Income Tax Act, 1961 was recently amended to enable India to enter into agreements with specified non-sovereign jurisdictions. Pursuant to this amendment, the Government of India (Government) has recently issued Notification no. 22/2010 dated 8 April 2010 (Notification) notifying nine jurisdictions such as Bermuda, Cayman Islands, Jersey etc. as the specified jurisdictions.This Notification possibly indicates the intention of the Government to enter into Tax Information Exchange Agreements (TIEA) or other similar agreements to prevent fiscal evasion with these jurisdictions in the near future. This development suggests that India is moving forward on the global transparency and information exchange agenda. Details on the scope and coverage of the agreements that India proposes to enter into are not yet known.
Background
In recent times, international tax evasion and the implementation of the Organization for Economic Cooperation and Development’s (OECD’s) internationally agreed tax standard have taken high positions on the global political agenda. The standards of transparency and exchange of information developed by the OECD are primarily contained in Article 26 (Exchange of Information) of the OECD Model Tax Convention and the 2002 Model TIEA. The purpose of the TIEA is to promote international cooperation in tax matters through exchange of information. The TIEA grew out of the work undertaken by the OECD to address harmful tax practices. The lack of effective exchange of information is one of the key criteria in determining harmful tax practices. The mandate of the OECD was to develop a legal instrument that could be used to establish effective exchange of information. The TIEA represents the standard of effective exchange of information for the purposes of the OECD’s initiative on harmful tax practices.
India, which is a member of OECD’s Global Forum on Transparency and Exchange of Information, has played an active role to ensure that high standards of transparency and exchange of information are in place throughout the world.
Recent developments
The Income Tax Act, 1961 was amended by the Finance (No. 2) Act, 2009 to enable the Government to enter into agreements with specified non-sovereign jurisdictions. This was in addition to the already existing provision in the Income Tax Act, 1961 for entering into agreements with the government of any country for the purpose of avoidance of double taxation or for exchange of information or for prevention of fiscal evasion. For this purpose, the Government is empowered to notify such jurisdictions as specified territory outside India. Pursuant to this amendment, the Government issued the Notification notifying the following nine jurisdictions outside India as specified territories for entering into such agreements:
Bermuda
British Virgin Islands Cayman Islands
Gibraltar
Guernsey
Isle of Man
Jersey
Netherlands Antilles Macau
The Government can negotiate agreements for exchange of information for the prevention of evasion or avoidance of income tax and assistance in collection of income tax with these nine specified territories.
The Indian tax administration has issued a press release dated 13 April 2010 on the Notification which indicates that another notification providing for Hong Kong, a special administrative region of the People’s Republic of China, as a specified territory, is under process. With this notification, it is expected that India would seek to enter into TIEAs or other similar agreements for prevention of fiscal evasion with these jurisdictions in the near future. Recent media reports suggest that negotiations with Bermuda for a TIEA are close to conclusion.
Comments :-Lately, international tax evasion, the implementation of high standards of transparency and exchange of information have been the focus on the political agenda of global economies, including India. This recent development suggests that India is moving forward on the global transparency and information exchange agenda. At this stage, the scope and coverage of the agreements, which India proposes to enter into with the specified territories is not known. It is also not known if these TIEAs would be based on the OECD’s 2002 Model TIEA.
