LETTER [D.O.F. NO.500/306/2009-FTD-I (PT.)], DATED 21-3-2013

Liberalisation and globalisation, and consequent increase in cross-border transactions have resulted in unprecedented growth of Indian economy, but at the same time have also provided new opportunities for tax planning and avoidance by taxpayers having global operations. Since taxation is a sovereign function of the State and the tax administrators’ information gathering powers are generally restricted to within its territorial jurisdiction of the State, the global tax evasion and avoidance can be combated effectively through cooperation by the tax administrators of different jurisdictions. The necessity of this coordinated effort was felt even more after the 2008 global economic crisis and a number of steps have been taken by G20 leaders which include restructuring of Global Forum on Transparency and Exchange of Information for Tax Purposes, setting up of new standards of transparency in exchange of information by OECD and United Nations, and opening up of Multilateral Convention on Mutual Administrative Assistance in Tax Matters for non-OECD Countries. India has also joined these global efforts by taking a number of steps including re-negotiating its existing Double Taxation Avoidance Agreements (DTAAs) to incorporate new International Standards, finalized in 2009, entering into new DTAAs and Tax Information Exchange Agreements (TIEAs), joining the Multilateral Convention, making necessary changes in the domestic law and establishing a dedicated Exchange of Information cell in the Foreign Tax and Tax Research Division.

2. These efforts can only bear fruit if the officers in the field formation utilize these opportunities by making requests for information from our treaty partners. Accordingly, the CBDT has issued a Manual on Exchange of Information in January, 2013, vide Instruction No. 1 of 2013, with a view to provide guidance to the officers in the field formations for effectively using the provisions of exchange of information for seeking information from the tax administration of a foreign jurisdiction. It is. therefore, requested that all the officers in your jurisdiction may be directed to seek information under DTAAs/TIEAs/Multilatcral Convention, as per guidelines provided in the Manual on Exchange of Information, for carrying out the necessary enquiries and for taking the investigation to its logical end.

3. It has also been seen that in large number of cases, the clarifications sought from the foreign tax authorities on the requests made by Indian tax authorities, communicated to the field formations through the FT&TR Division, are not being attended properly and necessary clarifications are not being provided in a timely manner. Further, in many cases, in making the references, the requests are not being properly framed and only some generalized statements are being made. This results in a situation where even if the foreign tax authorities intent to provide assistance to us, they are not able to do so. It is requested that the concerned Commissioners and Directors of Income Tax may be directed to personally monitor these cases to ensure that the requests are framed properly and clarifications sought by foreign tax authorities are provided immediately. Further, they may also be requested to provide regular and timely feedback on the usefulness of the information received, in all cases where requests have been made by concerned officers, as per the guidelines provided in the Manual for Exchange of Information.

4. The Manual on Exchange of Information also gives directions for providing the information to foreign tax authorities, if a request is received from them. It is important to give high priority to such requests as all the treaties are bilateral and only timely provision of information to foreign jurisdictions will ensure that we will also receive similar assistance from them. It is requested that timelines as prescribed by FT&TR Division in providing replies should be strictly maintained and all efforts should be made to collect comprehensive and accurate information relating to the requests made by the foreign tax authorities.

5. It is also requested that officers in the field formations may be requested to provide feedback on the effectiveness of Exchange of Information in general and on the Manual on Exchange of Information in particular, which may be provided at the email address [email protected]

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September 2021