India's black money law to face a Swiss test

• India’s Black Money law that arms the tax office to go after citizens with secret foreign bank accounts and assets, will be tested before the Swiss courts this year.

Background

• About half a dozen appeals are coming up for hearings to stop Swiss authorities from sharing information with India.
• The ground of appeal is that the harsh law be applied 'retroactively' & used to impose stricter 'criminal' sanctions than the gravity of offenses that were committed earlier.
• The appellants are pointing out the reference to Black Money Act in the ‘information request’ from the Indian Income Tax (I-T) department to Switzerland.

Black Money Act 2015

• The Act is known as the ‘Black Money and Imposition of Tax Act, 2015 (Undisclosed Foreign Income and Assets or the UFIA).
• Undisclosed foreign income and asset: defined as the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India.
• Black money in the form of undisclosed foreign income and assets comes under the purview of this law.
• The UFIA Act gives an opportunity to the black income holders to reveal black money and pay a tax within a compliance window.
• After no compliance, black income holders come under severe penal and prosecution measures prescribed under the law.
• The current provisions of the ‘exchange of information’ clause under the India Swiss Tax Treaty were agreed back in the year 2011.

India and Switzerland information sharing

• The mechanism of information sharing among nations is that such sharing should not be contrary to the public policy of the nation sharing information.
• If Swiss were to share information knowing that the end use could be invocation of a criminal law with retrospective applicability, this could be viewed as a violation of their public policy.
• The information requested by India must be ‘foreseeably relevant’ for the purposes of income tax or an identical or substantially similar tax in India.
• Pandora paper ruling: As long as India did not buy stolen data coupled with the fact that India gave no explicit statement about the source of information, information could be shared.

Conclusion

India is optimistic that the data obtained from the common reporting standard (CRS) would come handy.

The apex direct tax body CBDT issued an internal action plan for FY 22-23 asking officers to aim at completing investigations initiated under the BM Act by the end of the year.

• This includes matters related to all the offshore leaks by the International Consortium of Investigative Journalists and cases developed on information received through intelligence units, FATCA, CRS and others.

Exam Track

Prelims Takeaway

• Black Money Act 2015
• Undisclosed foreign income and asset
• common reporting standard (CRS)

Mains Takeaway

Q. Information sharing agreements with various countries and continuous cooperation are now paving the way to restrict Black money channelising and benefiting the country economically. Justify.