India and US join hands to close in on tax evaders

Agencies/New DelhiIndia and the US signed a tax information sharing agreement yesterday, under a new US law meant to combat offshore tax dodging by Americans as well as by Indians stashing funds abroad. The agreement aims to close a window for US citizens to avoid tax through financial products like equities, bank accounts and insurance. In return, New Delhi expects to garner Washington’s support to bring back illicit funds stashed by Indians in foreign tax havens and boost revenues by getting information about Indians working in the US. The agreement “would enhance tax transparency and eventually bring in higher equity into the direct tax regime which are necessary for a healthy economy,” India’s Revenue Secretary Shaktikanta Das said after signing the pact with US Ambassador Richard Verma in New Delhi. Following his election promise, Prime Minister Narendra Modi has enacted a ‘black money’ law that foresees tough penalties and a jail term for tax evaders who fail to declare their overseas incomes. Washington has signed pacts covering more than 80 tax jurisdictions to implement the Foreign Account Tax Compliance Act, or FATCA, requiring financial institutions to share information about Americans’ accounts worth more than $50,000. Last year, Modi joined leaders from the Group of 20 countries in Australia in an agreement for countries to automatically exchange tax information on a reciprocal basis by the end of 2018. Under the pact, banks, mutual funds, insurance, pension and stock-broking firms will report their American client details to the tax department for sharing with the US, an Indian finance ministry official said in a statement. “FATCA is a mutual effort to combat tax evasion and it would be mutually beneficial for both the countries. . . FATCA would detect, discourage offshore tax evasion. This kind of exchange of information is top priority for both governments,” Verma said.Speaking to reporters after singing the agreement, Das said: “We reassured the US government of the binding commitment to...fight the menace of evasion and bring transparency in the matters of payment of taxes which are legitimately due to the government.” The agreement, according to the finance ministry statement, “underscores growing international co-operation to end tax evasion everywhere… The signing of Inter Governmental Agreement (IGA) is a re-affirmation of the shared commitment of India and US towards tax transparency and the fight against offshore tax evasion and avoidance.”Das said: “IGA with US to implement FATCA… is a very important step for the government to tackle offshore tax evasion. It reaffirms the government’s commitment to fight the menace of black money.“It is hoped that the exchange of information on automatic basis, regarding offshore accounts under FATCA would deter tax offenders, would enhance tax transparency and eventually bring in higher equity in to the direct tax regime which necessary for a healthy economy.”India, he said, is giving the ‘highest importance’ to fighting the menace of black money.Investors will have to provide correct information about their tax residency and financial assets that would be shared with the US tax authorities, another official said, requesting anonymity because he was not authorised to speak on the record. The statement said signing of the IGA with US as well as India’s decision to join the Multilateral Competent Authority Agreement on June 3, 2015 were two important milestones in the nation’s fight against the menace of black money.The agreement could result in a fall in investments from small US investors into India’s equity and debt markets for some time, but would help put a fear of punishment among tax evaders, said another official. To date, the US has intergovernmental agreements with more than 110 jurisdictions and is engaged in related discussions with many other jurisdictions, the statement said.