Framework of Sources of Exchange of Information in Tax Matters – An Overview

Tackling
offshore tax evasion and tax avoidance and unearthing of unaccounted
money stashed abroad have become a pressing concern for governments all
around the world. The information and/or evidence of such tax
avoidance/evasion and the underlying criminal activity is often located
outside the territorial jurisdiction and thus this menace can be
addressed only through bilateral and multilateral cooperation amongst
tax and other authorities. India has played an important role in
international forums in developing international consensus for such
cooperation as per globally accepted norms and continuous monitoring of
their adoption by every jurisdiction including offshore financial
centres.

Initially, the international norms were to provide
assistance to other countries only on satisfaction of the norms of “dual
criminality”, i.e., in cases of drug trafficking, corruption, terrorist
financing etc. which are criminal activities in both countries.
However, at present the cooperation has extended to cases of tax evasion
and avoidance and countries are obliged to exchange information
requested as per provisions of tax treaties/agreements. The third stage
of cooperation would be automatic exchange of financial account
information without countries having to make requests for the same,
thereby enabling the receiving country to verify whether such accounts
indicate tax evaded money and to take necessary action. Despite a global
consensus on coordinated action to tackle the problem of tax evasion
and tax avoidance, foreign governments, particularly offshore financial
centres, are most unlikely to provide information on the basis of just
letters or on a plea regarding their moral obligations to prevent tax
evasion. Among other factors, parting with information without a legal
basis may be challenged in their own Courts and may be against their own
public policy or public opinion of their citizens. Such information
about money and assets hidden abroad and about undisclosed transactions
entered into overseas, can be obtained only through “legal instruments”
or treaties entered into between India and those countries.

Tax
Treaties, which include, Double Taxation Avoidance Agreements (DTAA s),
Tax Information Exchange Agreements (TIEAs), Multilateral Convention on
Mutual Administrative Assistance in Tax Matters (Multilateral
Convention) and SAARC Limited Multilateral Agreement (SAARC Agreement),
are the legal instruments which provide a legal obligation on a
reciprocal basis for providing various forms of administrative
assistance, including Exchange of Information, Assistance in Collection
of Taxes, Tax Examination Abroad, Joint Audit, Service of Documents etc.
Through one or more of these tax treaties, India has exchange of
information relationships with more than 130 countries/jurisdictions
including well known offshore financial centres and these jurisdictions
are legally committed to provide administrative assistance and are
actually providing the same in cases where requests are made.
Information and other forms of assistance can also be requested through
Mutual Legal Assistance Treaties (MLAT s) through Ministry of Home
Affairs, particularly with countries/jurisdictions with which there is
no tax treaty. Information/evidence obtained through MLAT s can also
supplement the information received under tax treaties when a criminal
complaint is made for tax evasion on the basis of information received
under tax treaties. Information can also be obtained through Egmont
Group of Financial Intelligence Units (FIUs) which may be further
supplemented by making further requests under tax treaties/ MLAT s.

Despite
the existence of legal instruments for administrative assistance and
the willingness of India’s treaty partners to provide information, these
provisions are still underutilised, largely because tax officials are
not fully aware of the provisions and need guidance for framing
effective requests for information under appropriate legal instruments.
The taxpayers, their advisers and the tax officers may also not be fully
aware of the recent international developments in transparency
including the global adoption of the new standards on automatic exchange
of information, which will bring about a sea-change in India’s ability
to receive and utilize information regarding Indians having financial
accounts in offshore financial centres.

