Disclosure of names of illicit account holders in foreign banks:

There has been a hue and cry over NDA Government’s refusal to share the names of the persons who are holding the accounts in foreign banks to park their ill-gotten money or on which they have evaded income tax.

"No such thing (as secrecy agreement) exists in officially obtained data on corruption." Dr Swamy thundered. Mr. Ram Jethmalani has been very livid in his criticism of NDA Government on this issue. I wonder what makes him defend Jayalalitha in DA case. Anyway that is a different topic altogether.

  

Finance Minister Arun Jaitley said that the NDA government will not withhold any information from the public about those who have stashed black money abroad, but was bound by the "legacy" of the treaties it has inherited and which forbid it from disclosing the identities of those operating dubious accounts until investigations against them have been completed and the quantum of their illicit hoard established.

Rejecting the charge that the NDA reversed itself in SC on Friday, Jaitley said while the NDA government was committed to disclose all information on black money, including names of those who have stashed ill-gotten wealth abroad, it was hamstrung by the Double Tax Avoidance Agreement( DTAA) the Congress government signed with Germany in 1995 which lays down that the identity of a person having an account in foreign bank can be disclosed only after charges have been filed against him in a court. He suggested that violation of treaty for propaganda or partisan purpose will prove counterproductive and choke off information flow from foreign countries.

The present NDA government unfortunately inherited the legacy of that DTAA. We may have negotiated a better deal, but if we scrap the treaty we get no further information. The covenant to the treaty is that names of the account holders and information received there under will only be disclosed when charges are filed in court. This obviously cannot be utilized for political propaganda or political mileage.

The choice before the NDA government is clear, violate the treaty and get no names in future; or abide by the treaty, collect evidence, file charges in courts and let the names become public so that the account holders can be named and shamed. One act of adventurism of violating the treaty and discussing the name could perhaps jeopardize future cooperation from the reciprocating State.  

To substantiate his argument about the danger of the violation of DTAAs, Jaitley said Germany got very upset when the government here had to, at the instance of Supreme Court, share the names of some of the foreign account holders to the petitioner in the "Black Money Case".

The minister said while NDA's approach on black money was "doggedly persistent", it would not do anything which might prove counter-productive.

"We are not going to be pushed into an act of adventurism where we violate the treaties and then plead that we are no longer able to get the cooperation of reciprocating states. Such an approach may actually help the account holders. Adventurism will be short-sighted. A mature approach will take us to the root of the matter," he said.

The finance minister also said that all that the government did on Friday in Supreme Court was to clarify that it was not prohibited from signing treaties where a commitment of confidentiality may have to be made as global standards in order to secure information on Indians hiding their money in other countries, including offshore financial centres and tax havens. "The clarification sought from the SC is only to facilitate collection of information about illegal money stashed abroad."

He said while all the information including names of account holders will become public when quoted in court proceedings arising from complaints to be filed by the Income Tax Department against tax offenders. Any premature and out of court disclosure of the names of account holders would not only vitiate the investigations but will enable such account holders to get away with their offences.  

I refer to Article 26 of Indo-German DTAA that deals with exchange of information.

ARTICLE 26: EXCHANGE OF INFORMATION

1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Agreement. Any information received 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) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by this 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 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 ; and

(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).

I also refer to Article 24 of Indo-Swiss DTAA.

Article 24: EXCHANGE OF INFORMATION

1.    The competent authorities of the Contracting States shall exchange such information (being information which is at their disposal under their respective taxation laws in the normal course of administration) as is necessary for carrying out the provisions of this Agreement in relation to the taxes which are the subject of this Agreement. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons other than those concerned with the assessment and collection of the taxes which are the subject of this Agreement. No information as aforesaid shall be exchanged which would disclose any trade, business, industrial or professional secret or trade process.

2.   In no case shall the provisions of this Article be construed as imposing upon either of the Contracting States the obligation to carry out administrative measures at variance with the regulations and practice of either Contracting State or which would be contrary to its sovereignty, security or public policy or to supply particulars which are not procurable under its own legislation or that of the State making application.

On perusal of these two articles, the following salient points are important for the comprehension of layman, lest he may get carried away with political rhetoric.

Information exchange – scope:

The Competent Authorities of the Contracting States exchange information

-          As is necessary for carrying out the provisions of  the

-          Tax agreement, or

-          Domestic laws of the contracting states concerning

-          Taxes covered by the tax agreement, in particular for

-          Prevention of fraud or evasion of such taxes

-          Not restricted by article 1.

Exchange of information is qualified by the expression “as is necessary”. It could be interpreted strictly as to mean that information may be exchanged only if the relevant purpose could not be achieved without it. Broadly, it may mean that the relevant purpose is facilitated. Strict interpretation cannot be applied as it would narrow the scope of information exchange restricting its effectiveness. The word “necessary” has therefore been used in ‘facilitative’ sense, as to be foreseeably relevant to the assessment, collection, recovery and enforcement of tax under the domestic law or the tax agreement or for any purpose thereunder.

