a country with which India has entered into a DTAA was prescribed by the CBDT in 2007. In view of the extension of treaty network, changing international standards of information exchange and feedback/clarifications from India's treaty partners, it has been decided to modify the Proforma in which information will be sought by the officers of the field formations. This Proforma is based on the template developed by OECD/Global Forum and is enclosed as Annexure-D, As per the domestic laws of some of the countries, such as United Kingdom. banking information can be provided only after application to Courts/Tribunals and in these cases, additional information, may need to be provided while making a request the details of which may be obtained from officers posted in the FT&TR Division which also contain instructions/guidance in the form of Notes. The Officers in the field formations such as Assessing Officer or the officers....
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...., Joint Secretary, Foreign Tax and Tax Research Division-II, Department of Revenue, Ministry of Finance. 3.2.3 The request to the foreign tax authorities should be made in Proforma mentioned in Para 3.1 which needs to be filled up by the officer making the inquiry or investigation such as the Assessing Officer or CIT (A) or the officers of the Investigation Wing, should be signed by the CIT/DIT concerned, and should be sent to the Competent Authority, with a copy to the Chief Commissioner of Income Tax/Director General of Income Tax concerned. 3.2.4 Section 142(2) of the Income-tax Act, 1961, provides that for the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary. The Income-tax Act empowers the Assessing Officer to obtain information from the foreign tax authorities under this provision in accordance with the DTAAs/TIEAs/Multilateral Agreements entered into by India. Section 142(3) provides that the assessee shall, except where the assessment is made under, section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry....
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....inistration to facilitate them to obtain the information and also for carrying out their enquiry or investigation. 3.3.3 Separate Proforma for Separate Taxpayers and for Separate Countries: If in a group of cases, inquiry/investigation needs to be done, separate Proforma should be filled up for different taxpayers. Further, separate Proforma needs to be filled up for inquiry/investigation from different countries. Thus, for instance, if three members of a family have received gifts from persons located in three different jurisdictions, the total number of Proformas to be filled in would be nine. 3.3.4 Language of the Request for Information: The information which is sought has to be specific and should be described in greatest detail possible. The language should be simple and easily understandable to foreign tax authorities who may not be aware of India's tax laws and procedures. The questions should be framed in such a manner that it can be answered by the foreign tax authorities directly and the details requested should be specific. Thus, if inquiry relates to gifts from a foreign jurisdiction, the request should not be general (for example asking the foreign authoriti....
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....hat information may be exchanged even when the person, to whom the information relates to, or held by, is not a resident of the requested State. However, the information must be available in the country to whom request is being made. Under the Multilateral Convention, the persons covered are the residents as well as non-residents of the Parties to the Convention. In SAARC Limited Multilateral Agreement, the persons covered are residents of one or more of the SAARC countries. 3.3.7 Taxes Covered: The Exchange of Information Article in most of India's DTAAs state that the information exchange applies to taxes of every kind and description and goes on to state that the exchange is not limited by Article 2 (Taxes covered). Thus, under the DTAAs, requests regarding other taxes, such as details of sales tax liability or VAT may be requested. In some of DTAAs, the Exchange of Information is restricted to the taxes covered under the Agreement only (e.g. income tax and wealth tax). In the TIEAs the taxes which are covered are listed and information may be requested for those taxes. In the Multilateral Convention countries have specified the list of taxes where they will be providing ....
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....ere that information is relevant for a period after the agreement comes into force. Thus, if a DTAA has been amended to specifically allow for exchange of banking information from a prospective date, the information of period prior to that date can still be obtained provided it can be proved that this information is relevant for determining the tax liability for the subsequent period. 3.3.8.5 The Multilateral Convention on Mutual Administrative Assistance in Tax Matters provides for administrative assistance related to taxable periods beginning on or after I January of the year following the one in which the Convention entered into force in respect of a Party, or where there is no taxable period (e.g. for withholding taxes), for administrative assistance related to charges to tax arising on or after 1 January of the year following the one in which the Convention entered into force in respect of a Party. However, for tax matters involving intentional conduct which is liable to prosecution under the criminal laws of the applicant Party, that is, the criminal tax matters, the provisions of the Multilateral Convention shall have effect from the date of their entry into force in resp....
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....rd, however, requires that at the time the request is made, there is a reasonable possibility that the information will be relevant and the requesting State determines the foreseeable relevance of the request through statement/explanation, 3.3.9.2 The provisions for Exchange of Information do not obligate the requested State to provide information in response to requests that are "fishing expeditions". i.e. speculative requests that have no apparent nexus to an ongoing specific inquiry or investigation. The examples of such "fishing expedition" would include, for instance, request for details of al} the bank accounts of all residents of the requesting State maintained in the banks of the requested State or details of all shareholders resident of requesting State of a company located in requested State. Hence, the requests made should be specific. 3.3.9.3 It has been clarified in the July, 2012 update to Article 26 by the OECD that the standard of "foreseeable relevance" requires that at the time a request is made there is a reasonable possibility that the requested information will be relevant; whether the information, once provided, actually proves to be relevant is immateri....