Thus there are nine major sources of EoI of various kinds relating to tax matters, which are summarised below:

1. EoI Article under the Model Conventions on Income and on Capital

2. Tax information Exchange Agreements [TIEAs]

3.
Automatic Exchange of Information [AEoI] under The Multilateral
Convention on Mutual Administrative Assistance in Tax Matters [CoMAA]
alongwith Multilateral Competent Authority Agreement on Automatic
Exchange of Financial Account Information [MCAA]

4. EoI under
Inter-Governmental Agreement [IGA] and Memorandum of Understanding (MoU)
between India and USA to improve International Tax Compliance and to
implement Foreign Account Tax Compliance Act [FAT CA] of the USA

5. SAARC Limited Multilateral Agreement [SAARC Agreement]

6. Mutual Legal Assistance Treaties [MLAT s]

7. The Egmont Group Financial Intelligence Units (FIUs)

8. Joint International Tax Shelter Information & Collaboration – JITSIC

9. EoI under Base Erosion and Profit Shifting [BEPS] Project.

Brief
outline of nine major sources of EoI of various kinds, is as under: In
this article, we aim to introduce to the readers various sources of EoI
amongst various authorities and various countries. Each one of the above
are discussed below in brief:

(a)
1928 Model developed by the League of Nations provided for provision of
Information on request and for Automatic EoI relating to Specific
Categories such as Immovable properties etc. In the London and Mexico
draft models of 1946, a Draft Agreement on Administrative Co-operation
was included. Both the Obligation and Form of Information Exchange were
narrowed during the formalisation of OECD Model after World War-II by
removing the obligation for Automatic Exchange of Information. The Draft
OECD Model was first developed in 1963 which contained Article on EoI.
Until 8th Edition released in 2010, Article 26 of the OECD Model
Convention contained the pre-updated version of Article 26. On 17th
July, 2012 Update to Article 26 and its commentary was approved by OECD
Council which extensively revised the commentary on Article 26. There
are three forms of EoI (On Request, Automatic and Spontaneous). Para 9
of the Commentary on Article 26 provides that all three forms of EoI are
covered by the Article.

In the update, in para 2 of Article 26
the following sentence was added: “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.” Many of India’s DTAA s signed before July
2012 have been amended in recent past by way of Protocols to incorporate
the updated EoI Article. Most of the India’s DTAA s signed before July
2012 contain pre-updated Article 26 and DTAA s signed after July 2012
contain updated Article 26. (b) OE CD Model Convention – Text of Article
26 – Exchange of Information Text of the updated Article 26 of the OECD
Model Convention is reproduced below for ready reference: 1. The
competent authorities of the Contracting States shall exchange such
information as is foreseeably relevant for carrying out the provisions
of this Convention or to the administration or enforcement of the
domestic laws concerning taxes of every kind and description imposed on
behalf of the Contracting States, or of their political subdivisions or
local authorities, insofar as the taxation thereunder is not contrary to
the Convention. The exchange of information is not restricted by
Articles 1 and 2. 2. Any information received under paragraph 1 by a
Contracting State shall be treated as secret in the same manner as
information obtained under the domestic laws of that State and shall be
disclosed only to persons or authorities (including courts and
administrative bodies) concerned with the assessment or collection of,
the enforcement or prosecution in respect of, the determination of
appeals in relation to the taxes referred to in paragraph 1, or the
oversight of the above. Such persons or authorities shall use the
information only for such purposes. They may disclose the information in
public court proceedings or in judicial decisions. 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. 3. In no case shall the provisions
of paragraphs 1 and 2 be construed so as to 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 (ordre public). 4. If
information is requested by a Contracting State in accordance with this
Article, the other Contracting State shall use its information gathering
measures to obtain the requested information, even though that other
State may not need such information for its own tax purposes. The
obligation contained in the preceding sentence is subject to the
limitations of paragraph 3 but in no case shall such limitations be
construed to permit a Contracting State to decline to supply information
solely because it has no domestic interest in such information. 5. In
no case shall the provisions of paragraph 3 be construed to permit a
Contracting State to decline to supply information solely because the
information is held by a bank, other financial institution, nominee or
person acting in an agency or a fiduciary capacity or because it relates
to ownership interests in a person.” 2. Tax information Exchange
Agreements [TIEAs] The Model TIEA was released in April 2002, containing
Two Models of Bilateral Agreements. The Model TIEA covered only EoI on
Request. A large No. of bilateral agreements have been based on Model
TIEA. In June 2015, OECD approved a Model Protocol to the TIEA for the
purpose of allowing Automatic and Spontaneous exchange of information
under a TIEA. India has so far signed 16 TIEAs with countries with whom
India has not signed a Comprehensive DTAA , namely: Argentine, Bahrain,
Belize, Gibralter, Principality of Liechtenstein, Liberia, Macao SAR,
Monaco, Bahamas,

Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey and Maldives.

