1

Contents Editorial.......................................................................................................................iii
— Paresh P. Shah

From the President....................................................................................................v

— Ketan Vajani

Chapter Subject Page

No. No.
1. Global Tax Enforcement 1
— CA Priti Shah and CA Dimple Jain

2. Country by Country Reporting (CbCR) for Tax Risk Assessment –

An effective watchdog for curbing tax evasions or just a toothless
measure, adding layer of compliance for taxpayers? 19
— CA Tehmina Sharma and CA Vishva Jhala

3. The Vodafone-Cairns Saga: A taxing journey 24

— Bijal Ajinkya, Ashish Mehta, Krutika Chitre, Advocates

4. Revoking of Retrospective Tax Saga – Amendments to the

September
indirect transfer provisions 29
— CA Vishal J Shah and CA Snehal Palnitkar

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 Global Tax Enforcement

Global Tax
Enforcement

CA Priti Shah and CA Dimple Jain

“Taxes are the lifeblood of government and no taxpayer should be permitted to escape the
payment of his just share of the burden of contributing thereto” - Arthur Vanderbilt

A. BACKGROUND - NEED FOR EXCHANGE OF INFORMATION

Tax evasion along with tax avoidance is a global menace which has led
to a loss of billions of dollars of taxes every year. This has especially been
facilitated by the tax havens, bank secrecy, predatory tax arrangements and
abusive transfer pricing amongst various other factors. The Tax Justice Network,
an independent international network researching and campaigning against
tax havens and secrecy jurisdictions has published a first-of-its-kind annual
report – The State of Tax Justice 2020. This report reveals how much tax each
country in the world loses to international corporate tax abuse and private tax
evasion. As per this report, countries are losing over $427 billion of tax each
year to international corporate tax abuse and private tax evasion. Multinational
corporations are shifting $1.38 trillion worth of profit into tax havens each year,
causing governments around the world to lose $245 billion a year in direct tax
revenue and a further loss of $182bn in direct tax revenue is caused by private

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 The Chamber’s International Tax Journal | September, 2021

offshore tax evasion.1 Such tax avoidance the entities - company, partnership, trust,
/ evasion is detrimental to the interests of etc.; act as director, partner or trustee of
ordinary taxpayers, public infrastructure and such entities; act as a nominee shareholder;
social interest. To identify where such funds provide a registered office; corporate
are stashed / routed and to increase tax services, provide legal and tax advice; provide
collections, enhanced tax enforcement has accounting services. These services themselves
emerged globally. are legitimate, however, they may often be
used in aiding tax avoidance and evasion.
The first step to tackle tax avoidance Many a times, the professional enablers are
and evasion is obtaining information about well informed of the real nature of the
the assets, its location and its beneficial transactions and reason for setting up of
owners from the right sources. Half the the entities. Sometimes a number of entities
knowledge lies in knowing ‘where’ the are utilised to obscure the identity of the
knowledge actually lies. Hence, obtaining ultimate beneficial owners, e.g. shareholding
information has become the most important in a company is held by a number of other
part of tax enforcement. The governments companies which are ultimately held by
around the world are getting together for the various discretionary trusts. The professional
enabling tax enforcement in their respective enablers may be lax in their obligation to do
jurisdiction. Recent scandals such as Pandora a proper due diligence to know the ultimate
Papers, Paradise Papers, ICIJ Offshore Leaks, beneficial owner.
Panama Papers, Lux Leaks, Swiss Leaks
have brought to the light the extent of tax Recently, crypto-currencies and crypto-
avoidance / evasion done by utilising the assets have aided in creating the latest tax
‘easy to set-up’ shell companies and trusts havens. Governments around the world
as well as the bank secrecy provided by the are still grappling to understand how the
tax havens. Structures such as trusts and crypto-currencies and crypto-assets are to be
foundations do not even require registration regulated and taxed. These crypto-currencies
in many jurisdictions resulting in the identity and crypto-assets have various features
of the beneficial owner to be kept hidden. making it difficult to tax it such as:
However, this concern has already been
addressed by many countries by introducing a) legality;
registration and reporting requirements.
The role of banks, financial institutions, b) pseudo-anonymity;
legal advisors, financial advisors, corporate
service providers, accountants (“professional c) global reach;
enablers”) was also highlighted in such
scandals. Professional enablers offer various d) valuation difficulties;
services to their clients such as setting up

