Switzerland Approves Automatic Information Exchange with India to Curb Tax Evasion

By Dezan Shira & Associates

India’s automatic exchange of information pact (AEOI) with Switzerland will take force in 2018, and the first exchange of information will take place in 2019.

How does it work?

The AEOI will allow for disclosure of Swiss financial and bank account data to Swiss government authorities, who can then forward the information to their peer agencies in other countries. This means any Indian with a bank account in Switzerland may have their financial information disclosed to the Indian government by Swiss authorities – on an automatic basis.

Nearly 100 countries have so far committed to adopt the global standard for AEOI to curb cross-border tax evasion. The pact will also boost the Indian government’s crusade against black money, and facilitate recovery of undisclosed wealth.

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Legislative safeguards inserted in Switzerland AEOI

Switzerland’s upper house of parliament recently approved to implement the automatic information exchange pact with 41 countries, including India. The AEOI framework was previously approved by Switzerland’s lower house of parliament, the National Council, in September.

In response to security concerns, the upper house panel has asked that the Swiss government amend the proposed pact to introduce safeguards to strengthen legal protections for individuals. This is primarily to ensure that individuals banking in Switzerland are not subject to persecution by foreign countries due to political or other reasons.

Switzerland has also sought strict adherence to confidentiality and data security from all countries party to the AEOI.

India’s fight to curb tax evasion

Prime Minister Modi’s government came to power on the promise of ending the scourge of black money. Progress on this front has so far been a mixed bag – with multiple strategies ranging from legislative reforms to overnight currency withdrawal.

Below are some of the measures led by government, legislative, and regulatory mechanisms to track black money and fight tax evasion:

• Constitution of the Special Investigation Team on Black Money;
• Enactment of The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to specifically deal with undisclosed wealth hidden abroad;
• Constitution of a Multi-Agency Group to investigate revelations from the Panama paper leaks, constituting officers of the Central Board of Direct Taxes, Reserve Bank of India, Enforcement Directorate, and the Financial Intelligence Unit;
• Proactive international engagement to facilitate and enhance the exchange of financial information under Double Taxation Avoidance Agreements (DTAAs), Tax Information Exchange Agreements (TIEAs), and multilateral conventions;
• Joining the Multilateral Competent Authority Agreement to implement the Automatic Exchange of Information;
• Information sharing pact with the U.S. through the Foreign Account Tax Compliance Act;
• Renegotiating DTAAs to introduce financial information exchange and improve transparency;
• Amending the Prevention of Money-laundering Act, 2002;
• Enacting the Benami Transactions (Prohibition) Amendment Act, 2016 to amend the Benami Transactions (Prohibition) Act, 1988;
• Shutting down shell companies;
• Linking the demographic identification number – Aadhaar – with all banking and financial data;
• Launching the tax department’s ‘Project Insight’, which uses big data analytics to corroborate information from social media sites with declared incomes and spending patterns; and,
• Launching of ‘Operation Clean Money’ on January 31, 2017.

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