The Model TIEA contains the following Articles:

3. The Multilateral Convention on Mutual Administrative Assistance in Tax Matters [Co- MAA]

The
CoMAA was developed jointly by the OECD and the Council of Europe in
1988 and amended by Protocol in 2010. The CoMAA was amended to align it
to the international standard on exchange of information on request and
to open it to all countries. The amended Convention was opened for
signature on 1st June 2011.

The CoMAA has now taken an
increasing importance with the G20’s recent call for automatic exchange
of information to become the new international tax standard of exchange
of information.

As of 27-11-2015, 77 countries, including India
have signed the CoMAA and it has been extended to 15 jurisdictions
pursuant to Article 29 of The CoMAA. This represents a wide range of
countries including all G20 countries, all BRICS, almost all OECD
countries, major financial centres and a growing number of developing
countries.

India signed the CoMAA on 26-1-2012 which was notified on 28-8-2012 and which entered into force wef 1-6-2012.

a. Relevance of the CoMAA

•  Designed
  to facilitate international co-operation among tax authorities to
  improve their ability to tackle tax evasion and avoidance and ensure
  full implementation of their national tax laws, while respecting the
  fundamental rights of taxpayers.
•  Most comprehensive multilateral instrument available for tax cooperation and exchange of information.
• Provides for all possible forms of administrative cooperation between states in the assessment and collection of taxes.
• Co-operation
  includes automatic exchange of information, simultaneous tax
  examinations and international assistance in the collection of tax
  debts.

b.Benefits of the CoMAA

Scope of the Convention is broad: it covers a wide range of taxes and goes beyond exchange of information on request.

•  Provides
  for other forms of assistance such as: spontaneous exchanges of
  information, simultaneous examinations, performance of tax examinations
  abroad, service of documents, assistance in recovery of tax claims and
  measures of conservancy and automatic exchange of information.
• Facilitates joint audits.
• Includes extensive safeguards to protect the confidentiality of the information exchanged.

c. Chapter III Section I – Article 4 to 5 relevant for EoI

The text of the same are given below for ready reference. Article 4 – General Provision

 “1.
The Parties shall exchange any information, in particular as provided
in this section, that is foreseeably relevant for the administration or
enforcement of their domestic laws concerning the taxes covered by this
Convention.

2. Deleted.

3. Any Party may, by a
declaration addressed to one of the Depositaries, indicate that,
according to its internal legislation, its authorities may inform its
resident or national before transmitting information concerning him, in
conformity with Articles 5 and 7.

Article 5 – Exchange of Information on Request

“1.
At the request of the applicant State, the requested State shall
provide the applicant State with any information referred to in Article 4
which concerns particular persons or transactions.

2. If the
information available in the tax files of the requested State is not
sufficient to enable it to comply with the request for information, that
State shall take all relevant measures to provide the applicant State
with the information requested.”

d. The CoMAA and Automatic Exchange of Information

Article
6 of the CoMAA provides for AEoI. It is an ideal instrument to
implement AEoI swiftly and multilaterally. To implement Article 6, an
administrative agreement between the competent authorities of two or
more interested Parties to the Convention is required. It would address
issues such as the procedure to be adopted and the information that will
be exchanged automatically.