1. https://taxjustice.net/wp-content/uploads/2020/11/The_State_of_Tax_Justice_2020_ENGLISH.pdf

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 Global Tax Enforcement

e) hybrid characteristics making it difficult investigations and (iii) collaborate on effective

to classify it as currency, financial communications. The J5 agencies are also
instruments, intangible assets or cooperating on reducing the threat posed by
commodities. crypto-currencies and cybercrime and to make
the most of data and technology.
Accordingly, crypto-currencies and
crypto-assets have become a weapon-of- In a span of one year the J5 inter alia
choice for evading taxes and money achieved the following:
laundering. Jurisdictions such as Barbados,
Cayman Islands, Puerto Rico which do not • Involvement in more than 50
tax or levy nominal tax on capital gains on investigations involving sophisticated
crypto-currencies and other crypto-assets international enablers of tax evasion
are emerging as tax havens. Hence, there is
greater need to redefine the information that • Hundreds of data exchanges between
is to be collected and exchanged. This shall J5 partner agencies with more data
provide greater transparency and support in being exchanged in one year than the
global tax enforcement. previous 10 years combined

B. TOOLS AND MEASURES • Taking offline an important online

ADOPTED GLOBALLY FOR mixer for crypto-currencies. Crypto-
OBTAINING INFORMATION currency mixer is a service that allows
1. Joint Chiefs of Global Tax mixing of criminally derived ‘tainted’
Enforcement coins with the coins of other legitimate
In November 2017, following the users. It obscures the source of the
Panama Papers and Paradise Papers data leaks, funds and assists in money laundering.
the Organization for Economic Co-operation
and Development (“OECD”) issued a “call • Focused on platforms such as FCInet
to action” for countries to do more to tackle that enable each country to share
enablers of tax crimes2. In response to such infor mation in a more organised
call of the OECD, the Joint Chiefs of Global manner.3
Tax Enforcement (“J5”) was formed on 1st
July 2018. J5 comprises of the tax authorities In January, 2020, the J5 undertook
of Australia, Canada, Netherlands, UK and a ‘multi-country day of action’ to tackle
USA and aims to combat transnational international tax evasion. The action by all
tax crime. The core functions of the J5 5 countries occurred as part of a series
include (i) development of strategies to of investigations into an international
gather information and intelligence and (ii) financial institution located in Central
development of strategies to conduct joint America, whose products and services were

2. Closing Statement of the Fifth OECD Forum on Tax and Crime available at https://www.oecd.org/tax/crime/
closing-statement-oecd-forum-on-tax-and-crime-november-2017.pdf
3. https://www.ato.gov.au/Media-centre/Media-releases/One-Year-In,-J5-Making-a-Difference/

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 The Chamber’s International Tax Journal | September, 2021

believed to be facilitating money laundering particular investigation thereby finding the