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.... reason to believe that the taxpayers in the group have been non-compliant with that law supported by a clear factual basis And shows that the requested information would assist in determining compliance by the taxpayers in the group. Usually, although not necessarily, a third party will have actively contributed to the non-compliance of the taxpayers in the group 3.3.10 Relevant Background Information and Enclosure of Necessary Evidence: In the Proforma, the necessary background information, which would typically include a brief summary of the ongoing examination or investigation and how the requested information relates to this examination or investigation, should be included, if necessary as Annexures. It should be explained in great detail as to why the information which has been requested from a foreign tax authority is required for the purpose of administration and enforcement of domestic tax laws. If required, additional supporting information may be attached separately as appropriate. Copies of documents available with the tax authorities may be attached for the assistance of foreign tax authorities. For instance, if during a search operation, a paper is seized which ....
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....ification becomes necessary, the same should be indicated in the Proforma in which request is made. Brief reasons for seeking such exemption should also be provided. 3.3.15 Form in which Information is Required: The request for information from a foreign jurisdiction, must specify whether information should be supplied in hard copy or in electronic format (where available), nature of authentication of the information, if any, and any other requirements in respect of the form in which the information needs to be provided. 3.3.16 Exchange of Information Available in the Jurisdiction - Multi-level Enquiry Necessary in Some Cases: As per the currently agreed international standards, the Contracting States/Parties are obliged to exchange information which is held by the jurisdiction or is within the possession or control of persons within the jurisdiction's territorial jurisdiction. This creates a limitation of exchanged information in multi-level investigation involving entities located in more than one jurisdiction. For instance, if a request is made to jurisdiction A to provide ownership information of a company resident in A, and if it gives the information that the owners....
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....red in the Proforma • Separate Proforma should be filled up for each taxpayer and for each country • The language used in the request should be simple and direct and it should be easily understandable to foreign tax authorities who may not be aware of Indian tax laws and procedures • The foreseeable relevance of the request made, for carrying out the provisions of the DTAAs or for the administration and enforcement of the domestic law of the country, should be demonstrated clearly although it must be understood that the standards of foreseeable relevance is very wide and except for few specific instances, the requested State may not decline the request for information • All the relevant background information, including a brief summary of the ongoing examination or investigation and how the requested information relates to this examination or investigation, should be included, if necessary as Annexures. • In some cases, multi-level enquiry from a number of jurisdictions, may become necessary and follow up requests need to be made for taking the investigation to its logical end • Following declaration shou....
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....usts, information which identifies the settlor, trustee and beneficiaries of express trusts (i) created under the laws of that jurisdiction (ii) administered in that jurisdiction, or (iii) in respect of which a trustee is resident in that jurisdiction • Accounting records in case of an entity or arrangement (i) correctly explaining all transactions (ii) enabling the financial position of the Entity or Arrangement to be determined with reasonable accuracy at any time and (iii) which allows financial statements to be prepared • Underlying documents of the accounting records such as invoices, contracts etc. reflecting details of (i) all sums of money received and expended and the matters in respect of which the receipt and expenditure takes place (ii) all sales and purchases and other transactions and (iii) the assets and liabilities of the relevant entity or arrangement • Price paid for acquiring an asset in a foreign jurisdiction to determine whether the taxpayer has claimed the expenditure correctly, both on revenue account for claim of expenditure for the purposes of business or on capital account for claim of depreciation • Bank....
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....nce and there is no actual activity and in such cases he may request the following information: • Copy of the financial statements of the foreign person as available with the Tax Administration or with the other government agencies such as the registrar of companies or the trust regulator etc. as the case may be. • The information about the action taken against the foreign person by the law enforcement agencies in the past. • Copy of the registration or incorporation documents of the foreign concern so as to get an idea of the period of its existence. • Copy of the returns of income filed by the foreign taxpayer with the Tax Department. Information about the Transaction: The Investigation Officer may like to request for the documents related to the transaction entered in to by the foreign person with the Indian taxpayer and thus he may seek the following information: • Copy of the ledger account of the Indian taxpayer in the books of accounts of the foreign taxpayer or the other ledger accounts to cover the whole chain of transactions with the Indian taxpayer. For exam le if the Indian taxpayer has claimed some ....
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....e 25 on Mutual Agreement Procedure. (e) When applying Articles 15 and 23 A, State A, where the employee is resident, informs State B, where the employment is exercised for more than 1 83 days, of the amount exempted from taxation in State A. EXCHANGE OF INFORMATION AND TRANSFER PRICING AUDITS Transfer pricing audits are often very fact intensive and having the right information is vital to the successful implementation of transfer pricing rules, both in risk assessment/case selection, and in the course of an audit. There are various sources of information that are useful in transfer pricing: documentation, financial data and other information from taxpayers, public and private databases, company websites etc. Transfer Pricing Officers may need information that is not available domestically and exchange of information may provide assistance concerning transactions within a multinational enterprise. 3.4.4 Exchange of Information for Administration and Enforcement of Domestic Laws Under the DTAAs, the information can also be exchanged for the purposes of administration or enforcement of domestic laws of the country making the request. The TIEAs and Multilateral Co....
