Tax lawyers said on Friday the income tax department’s directive, asking 700 Indians allegedly holding illegal accounts in HSBC Bank’s Geneva branch to surrender their rights under Swiss secrecy laws might not be adequate to get information from the bank.
“The tax department will have to make sure that the authorised signatory and the account holder are same.
“Very often, an account can be held by a trust which may have a different signatory and the beneficiary could be someone else,” said Daksha Baxi, executive director of Khaitan & Co.
“But even after this undertaking, it is not necessary that the Swiss bank will share information.”
India and Swtizerland have a tax treaty under which specific information on tax evaders can be shared. But as the HSBC Bank accounts have been opened before 2011 -- when the treaty became effective -- the I-T department has asked HSBC account holders to give an undertaking under the secrecy laws.
Tax lawyers say the I-T department has all the powers to seek information especially after the tax treaty and after last year’s budget, which makes it mandatory for all Indians to declare their foreign assets including bank accounts and real estate.
“In the absence of any tax treaty before 2011, it was difficult for the IT department to extract information from tax evaders.
“The foreign bank can be sued by the account holders due to the confidentiality clause. But by surrendering the right, the I-T department can have access to all the information about the funds flow in the past,” says R S Loona, managing partner of Alliance Corp Lawyers.
What India should really do, feel lawyers, is to promulgate a law on the lines of the US Foreign Tax Compliance Act, which requires foreign banks to report to the US tax authorities about American citizens holding accounts abroad. The British government is also considering a similar law.
The lawyers also feel that apart from the IT department, the banking regulator, the Reserve Bank of India should also take up the issue with its counterparts in Switzerland so that information can be shared.
In the present case, the I-T department had received a list with the names of the 700 Indians from the French government which was investigating tax frauds by its own nationals.
It has asked the account holders to surrender their rights under Swiss secrecy laws and give details on their accounts.
The tax department has asked the account holders to mail the letters to HSBC’s officials in Geneva and give a copy to the IT department.
The United Progressiva Alliance government was under pressure to take action on HSBC and the Swiss account holders after anti-corruption crusader and head of the Aam Aadmi Party, Arvind Kejriwal made the accusation that HSBC helped the 700 Indians to stash money abroad and the Indian government was not taking any action against the evaders.
Kejriwal had alleged that these account holders, which included some of India’s top industrialists, stashed Rs 6,000 crore (Rs 60 billion) in HSBC’s Geneva branch.
The Indian government has not made any official comment on these allegations.
Poor countries lose billions of dollars in tax as rich individuals and companies use tax havens like the Cayman Islands and Switzerland to stash their income.