and tax evasion for customers across the missing pieces. E.g. If Mr. A, resident of
globe. This investigation was based on UK, is suspected of money laundering,
information obtained by the Netherlands. UK can use FCInet to identify the partner
The action involved evidence, intelligence countries where Mr. A has financial flows.
and information collection activities such as FCInet only identifies the partner country
search warrants, interviews and subpoenas. which has the information but does not
As a result, significant infor mation was reveal the information itself. It connects
obtained and further investigations were data rather than collecting data. Thereby
in process. Further, Australia commenced all the partner countries stay in control of
investigations into Australian based clients their own data and the privacy of citizens
of this institution who were suspected to and data protection laws are respected. On
have undeclared income.4 The J5’s objectives, identifying the relevant partner country,
level of collaboration, use of data analytics the country looking for the information
and intelligence sharing, ensures tackling of may request for exchange of information
sophisticated and complex cases and shall be under its bilateral or multilateral treaties.
a great contribution towards tax enforcement FCInet is a non-commercial (government-
in these jurisdictions. developed) system that is hosted by FIOD
and is funded by the annual contributions
2. FCINET of the FCInet members. It currently has 10
In 2015, the OECD’s Forum of Heads member countries, namely Australia, Belgium,
of Tax Crime Investigations acknowledged Canada, Denmark, Finland, Iceland, the
the need for an instrument that would Netherlands, Norway, UK and USA. Once
boost their infor mation position and the partner countries increase, identifying the
effectiveness. In response to this, the Dutch location of the information shall be a matter
Fiscal Intelligence and Investigation Service of seconds, thereby saving the taxman’s time
(“FIOD”), Netherlands and the British HM to a great extent.
Revenue and Customs (HMRC), UK started
the FCInet5. FCInet assists tax organisations 3. AGREEMENTS FOR EXCHANGE
and financial criminal investigation services OF INFORMATION
in their investigations. It is a decentralised Exchange of Information (“EOI”)
computer system that enables the partner related to taxation matters is primarily done
countries to jointly connect information, under the following three agreements –
without having to surrender data or control
to a central database or authority. It uses a) Exchange of information provisions
the ‘Ma3tch technology’ to locate the countries under the bilateral double taxation
which have the information related to a avoidance agreements (“DTAAs”)

4. https://www.irs.gov/newsroom/global-tax-chiefs-undertake-unprecedented-multi-country-day-of-action-to-tackle-
international-tax-evasion
5. https://www.fcinet.org/organisation

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 Global Tax Enforcement

which is modelled after Article 26 of in the pre-renegotiated DTAA between India

the OECD Model Tax Convention and and Switzerland, information could have
UN Model Tax Convention been exchanged only for carrying out the
provisions of the DTAA. However, this
b) Tax information exchange agreements changed after the G20’s declaration that “the
(“TIEAs”), modelled after the OECD era of banking secrecy is over” and its call
Model TIEA of 2002 read with Model to strengthen international cooperation in
Protocol of 2015 exchange of information in 2009. A number
of DTAAs were renegotiated to provide for
c) Multilateral Convention on Multilateral or broaden the scope of the EOI Article.
Administrative Assistance in Tax India had 78 DTAAs in 2009, out of which
Matters (“MCAA”) which forms the 75 DTAAs did not have specific provisions
basis for the Multilateral Competent for exchange of banking information and
Authority Agreement on the Exchange information without domestic interest. To
of Country-by-Country Reports address this concern India commenced
(“CbC MCAA”) and the Multilateral renegotiation with all 75 jurisdictions with
Competent Authority Agreement on 29 renegotiations being completed and 5
Automatic Exchange of Financial (Finland, Luxembourg, Nepal, Singapore,
Account Infor mation (the “CRS Switzerland) being entered into force in
MCAA”). a period of only 3 years, till 1st August,
20126. As of September 2021, 45 of these 75
3.1. DTAA DTAAs have been renegotiated and entered
The article on EOI has been an into force. Further, currently, the scope
integral part of DTAAs. This clause provides of Article 26 is wide enough to authorise
a legal basis for the respective States to the use of information received via EOI
exchange information. Article 26 of the for purposes other than tax. However, a
OECD Model Tax Convention requires number of Canadian, Australian, German
the contracting jurisdictions to exchange and Argentinian tax treaties do not authorise
information that is ‘foreseeably relevant’ for such use.7
carrying out provisions of the DTAA or
for the administration / enforcement of the 3.2. TIEA
domestic laws concerning taxes of every kind TIEAs are primarily entered into
not contrary to the DTAA. Article 26 also where the contracting jurisdictions do
details the acceptable ground for declining not have a DTAA. TIEAs are concluded
information requests and confidentiality where the contracting jurisdictions wish to
requirements. Earlier, the EOI article had a exchange information without entering into
limited scope in several DTAAs. For instance, a comprehensive DTAA. There is a global

6. Press Release, dated 10-8-2012 - Initiatives Taken by the Government for Unearthing and Curbing Black Money
: A Fact Sheet
7. Cahiers De Droit Fiscal International 2020 by the International Fiscal Association

