Switzerland may no longer be a honeymoon spot for tax evaders. A new international standard of tax data sharing is set to make things harder for tax haven networks around the world that have in the past included Switzerland and tiny island nations and enclaves. But India would have to frame new laws to make use of the new system.
The new standard, radically different from the current system, aims to prevent wealth from flowing into financial “black holes” through a systematic global regime of information sharing.
Banks and authorities using secrecy laws to evade governments trying to hunt down black money hoarders could lose much of their power. Past offenders, who have so far easily escaped by moving assets, will be in a fix when information about them gets leaked.
The Organisation for Economic Cooperation and Development (OECD) presented a draft framework for the new standard and the finance ministers of the G-20, including India, endorsed it on February 23.
“$21 to $32 trillion are invested almost tax-free in the still expanding black hole of more than 80 offshore secrecy jurisdictions,” says a 2012 Tax Justice Network report.
In another report released last December, India is one of the top five countries in the world from where illicit money goes into tax havens. Global Financial Integrity figures show illicit financial flow from India was $343.93 billion (Rs 2,126.52 lakh crore) in 2002-20011 with the amount of money leaving India rising alarmingly over the years.
The key change in the new regime will be that the current system of getting “information on request” will be replaced by an automatic information exchange based on reciprocal sharing. This would make obsolete old secrecy laws that demanded hard evidence before information could be shared. The new system will also help uncover complex trails of money hidden offshore.
“India, like all jurisdictions, will have to introduce domestic laws to enable financial institutions to collect and report information on the basis of common due diligence procedures,” said Stephanie Smith of the OECD Centre for Tax Policy and Administration. A tax identification number will also be provided in addition to financial information, to allow matching by the country of residence.
However, there are some loophoes. Vast amounts of illicit money are concealed through anonymity of contributors in trusts and foundations. Markus Meinzer, senior analyst of Tax Justice Network, says that the top 1% will get away unless the new standard ensures that information covers all of the foundation’s participants. Bank vaults currently also allow people to stash away their assets in other forms such as gold.