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....avoid detection, it is not unlikely that the bank accounts may be held in the name of relatives of the beneficial owner. State A therefore requests information on all accounts with Bank B of which Mr. X is the beneficial owner and all accounts held in the names of his spouse E and his children X and L. (f) State A has obtained information on all transactions involving foreign credit cards carried out in its territory in a certain year. State A has processed the data and launched an investigation that identified all credit card numbers where the frequency and pattern of transactions and the type of use over the course of that year suggest that the cardholders were tax residents of State A. State A cannot obtain the names by using regular sources of information available under its internal taxation procedure, as the pertinent information is not in the possession or control of persons within its jurisdiction. The credit card numbers identify an issuer of such cards to be Bank B in State B. Based on an open inquiry or investigation, State A sends a request for information to State B, asking for the name, address and date of birth of the holders of the particular cards identifi....
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....ugh a network of advisors. State A has already discovered several resident taxpayers that have invested in the product, all of whom had failed to report the income generated by their investments. State A has exhausted its domestic means of obtaining information on the identity of its residents that have invested in the product. State A requests information from the competent authority of State B on all State A residents that (i) have an account with B and (ii) have invested in the financial product. In the request, State A provides the above information, including details of the financial product and the status of its investigation. Few case studies developed on the basis of actual exchange of information is provided in Annexure-F. USE OF REQUEST AS A SOURCE OF INTELLIGENCE A request for information itself often contains information that may be relevant to identify a tax risk in the country to which the request is made. A request may be helpful for instance to detect taxpayers who have not filed a tax return or defaulted in respect of their tax payment obligations, taxpayers who have been involved in cross border aggressive tax planning arrangements, identity theft and ide....
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....nge of Information in the DTAAs/TIEAs/Multilateral Convention normally does not impose on a Contracting State the obligation: (a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (order public). 3.5 Request for Further Clarification Immediate Reply Required In cases where the field authorities have sent requests for information from foreign countries through the Competent Authority, sometimes, particularly when the requests are not complete or clear, foreign authorities seek clarification/ additional information on the request. In such cases, it is important that such clarifications/additional information should be sent at the earliest and within the time period stipulated. If there is either inordinate delay in ....
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....ic laws concerning taxes covered by the agreement. In general, such information received under the DTAA/TIEA is to be disclosed and used by the persons concerned with the taxes as specified in the Agreement. They may disclose it in public court proceedings or in judicial decisions. However, if such information is to be used for purposes other than taxation, then the same can be done only in accordance with the specific provisions of the said agreement. 3.8.2 There were no provisions in any of the DTAAs for sharing the information for purposes other than taxation, till the year 2009. The provisions of the Exchange of Information were revised by OECD in 2008 and, interalia, included the following paragraph in the commentary to the Model Tax Convention on Income and Capital: "Notwithstanding the foregoing, information received by a Contracting State may be used for other purposes when such information may be used for such other purposes under the laws of both States and the competent authority of the supplying State authorises such use." This language has now been recommended to be added in Article 26 itself as per the 2012 update to Article 26 of the OECD Model Tax Con....
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....l the officers in the field formations and all efforts should be made to immediately collect and send the information. It should be understood that exchange of information as per the DTAAs/TIEAs/Multilateral Conventions are bilateral as well as reciprocal in nature and if India provide the information, India will also be receiving the information from India's treaty partners. Prompt response would also demonstrate India's commitment to the international standards on exchange of information and transparency for tax purposes at a global level. 4.2 Process of Handling the Requests Received from Foreign Tax Authorities 4.2.1 Receipt of Information: The instruments for exchange of information (DTAAs/TIEAs/Multilateral Convention) stipulate that the competent authorities shall exchange information. Accordingly, any request for information from the Indian tax authorities is received by the Indian Competent Authority, that is, JS (FT&TR-I) and JS (FT&TR-II). The Competent Authority sends the requests to the officers in the Exchange of Information (EOI) cell of the FT&TR Division reporting to them. The EOI cell enters the request in the database and also scans copies of the re....