Information Exchange – prevention of fraud or evasion of taxes:

The information under these DTAAs is exchanged as is necessary for carrying out the provisions of tax treaty or domestic laws concerning covered taxes, in particular for the prevention of fraud or evasion of such taxes. The Swiss federal Court in X v/s. FTC (1971) 10 ILM 1029 interpreted the expression “prevention of fraud” in a case which was concerned with a request for information exchange article of the US-Switzerland DTAA. The Court held:-

-   Prevention of fraud could be interpreted broadly to cover both preventive and suppressive measures;

-       It could be interpreted to mean prevention of the ultimate success of the fraudulent acts;

-         Whether or not fraud is involved is tested by law of the country required to supply the information;

-       The requested State is not to collaborate in the prosecution of  an act which it would not itself punish;

-    The requested state is required to supply the information if the established facts sufficiently warrant a suspicion that fraud has been perpetrated or is planned.

Fraud in the case of involving revenue, it is the State which must have been sought to be deprived by such illegal means of what is known as State’s revenue. The State has to be more proactive in such cases to unearth the tax evasion and obtain information.

Information Exchange – Secrecy and use:

Article 26 of Indo-German DTAA that is liberally quoted by everyone, inter alia, provides that any information received is treated secret in the same manner as information obtained under its domestic laws. If the information is originally regarded as secret in the tram]nsmitting state it shall be disclosed only to persons or authorities (including courts and administrative bodies) involved, with respect of taxes covered by tax treaty, in

-          Assessment;

-          Collection;

-          Enforcement and prosecution;

-          Appeals.

Unfortunately, the earlier UPA Government has sought information from Germany under clause 26 of Indo-German DTAA. Consequently, the names of the tax evaders cannot be disclosed unless charges are framed against those. Had UPA Government sought information under any other convention or by overt political pressures the way USA did with Swiss authorities when USA threatened to arrest Swiss bank Chief in the USA, India would have gone ahead in crucifying the tax evaders. However, UPA Government has given them the long rope. NDA Government is bound by the Sovereign Commitment of honouring the legal commitments signed by the earlier UPA Regime.

There is no scope for political rhetoric and people cannot mindlessly demand disclosure of names. It is also important to keep in mind every account in foreign bank is not illegal. Let Authorities file charge sheet in the concerned forum. Names would be automatically revealed. Even the Supreme Court has observed: "The revelation of details of bank accounts of individuals without establishment of prima facie grounds to accuse them of wrong doing, would be violation of their rights to privacy. Details of bank accounts can be used by those who want to harass or otherwise cause damage to individuals. We can't remain blind to such possibilities and indeed experience reveals that public dissemination of banking details or availability to unauthorised persons has let to abuse. The mere fact that a citizen has a bank account in a bank located in a particular jurisdiction cannot be a ground for revelation of details of his or her account that the state has acquired".

NDA Government has initiated measures with Swiss Authorities. As per the press release dated 17/10/2014 by Ministry of Finance, a delegation led by Shri Shaktikanta Das, Revenue Secretary and consisting of Shri K.V. Chowdary, Chairman, CBDT and ShriAkhileshRanjan, Joint Secretary (FT&TR) visited Switzerland on 15.10.2014 and held discussions with Swiss Finance and Tax Authorities on issues relating to Exchange of Information in tax matters. The Swiss delegation was led by Mr. Jacques de Watteville, Secretary International Financial Matters, Switzerland. The discussions were substantive and useful. A copy of the Swiss-Indian Joint Statement has already been released to the media yesterday.

From India’s point of view, there are four positive and significant outcomes from the above meeting. They are as follows:

(i)        Switzerland has indicated willingness to provide information in respect of cases where investigations have been carried out by our IT Department independently from what Swiss Government considers as stolen data.

This development is very significant because there are a number of cases of account holders included in the HSBC list which were investigated by our Income Tax Department independent of the HSBC list obtained from the French Government. Earlier, the Swiss Government had not agreed to provide any information on names which were included in the HSBC list on the ground that these were stolen data and have been obtained in breach of Swiss law.

(ii)        The Swiss Federal Tax Administration has agreed that their competent authority would assist India in obtaining confirmation of genuineness of bank documents on requests by the Indian side and also swiftly provide information on requests relating to non-banking information.

This willingness on the part of the Swiss authorities would help in our tax investigations.

(iii)         The Swiss authorities have also agreed to provide the requested information in a time bound manner or else indicate the reasons why the cases cannot be answered within the agreed timeline.

(iv)    Switzerland has also assured that they would commence talks with India for concluding an Automatic Exchange of Information (AEOI) Agreement between India and Switzerland at the earliest, after completion of their domestic procedures. This is the first time that Switzerland has agreed to commence discussions on a bilateral agreement on AEOI.

Hope Government does not sleep over filing charge sheet.