Sharing of information with other
law enforcement authorities to counteract corruption, money laundering
and terrorism financing is permissible subject to certain conditions;
information received by a Party may be used for other purposes when

(i) such information may be used for such other purposes under the laws of the supplying Party and
(ii) the competent authority of that Party authorises such use.

e. Main benefits of Automatic Exchange

• AE
  oI can provide timely information on non-compliance where tax has been
  evaded either on an investment return or the underlying capital sum.
• Help detect cases of non-compliance even where tax administrations have had no previous indications of non-compliance.
• Has deterrent effects, increasing voluntary compliance and encouraging taxpayers to report all relevant information.
• Help
  in educating taxpayers in their reporting obligations, increase tax
  revenues and thus lead to fairness – ensuring that all taxpayers pay
  their fair share of tax in the right place at the right time.
• Possibility
  to integrate the information received automatically with their own
  systems such that income tax returns can be prefilled.

f. Chapter III Section I – Article 6 to 10 relevant for AEoI

The text of the same are given below for ready reference. Article 6 – Automatic Exchange of Information

“With
respect to categories of cases and in accordance with procedures which
they shall determine by mutual agreement, two or more Parties shall
automatically exchange the information referred to in Article 4.”

Article 7 – Spontaneous Exchange of Information

“1.
A Party shall, without prior request, forward to another Party
information of which it has knowledge in the following circumstances:

a. the first-mentioned Party has grounds for supposing that there may be a loss of tax in the other Party;
b.
a person liable to tax obtains a reduction in or an exemption from tax
in the first mentioned Party which would give rise to an increase in tax
or to liability to tax in the other Party;
c. business dealings
between a person liable to tax in a Party and a person liable to tax in
another Party are conducted through one or more countries in such a way
that a saving in tax may result in one or the other Party or in both;
d.
a Party has grounds for supposing that a saving of tax may result from
artificial transfers of profits within groups of enterprises;
e.
information forwarded to the first-mentioned Party by the other Party
has enabled information to be obtained which may be relevant in
assessing liability to tax in the latter Party.

2. Each Party
shall take such measures and implement such procedures as are necessary
to ensure that information described in paragraph 1 will be made
available for transmission to another Party.”

Article 8 – Simultaneous Tax Examinations

“1.
At the request of one of them, two or more Parties shall consult
together for the purposes of determining cases and procedures for
simultaneous tax examinations. Each Party involved shall decide whether
or not it wishes to participate in a particular simultaneous tax
examination. 2. For the purposes of this Convention, a simultaneous tax
examination means an arrangement between two or more Parties to examine
simultaneously, each in its own territory, the tax affairs of a person
or persons in which they have a common or related interest, with a view
to exchanging any relevant information which they so obtain.”

Article 9 – Tax Examinations Abroad

“1.
At the request of the competent authority of the applicant State, the
competent authority of the requested State may allow representatives of
the competent authority of the applicant State to be present at the
appropriate part of a tax examination in the requested State.

2.
If the request is acceded to, the competent authority of the requested
State shall, as soon as possible, notify the competent authority of the
applicant State about the time and place of the examination, the
authority or official designated to carry out the examination and the
procedures and conditions required by the requested State for the
conduct of the examination. All decisions with respect to the conduct of
the tax examination shall be made by the requested State.

3. A
Party may inform one of the Depositaries of its intention not to accept,
as a general rule, such requests as are referred to in paragraph 1.
Such a declaration may be made or withdrawn at any time.”

Article 10 – Conflicting Information

“If
a Party receives from another Party information about a person’s tax
affairs which appears to it to conflict with information in its
possession, it shall so advise the Party which has provided the
information.”

g. Confidentiality of Information Exchanged under Co- MAA and Protection of taxpayers’ rights

• The CoMAA has strict rules to protect the confidentiality of the information exchanged.
• Provides
  that information shall be treated as secret and protected in the
  receiving State in the same manner as information obtained under its
  domestic laws.
• If personal data are provided, the Party
  receiving them shall treat them in compliance not only with its own
  domestic law, but also with the safeguards that may be required to
  ensure data protection under the domestic law of the supplying Party.