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.... the request is forwarded to the jurisdictional Director General of Income Tax (Investigation) at Ahmadabad, Bengaluru, Bhopal, Chandigarh, Chennai, Hyderabad, Jaipur, Kochi, Kolkata, Lucknow, Mumbai, New Delhi, Patna and Pune. In cases where jurisdiction cannot be identified readily, or require co-ordinated investigation, the request is forwarded to the Director General of Income Tax (Intelligence and Criminal Investigation), which has an all India jurisdiction. A copy of these requests is forwarded to Member (Investigation), Central Board of Direct Taxes. for ensuring timely response and coordinated action, wherever required. 4.2.4 Timelines: Any request from foreign tax authorities, which has been forwarded to the officers of the field formations, as above, should be immediately attended to and information should be provided at the earliest. The international best practices on maintaining timelines are as under: • Acknowledgment of receipt of information request within one month of their receipt, or within seven days, if received electronically • If the information is already with the tax authority, within two months of the receipt of the request ....
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...., are provided as Checklist. The Competent Authority of India, on receipt of the above response, will forward the same to his counterpart in the other country completing the process of Exchange of Information. CHECKLIST FOR SENDING INFORMATION REOUESTED BY A FOREIGN TAX AUTHORITY • The information requested by a foreign tax authority must be sent through the office of the Indian Competent Authority, that is, (FT&TR-I) and JS(FT&TR-II), who is authorized to exchange information with his counterpart in the other country/jurisdiction • The information should be provided in the Proforma prescribed in Annexure G • The timeline for providing requests should be followed strictly. If full information could be gathered within time limit, part information with an interim reply must be provided • It should be clearly mentioned as to whether this is an interim/partial or full response. If partial, timeline by which the remaining information will be sent should be mentioned • If applicable, explanation why certain information could not be provided or could not be provided in the form requested should be provided • ....
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....o cases where interim or provisional measures have been taken by the Contracting State to freeze the assets even before the actual raise of tax claim against a person, for instance provisional attachment under section 281B of the Income-tax Act, 1961. Through inclusion of this paragraph, if one Contracting State has taken such interim or provisional measures under its domestic laws, it can request the other Contracting State to take similar measures in accordance with domestic laws of that other State. 5.1.4 Section 2228(A)(2) of Income-tax Act, 1961 empowers the Tax Recovery Officer to forward a request to Indian Competent Authority for Assistance in Collection of Taxes from foreign countries with which India have such provisions in the DTAAs/TIEAs etc. and the assessee has property in that country. While framing a request, the TRO should enclose a certificate drawn up by him under section 222 of the Income-tax Act, 1961 so as to take up action appropriately. 5.1.5 The request for the assistance in tax collection should be made in the prescribed Proforma enclosed as Annexure-H. The notice of demand and a certificate under section 222 should also be enclosed as attachment wit....
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....ous categories of income e.g. fees for technical services, dividends, interest, royalties, salaries, pensions etc. For example in India, the taxpayers are required to submit the information to Income Tax Department related to remittances made to the foreign taxpayers as per the provisions of the Income-tax Act, 1961 and this information is submitted by the remitters online to the Income Tax Department. This data may be exchanged on automatic basis with the other countries so that the recipient country may ensure that the taxpayers in their country have discharged their liability towards payment of taxes. Automatic exchange can also be used to transmit other useful types of information such as change of residence, the purchase or disposition of immovable property. etc. In addition, information concerning the acquisition of significant assets may be used to evaluate the net worth of an individual, to see if the reported income reasonably supports the transaction. Different countries exchange different types of information under the automatic exchange of information programme. Automatic exchange of information is most common with respect to Interest and dividend income, Income from de....
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....ral Convention on Mutual Administrative Assistance." 6.4 Exchanging Information Automatically 6.4.l India have been receiving information from some countries on automatic basis in the past although the numbers were small as seen below Information received during Pieces of Information 2008-10 (disseminated in January, 2011 7,704 January to June, 2011 480 July to December, 2011 1,006 January to June, 2012 4,614 Jul to December, 2012 31,119 This information is sent by the Competent Authority of India's treaty partners to the Indian Competent Authority, that is, Joint Secretary (FT&TR-I) and Joint Secretary (FT&TR-II) normally in Compact Disk. As per the decision taken by the Central Board of Direct Taxes in its meeting on 4th November, 2009, the HT&TR Division forwards the information received to DGIT (Intelligence), now known as DGIT (I&CI). 6.4.2 The information received so far has been in different formats and some of them are not usable. The office of DGIT (I&CI), however, have used some of the information gainfully and identified cases of tax evasion, which are at different levels of processing, investigation and assessment. Gui....
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....at is JS(FT&TR-I) and JS(FT&TR-II), as the case maybe. Sometimes, this information is also received through overseas units attached to Embassies/High Commissions in some of the select countries. Since the information is likely to be relevant for investigation of Indian taxpayers, this information will be sent by the Competent Authority to Member (Inv.), CBDT, who will forward it to the concerned jurisdictional DGIT (Inv.) for necessary action. If the jurisdiction cannot be determined or if the request relates to coordinated action across various jurisdictions, the same would be sent to DGIT (I&CI) by Member (Inv.). Guidelines for effective utilization of this information have been provided in Chapter-VII. 6.7 Spontaneous Information to a Foreign Country/Jurisdiction The tax officers in the field formations, both in the assessment and investigation wings, may also receive, from time to time, information which may be useful for the tax administrators of a foreign jurisdiction. This information may be forwarded to JS(FT&TR-I) and JS(FT&TR-II), through the Chief Commissioner of Income Tax/Director General of Income Tax concerned, who may share the same with his counterpart in the ot....
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....ax officials of the requested country. Foreign tax officials would not be permitted to directly interview taxpayers or other individuals under this form of tax examination abroad. Other countries may permit active participation of authorised foreign tax officials. Under such circumstances, some countries may, for example, allow foreign tax officials to conduct interviews and examine records pertaining to the taxpayers under examination. 6.8.2 Tax examinations of this nature are useful in situations where the laws enable the taxpayer to keep records in another country and the taxpayer has agreed to have the tax official come to the foreign country rather than provide the books and records in the taxpayer's country. This form of assistance is especially relevant in cases involving complex issues that are not likely to be resolved by way of specific exchange of information. 6.8.3 In cases, where a request is required to be made for Tax Examination Abroad, the CIT/DIT concerned should make a reference to the Competent Authority, that is, JS(FT&TR-I) or JS(FT&TR-II) as the case maybe, with a copy to the CCIT/DGIT concerned, giving full details of the case. The Competent Author....
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....s for information from a foreign jurisdiction can be made by officers of the Investigation Wing and by the Assessing Officer or by the CIT (A). This information is made to the foreign tax authorities through the Competent Authority. The Competent Authority forwards the request to his counterpart who in turn will instruct their tax authorities to gather information. The information is received by the Indian Competent Authority through the foreign jurisdiction's Competent Authority, who will forward the information to the officer from whom the request for information has been received. 7.2.2 If the request was made by the Investigation Wing and if the investigations are completed by the Investigation Wing and the case has been referred to the Assessment Wing, all the information received from foreign tax authorities. must be sent to the Assessment Wing, with intimation to the Competent Authority. Similarly, if the jurisdiction of the case changes, all the information must be transferred to the new jurisdictional officer, with copy to the Competent Authority. The information received from the foreign tax authorities should also be brought to the notice of appellate authorities,....
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.... 4. The information in respect of cases involving the amount of Rs. 5 million and above would be sent to the respective DIT(I&CI) or DIT (Intelligence) for verification and report. The information in respect of cases involving the amount below Rs. 5 million would be forwarded to the respective CCIT(CCA) for necessary action and report. However, the cases involving amount of less than Rs. 5 million where jurisdiction/PAN is not readily ascertainable will be verified by the Directorate of Intelligence and Criminal Investigation for further necessary action and report. 5. The DGIT (I&CI) will obtain feedback from the concerned or DIT (Intelligence) or CCIT-CCA, as the case maybe, within a time frame of two months in the prescribed format at Annexure-I and will forward the same to Competent Authority for transmission to the treaty partner 6. The DGIT (I&CI) shall, both at the time of dissemination to the field formations and providing feedback to the Competent Authority, put up the gist of important information/findings to the Investigation Division of the CBDT 7.3.3 The DGIT (Systems) shall facilitate online dissemination and feedback in respect of the inf....
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....ormation received under Spontaneous Exchange of Information including through India's Embassies/Income Tax Overseas Units will be forwarded to Member (Inv.), who will send it to the jurisdictional DGIT (Inv.) and to DGIT (I&CI), if the jurisdiction cannot be determined or matter require coordinated action across various jurisdictions. The DGIT concerned should provide feedback on the usefulness of the information including details of action taken, additional revenue realized, penalties imposed, prosecution launched etc. as per Proforma prescribed in Annexure-I. This feedback may be provided to Member (Inv.) who will forward the same to the Competent Authority for sharing with its counterpart in the foreign country. 7.6 Small Tax Effect Where information is received, either under Automatic Exchange of Information route or Spontaneous Exchange of Information route, and if the information is likely to result in an undisclosed income of below Rs. 50,000, the officer concerned may not conduct enquiries/verifications, after taking approval of the CIT/DIT concerned. However, in these cases also, the feedback report in the prescribed format must be submitted. CHAPTER-VIII: CON....
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....the taxes which are the subject of the Convention. Such persons or authorities shall use the information only for such purposes but may disclose the information in public court proceedings or in judicial decisions. Since the provisions of DTAAs override the domestic legislation, this means that if the information is treated as confidential in the transmitting State, it should be treated as confidential in India also and the exceptions provided in section 138 would not be applicable in these cases. 8.3 Guide on Protection of Confidentiality The Global Forum has recently published a guide on the protection of confidentiality of information exchanged for tax purposes, http://www.oecd.org/ctp/exchangeofinformation /Keeping%20it%Safe_EN%20FINAL%20w_cover_WEB.pdf - Keeping It Safe which also includes best practices adopted in the tax administration of different countries. Some of the relevant issues in this regard are summarized below which needs to be taken care of by the tax officers in the field units: • Confidentiality covers both information provided in a request and information received in response to a request • Information provided can be used only....