h. Articles of Model CoMAA

The outline of the contents of the Model CoMAA is as under:

i. Standard for Automatic Exchange of Financial Account information in Tax Matters [Standard]

For facilitating the AEoI amongst various countries, OECD has developed a Standard. The Standard sets out

The full version of the Standard, as approved by
the Council of the OECD on 15 July 2014, also includes the Commentaries
on the Model CAA and the CRS, and following seven annexes to the
Standard:

1. M ultilateral Model CAA;
2. N onreciprocal Model CAA;
3. CRS schema and user guide;
4. Example questionnaire with respect to confidentiality and data safeguards;
5. Wider Approach to the CRS;
6. Declaration on Automatic Exchange of Information in Tax Matters; and
7. Recommendation on the Standard.

j. Confidentiality of the Information Exchanged

The
Standard contains specific rules on the confidentiality of the
information exchanged and the underlying international legal exchange
instruments already contain safeguards in this regard.

• Where the Standard is not met (whether in law or in practice), countries will not exchange information automatically.
• To
  facilitate the decision making by Global Forum members as to which
  jurisdictions they will automatically exchange information with, the
  Global Forum AEOI Group is undertaking high level assessments of the
  confidentiality and data safeguards of jurisdictions committed to AEOI.
  Centralising this work in the Global Forum will further assist
  jurisdictions in speedily implementing AEOI, by reducing the need for
  each jurisdiction to conduct its own assessment of the information
  security practices of each of the many jurisdictions committed to
  implementing AEOI. The process is now underway with the first batch of
  around 50 assessments due to be finalised by the end of 2015 and the
  assessments with respect to the remaining committed jurisdictions due to
  be finalised by mid-2016.

k. Implementation of Standard at domestic level

• No particular timelines in the Standard.
• Implementation at co-ordinated timelines would bring benefits for both business and governments.
• Over
  95 jurisdictions have already publicly committed to implement the
  Standard, either through the signing of the Multilateral Competent
  Authority Agreement, the G20 or the Global Forum commitment process,
  with first exchanges of information to occur in 2017 or 2018.

 l. Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information [MCAA]

The Agreement contains 8 sections and 6 Annexes as follows:

4. EoI under IGA re FATCA

FATCA is a USA law which seeks
to facilitate flow of financial information. FAT CA requires Indian
banks to reveal account information of persons connected to the USA.
Indian financial institutions in India, i.e. an insurance company, bank,
or mutual fund, would be required to report all FAT CA-related
information to Indian governmental agencies, which would then report
these information to Internal Revenue Service (IRS). Indian Financial
Institutions must report account numbers, balances, names, addresses,
and U.S. identification numbers. There is punitive 30% withholding tax
on any financial institution that fails to report.

India signed a
Model 1 (reciprocal) IGA with the U.S which is notified vide
Notification No. 77/2015 dated 30- 9-2015. For effective implementation
of FAT CA, Rules 115G to 115H has been notified vide Notification no.
62/2015 dated 7-8-2015. The IGA would require Indian financial
institutions to report information on U.S. account holders to India’s
CBDT, which would then share the information with the U.S. IRS. The
agreement would provide the IRS, access to details of all offshore
accounts and assets beyond a threshold limit held by American citizens
in India, while a reciprocal arrangement would be offered for Indian tax
authorities as well.

a. Articles of India-USA IGA
The contents of the Agreement are as follows:

• The Standard consists of a fully reciprocal automatic exchange system from which US specificities have been removed.
• It is based on residence and unlike FAT CA does not refer to citizenship.
• Terms,
  concepts and approaches have been standardised allowing countries to
  use the system without having to negotiate individual annexes.
• Unlike
  FAT CA, the Standard does not provide for thresholds for pre-existing
  individual accounts, but it includes a residence address test building
  on the EU Savings Directive.
• It also provides for a simplified indicia search for such accounts.
• It
  has special rules dealing with certain investment entities where they
  are based in jurisdictions that do not participate in automatic exchange
  under the Standard. 5. SAARC Limited Multilateral Agreement SAARC
  Limited Multilateral Agreement (SAARC Agreement) is a multilateral
  agreement amongst SAARC countries and has been in force since 1st April,
  2011. It has provisions for a wide range of administrative assistance
  including EoI on a reciprocal basis. SAARC comprises of 7 countries i.e.
  Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The
  text of Article 5 of the SAARC Agreement, relating to EoI is given
  below for ready reference.