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.... Bulgaria 23rd June, 1995 JS(FT&TR-I) 10 Canada 6th May, 1997 JS(FT&TR-I) 11 China 21st November, 1994 JS(FT&TR-II) 12. Cyprus 21^st December, 1994 JS(FT&TR-I) 13. Czech Republic 27^th September, 1999 JS(FT&TR-I) 14. Denmark 13rd June, 1989 JS(FT&TR-I) 15. Egypt 30th September 1969 JS(FT&TR-II) 16. Estonia 20th June, 2012 JS(FT&TR-I) 17. Finland 19^th April, 2010 JS(FT&TR-I) 18. France 1st August, 1994 JS(FT&TR-I) 19. Georgia 1^st April, 2012 JS(FT&TR-I) 20. Germany 26th October, 1996 JS(FT&TR-I) 21. Greece 17th March, 1967 JS(FT&TR-I) 22. Hungary 4th March, 2005 JS(FT&TR-I) 23. Iceland 21st December, 2007 JS(FT&TR-I) 24. Indonesia 19th December, 1987 JS(FT&TR-II) 25. Ireland 26th December, 2001 JS(FT&TR-I) 26. Israel 15^th May, 1996 JS(FT&TR-II) 27. Italy 23rd November, 1995 JS(FT&TR-I) 28. Japan 29th December, 1989 JS(FT&TR-I) 29. Jordon 16th October, 1999 JS(FT&TR-II) 30. Kazakhstan 2nd October, 1997 JS(F....
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....986 JS(FT&TR-II) 74. Trinidad and Tobago 13th October, 1999 JS(FT&TR-II) 75. Turkey 1st February, 1997 JS(FT&TR-II) 76. Turkmenistan 7th July, 1997 JS(FT&TR-II) 77. UAE 22nd September, 1993 JS(FT&TR-II) 78. Uganda 27th August, 2004 JS(FT&TR-II) 79. UK 26th October, 1993 JS(FT&TR-I) 80. Ukraine 31st October, 2001 JS(FT&TR-I) 81. USA 18th December, 1990 JS(FT&TR-I) 82. Uzbekistan 25th January, 1994 JS(FT&TR-II) 83. Vietnam 2nd February, 1995 JS(FT&TR-II) 84. Zambia 18th January, 1984 JS(FT&TR-II) Tax Information Exchange Agreements (TIEAs) 1. Bahamas 1^st March, 2011 JS(FT&TR-I) 2. Bermuda 3^rd November, 2010 JS(FT&TR-I) 3. British Virgin Islands 5th July, 2011 JS(FT&TR-I) 4. Cayman Islands 8^th November, 2011 JS(FT&TR-I) 5. Guernsey 11th June, 2012 JS(FT&TR-I) 6. Isle of Man 17th March, 2011 JS(FT&TR-I) 7. Jersey 8th May, 2012 JS(FT&TR-I) 8. Liberia 30th Mar, 2012 JS(FT&TR-II) 9. Macua 14th April, 2012 JS(FT&TR-II) ANNEXURE-B: Status of M....
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.... 26-10-2012 (AC) MAXICO 27-05-2010 27-05-2010 (P) 23-05-2012 01-09-2012 MOLDOVA 27-01-2011 24-11-2011 01-03-2012 27-01-2011 (P) 24-11-2011 01-03-2012 NETHERLANDS 25-09-1990 15-10-1996 01-02-1997 27-05-2010 (P) NEW ZEALAND 26-10-2012 (AC) NORWAY 05-05-1989 13-06-1989 01-04-1995 27-05-2010 (P) 18-02-2011 01-06-2011 POLAND 19-03-1996 25-06-1997 01-10-1997 09-07-2010 (P) 22-06-2011 01-10-2011 PORTUGAL 27-05-2010 27-05-2010 (P) ROMANIA 15-10-2012 15-10-2012 (P) RUSSIA 03-11-2011 (AC) SLOVENIA 27-05-2010 31-01-2011 01-05-2011 27-05-2010 (P) 31-01-2011 01-06-201 1 SOUTH AFRICA 03-11-2011 (AC) SPAIN 12-11-2009 10-08-2010 01-12-2010 11-03-2011 (P) 28-09-2012 01-01-2013 SWEDEN 20-04-1989 04-07-1990 01-04-1....
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.... their competent authorities for foundations formed under those laws to identify the founders, members of the foundation council, and beneficiaries (where applicable), as well any other persons with the authority to represent the foundation. A.1.6. Jurisdictions should have in place effective enforcement provisions to ensure the availability of information, one possibility among others being sufficiently strong compulsory powers. A.2 Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. A.2.1. Accounting records should (i) correctly explain all transactions, (ii) enable the financial position of the Entity or Arrangement to be determined with reasonable accuracy at any time and (iii) allow financial statements to be prepared. A.2.2. Accounting records should further include underlying documentation, such as invoices, contracts, etc. and should reflect details of (i) all sums of money received and expended and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases and other transactions; and (iii) the assets and liabilities of the relevant entity o....
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....Rights and safeguards should not unduly prevent or delay effective exchange of information. For instance, notification rules should permit exceptions from prior notification (e.g., in cases in which the information request is of a very urgent nature or the notification is likely to undermine the chance of success of the investigation conducted by the requesting jurisdiction). C. Exchanging Information Essential Elements C.1. Exchange of information mechanisms should provide for effective exchange of information and should: C.1.1. allow for exchange of information on request where it is foreseeably relevant to the administration and enforcement of the domestic tax laws of the requesting jurisdiction. C.1.2. provide for exchange of information in respect of all persons (e.g. not be restricted to persons who are resident in one of the contracting states for purposes of a treaty or a national of one of the contracting states). C.1.3. not permit the requested jurisdiction to decline to supply information solely because the information is held by a financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates t....
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....he rights and safeguards of taxpayers and third parties, C.4.1. Requested jurisdictions should not be obliged to provide information which would disclose any trade, business, industrial, commercial or professional secret or information which is the subject of attorney client privilege or information the disclosure of which would be contrary to public policy. C.5 The jurisdiction should provide information under its network of agreements in a timely manner. C.5.1. Jurisdictions should be able to respond to requests within 90 days of receipt by providing the information requested or providing an update on the status of the request. C.5.2. Jurisdictions should have appropriate organisational processes and resources in place to ensure timely responses. C.5.3. Exchange of information assistance should not be subject to unreasonable, disproportionate, or unduly restrictive conditions. ANNEXURE-D: Proforma for seeking Information under Exchange of Information Article in the DTAAs/TIEAs/Multilateral Agreements (to be filled up in dublicate as per Instructions given in the Manual and as per Notes indicated against each column) 1. To: ....
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....f authentication, if any, is requested: Note 19 other from requirements, if any: 17 Translation of reply requested: Please check the box: Yes No Language requested: Note 20 18 In making the. request; the requesting competent authority states that: (a) all information received in relation to this request will be kept confident and used only for the purposes permitted in the agreement which forms the. basis for this request; (b) the request is in conformity with its law and administrative practice and is further in conformity with the agreement on the basis of which it is made; (c) the information would be obtainable under its laws and the normal course of its administrative practice in similar circumstances; (d) it has pursued all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties. Note 21 Notes: Note 1 The name of the country/jurisdiction from where the information is being requested should be mentioned Note 2 The designation of the Indian Competent Authority, ....
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....s in one of the above category, a request for exemption from prior notification may be explaining the reasons why the request may fall within the scope of such an exception. Note 12 The time period or the taxable event (e.g. the date on which withholding tax is imposed) for which the information or in relation to which the information is sought should be mentioned. If the information is relevant for the current period, this fact should also be mentioned Note 13 The taxes for which the request are made should be mentioned Note 14 The relevant box needs to be ticked and if necessary more than one box may be ticked Note 15 Detailed background of the case should be mentioned clearly including the fact that how the information requested is foreseeably relevant for administration and enforcement of the domestic tax laws of India. This background information should also include a brief summary of the ongoing examination or investigation and how the requested information relates to this examination or investigation. Copies of relevant documents, if considered relevant for the investigation by the foreign tax authorities, may be included as Annexure. Where any other ....
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....voidance Agreements and Agreements for Exchange of Information and Assistance in Collection of Taxes. North America, Europe and Japan. 4. Exchange of Information, assistance in tax collection, tax examination abroad and service of documents. North America, Europe and Japan. Note North America includes the countries of Central America and Caribbean. FT & TR - II Division Name Mr K. Ramalingam, IRS Government Agency Ministry of Finance, Government of India Department/ Division Central Board of Direct Taxes, Department of Revenue Function /Role Joint Secretary, FT&TR-I Full Address: Room No. 804, 8^th Floor, "C" Wing, Hudco Vishala Building, Bhikaji Cama Place, New Delhi-110066 E-mail: [email protected] Telephone +91-11-26104504 Fax: +91-11-26104504 types of assistance for which the contact point is responsible and countries for which the Contact point is responsible 1. Matters related to Double Taxation Avoidance Agreements and Agreements for Exchange of Information and Assistance in Collection of Taxes. Countries/ Jurisdictions other than North America, Europe and Japan. 2. Exchange o....