“Article 5 – Exchange of Information

1.
The Competent Authorities of the Member States shall exchange such
information, including documents and public documents or certified
copies thereof, as is necessary for carrying out the provisions of this
Agreement or of the domestic laws of the Member States concerning taxes
covered by this agreement insofar as the taxation thereunder is not
contrary to the Agreement. Any information received by a Member State
shall be treated as secret in the same manner as information obtained
under the domestic laws of that Member State and shall be disclosed only
to persons or authorities (including courts and administrative bodies)
concerned with the assessment or collection of, the enforcement or
prosecution in respect of, or the determination of appeals in relation
to the taxes covered by the agreement. Such persons or authorities shall
use the information only for such purposes. They may disclose the
information in public court proceedings or in judicial decisions.

2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Member State the obligation:
(a)
to carry out administrative measures at variance with the laws and
administrative practices of that or of the other Member State;
(b)
to supply information, including documents and public documents or
certified copies thereof, which are not obtainable under the laws or in
the normal course of the administration of that or of the other Member
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 (ordre public).”

6. Mutual Legal Assistance Treaties [MLATs]

The MLAT s are legal instruments through which the Contracting States agree to provide each other with the

widest measures of mutual legal assistance in criminal
matters emanating out of proceedings under direct taxes
and not for other tax enquiries. India has a MLAT with 39
countries enabling assistance from countries with which
there is no tax treaty such as Hong Kong.

The scope of cooperation is different in various MLAT s
but is normally quite wide and may include the following:

• Provision of information, documents and other records
• Taking of evidence and obtaining of statements of
  persons
• Location and identification of persons and objects Execution of requests for search and seizure
• Measures to locate, restrain and forfeit the proceeds
  and instruments of crime
• Facilitating the personal appearance of the persons
  giving evidence
• Service of documents including judicial documents
• Delivery of property, including lending of exhibits
• Other assistance consistent with the objects of the
  MLAT which is not inconsistent with the law of the requested
  State (catch all provision).

7. The Egmont Group Financial Intelligence
Units (FIUs)

The Egmont Group is an informal network of FIUs established
with a view to have international cooperation
including information exchange in the fight against
money laundering and financing of terrorism. As on 1st
May, 2015, FIUs of 147 countries are part of the Egmont
Group. The FIUs of the Group exchange information in
accordance with Egmont Principles for Information Exchange
and Operational Guidance for FIUs, which is
available on the Internet.

The tax authorities may request information available
with FIUs of other countries through FIU-IND (the Indian
FIU) using the information exchange mechanism of the
Egmont Group.

MoU between FIU and CBDT

On 20th September, 2013, a Memorandum of Understanding
(MoU) was entered into between FIU and CBDT
in which it has been provided that if CBDT requires information
from a foreign FIU, a request will be made to
FIU-IND in Egmont prescribed proforma in electronic
format and CBDT shall abide by the conditions that may
be imposed by the foreign FIU on the use of information
provided by the foreign FIU.

8. Joint International Tax Shelter Information & Collaboration – JITSIC

The
original Joint International Tax Shelter Information Centre was created
in 2004 as a joint revenue authority initiative of Australia, Canada,
the United Kingdom and the United States to counter abusive tax schemes
and tax avoidance structures. Later on, Japan, Germany, South Korea,
France and China joined the JITSIC. The Competent Authorities of these
countries exchange information through the legal instrument of DTAA s
including sharing expertise relating to the identification and
understanding of abusive tax arrangements. Under the JITSIC framework,
the Competent Authorities are able to put the various international
pieces together to examine complex cross border transactions, such as
non-commercial capital and finance arrangements, aggressive transfer
pricing strategies and foreign tax credit generation schemes. Similarly,
structures involving tax havens and trust structures in connection with
high net wealth individuals also came under JITSIC scrutiny.