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....at the address mentioned by G Ltd. but were found at some other address. As per the statement of legal representative of the company, no relationship exists with the companies located in Country A which has claimed to have reimbursed the expenses. (b) Company Z was not found at the registered address. The local police department initiated detection measures of the actual location of the company and same did not yield any result. (c) Company W 's registration was terminated. As per the report of the local tax office, in the course of the tax audit of this company for the period before cancellation of registration, no relation with companies in Countries A and B were found. Information from Country A indicated the following: (a) Mr. X who was the Managing Director and the chief promoter of G Ltd., and his wife were also directors of Companies located in Country A. (b) The balance sheet of Companies in Country B did not have any property and the registered office address is the residential address of accountant. (c) Bank account of Mr. X in Country A showed substantial credit from companies based in Country B, which could not be expl....
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....nts related to its identity. The information received from Country A revealed that the company stated by the Indian taxpayer to have made investment does not exist in the records of Country A. It was also informed by Country A that the property address stated by the taxpayer has been let out to three different tenancies during the specified tax period, which were from three different countries. Case Study 4: Unaccounted Credit Card Expenses During the course of survey operations, it was found that the taxpayer has conducted frequent foreign travels and spent a lot of money. It was found that the taxpayer is using a number of credit cards, existing in the name of his relatives living abroad, for his lavish lifestyle. His annual income was only in few millions which was not even sufficient to satisfactorily explain his expenses in India. He allegedly owns a private jet and spends part of the year abroad. Information were requested from Country A where the credit cards have been issued, including the following • Name and complete address of the person holding the Credit Card • Nature of business/ occupation of the above said persons and their year-wi....
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....er Spontaneous Exchange of Information on commission payments paid by the Company in Country A for engineering and sales services. The tax officers in the field formations have been provided with this information to verify the transactions. On examination of books of accounts and bank statements of this Indian company, it was found that the remittance of Rs. 6 million neither appeared in their regular books of accounts nor their bank statements. The Indian taxpayer admitted that they have suppressed this income and paid taxes on the same. Case Study 8: Request from a Foreign Jurisdiction Resulted in Detection of Tax Evasion in India In this case, a request for information was received from Country A in the case of Mr.X being a national of that country but a resident of India about the salary income received by him in Country A- Mr. X was employed as Director in a Company (Z) in Country A. His main nature of work was look after the sales (marketing) of machines and give technical support to Z in various countries such as India. He stationed himself in India and travels to the other. countries his Company. He received salary only from Z which is credited to his bank account mai....
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....of Mr. X which refer to the transactions within the trust group outside India were seized by the Indian Tax Authorities and the same were sent to the tax authorities of Country A. Country A utilized this information after verification of similar information from other countries and provided a feedback that the information from India has resulted in an approximate adjustment of $ 100,000 in tax and $ 250,000 in penalty and interest. This result was achieved since the foreign tax authorities could correlate information received from various countries to get a bigger picture of how the tax evasion schemes were carried out through use of offshore trusts. ANNEXURE-G: Proforma for sending information on requests received under DTAAs/TIEAs/Multilateral Conventions (to be filled up in duplicate as per Instructions given in the Manual and as per Notes indicated against each column) 1 Name of the foreign taxpayer Note 1 2 Name and address of all the connected persons in India Note 2 3 Date on which request was received Note 3 4 Date on which reply is given Note 4 5 Whether this is final or interim reply ....
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.... any related request (s): Acknowledgement needed: Please check the box: Yes No Number of attachment to the request: Note 6 Total number of pages for all attachments: Note 7 6 Urgency of reply Date if any, after which assistance would no longer be useful: Note 8 Urgent reply required due to: Please check the box: Statute of limitation: date: Suspected fraud Court case Other reasons (please specify): Note 9 7 Identity person(s) from the whom the tax claim is due: Note 10 8 Date of Creation of Tax Claim Note 11 10 Tax(es) to which the request relates: Note 12 11 Nature of tax claim: Please check the box: Undisputed tax, Tax levied, pending before the appellate authorities, Provisional tax, Interest Penalty Other (please specify): Note 13 12 Relevant background: Note 14 13 Amount of tax claim (Penalty to be stated separately) Note 15 14 Ground for believing that the taxpayer has assets in the Request....
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....ate of birth, Permanent Account Number (PAN), Full address and other details available on record. Note 11 The date on which the tax claim was made on the taxpayer for the first time. Generally it will be the date of issue of notice of demand. Note 12 The taxes for which the request are made should be mentioned like Income-Tax. Wealth-Tax, Security Transaction Tax etc. Note 13 The relevant box needs to be ticked to provide the nature of revenue claim to the Requested Country. Note 14 Detailed background of the case should be mentioned clearly including the facts giving rise to the revenue claim. The efforts carried out by the tax officers of the field formations should be clearly stated. This background information should also include a brief summary of the ongoing efforts to collect the taxes. Copies of relevant documents, if considered relevant for the assistance by the foreign tax authorities, may be included as Annexure. Copy of certificate drawn under section 222 of the Income-tax Act, 1961, should be attached. Note 15 The information should clearly distinguish the tax, interest and penalty portion of the tax claim. In case if the interest or any o....