Recognising
that the information exchanges should not be limited to the original
JITSIC member countries, on a call from G20, the Forum on Tax
Administration A) of the OECD in its 9th Meeting in Dublin on 24th
October, 2014, determined that the composition of JITSIC would be
expanded and remodeled with a greater focus on collaboration. Reflecting
this change, the taskforce was renamed as the Joint International Tax
Shelter Information & Collaboration (still called JITSIC) with an
emphasis on collaboration on information exchange and a de-emphasis on
the need for exchange to occur through central hubs. The JITSIC Network
is open to all FTA members on a voluntary basis and integrates existing
JITSIC cooperation procedures among tax administrators within the larger
FTA network. India has joined the JITSIC Network and Joint Secretary
(FT&TR-I) has been appointed as the Single Point of Contact for
India.

9. EoI under BEPS Project

Base Erosion and
Profit Shifting refers to strategies adopted by taxpayers having
cross-border operations to exploit gaps and mismatches in tax rules of
different jurisdictions which enable them to shift profits outside the
jurisdiction where the economic activities giving rise to profits
areperformed and where value is created. At the request of G20 Finance
Ministers, in July 2013 the OECD, working with G20 countries, launched
an Action Plan on BEPS, identifying 15 specific actions needed in order
to equip governments with the domestic and international instruments to
address this challenge.

A number of recommendations for
combating BEPS envisage enhanced cooperation amongst the tax
administrations and exchange of information as per the provisions of the
existing network of tax treaties, including the following:

a. Automatic Exchange of Country by Country [CbC] Reports – Action 13

Action 13 of the BEPS Action Plan relates to a three-tiered standardised approach to transfer-pricing documentation comprising:

• a master file of information relating to the global operations of the MNE Group, which will be filed by all MNE group members,
• a local file referring specifically to material transactions of the local taxpayer, and
• a
  CbC report of information relating to the global allocation of the MNE
  group’s income and taxes paid, alongwith certain indicators of economic
  activity. While the master file and local file will be filed by the
  taxpayer in the local jurisdiction, the CbC report will be filed in the
  country where the MNE is resident and will be transmitted on an
  automatic basis to the jurisdictions in which the MNE operates through a
  multilateral instrument modelled on the basis of MCAA, maintaining
  confidentiality and data safeguarding standards.

b. Spontaneous Exchange of Rulings – Action 5

Action
5 of the BEPS Project relates to countering harmful tax practices more
effectively taking into account transparency and substance. To address
this, the taxpayer specific rulings related to tax regimes resulting in
BEPS need to be mandatorily exchanged on a spontaneous basis.
Taxpayer-specific rulings for this purpose would include both
pre-transaction, including advance tax rulings or clearances and advance
pricing agreements, and post transaction.

c. Exchange of Mandatory Disclosure Regimes – Action 12 Under

Action
12, modular rules for mandatory disclosure of aggressive or abusive
transactions, arrangements, or structures would be recommended to enable
tax administrators to receive information about tax planning strategies
at an early stage so as to respond quickly to tax risks either through
timely and informed changes to legislation and regulations or through
improved risk assessment and compliance programmes (targeted audits).
Under these rules, the “international tax schemes” would also be
disclosed and the same may be shared by tax administrators using the
mechanism of EoI

This Article gives only a brief overview of the
framework of the Exchange of Information in Tax matters. The subject is
receiving increasing attention of the Governments and Tax
Administrations of various countries. It is very important for the
taxpayers & their advisors to gain an in-depth understanding of the
evolving subject. Therefore, the reader needs to study the relevant
Agreements / MOUs / Protocols / Standards in greater detail.