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 The Chamber’s International Tax Journal | September, 2021

network of over 700 TIEAs in force most (ii) tax examinations abroad (iii) assistance
of which were signed after 2009. India has in recovery of taxes and (iv) service of
21 Tax Information Exchange Agreements documents.
(TIEAs) in force including TIEAs with tax
haven countries such as Cayman Islands, 3.4. FATCA
British Virgin Islands, Isle of Man etc. It is Foreign Account Tax Compliance
pertinent to note that some TIEAs permit Act (“FATCA”) was enacted in 2010 with
request and disclosure of information which the objective of identifying and preventing
pre-date the entry into force of the TIEA offshore tax avoidance and evasion by US
only where the request under the TIEA citizens or residents. It requires:
relates to ‘criminal tax matters’ such as India’s
TIEA with Guernsey, Isle of Man and British i. U.S. taxpayers holding foreign financial
Virgin Islands. assets with an aggregate value exceeding
$50,000 to report certain information
3.3. MCAA about those assets in For m 8938
The MCAA is one of the most attached to the annual tax return; and
comprehensive multilateral instrument
available for co-operation for exchange ii. Foreign Financial Institutions (“FFIs”)
of information as well as assessment and to report to the US Internal Revenue
collection of taxes. This co-operation Service (“IRS”) information about
ranges from exchange of information, financial accounts held by U.S. taxpayers
including automatic exchanges, to the and foreign entities in which U.S.
recovery of foreign tax claims. The MCAA taxpayers hold a significant ownership
has 144 participating jurisdictions creating interest.
approximately 8,000 bilateral exchange of
information relationships. 8 It provides for The provisions of FATCA essentially
Exchange of Information on Request and require the FFIs to enter into agreements
Spontaneous Exchange of Information and with IRS and provide the requisite
also requires the contracting jurisdictions to infor mation about their clients. Non-
mutually agree on the scope and procedure compliance with such reporting requirement
for Automatic Exchange of Information would result in a levy of withholding tax
(“AEOI”). Based on this requirement, the of 30% on the FFIs U.S. source income.
CbC MCAA, for the automatic exchange However, since the data protection and
of Country-by-Country Reports, and the privacy laws of sovereign countries may not
CRS MCAA, for the automatic exchange permit the FFIs to share such information,
of financial account information pursuant USA has entered into Inter-Governmental
to the Common Reporting Standard, have Agreement (“IGA”) with various countries.
been developed. Additionally, the MCAA The model IGAs are as under:
provides for (i) simultaneous tax examinations

8. https://www.oecd.org/ctp/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-
matters.htm as on

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i. ‘Model 1 IGA’ requires the FFIs to the short end of the stick as USA does not
report the information to their own share a lot of important information such as
governments which will then transfer
it to USA. Model 1 IGA has the a) Depository (i.e. cash) accounts held by
following two versions: ‘Model 1A IGA’ entities;
provides for ‘reciprocal’ information
exchange by USA with the partner b) Non-cash accounts, whether held by
jurisdiction. Model 1B IGA is non- individuals or entities, unless these
reciprocal and does not require USA to accounts earn US-source income;
provide any information to the partner
jurisdiction. c) The ‘controlling persons’ of any
entities having accounts in US financial
ii. Model 2 IGA provides for the institutions;
respective governments to enable
their financial institutions to share the d) Account balance or value, total gross
information directly with USA. proceeds from the sale or redemption
of property paid or credited to the
Till date, USA has entered into IGAs account.
with 113 jurisdictions out of which 97
are in force most of which are Model 1A The infor mation required to be
IGAs9. However, USA does not reciprocate exchanged by Indian financial institutions vis
the ‘extent’ of information provided by its à vis the US financial institutions’ is compared
partner. Its partner countries have received below to explain the extent of reciprocity.

Particulars Indian financial institutions’ US financial institutions’ reporting

reporting obligations obligations (on Indian residents)
(on US persons)
Type of All financial accounts Depository accounts held by Indian resident
Account [Art.1.1(cc)] individuals with more than $10 of interest
being paid to such account in any given
calendar year.
Other financial accounts of resident individuals
and entities to which any U.S. source income is
paid or credited.
[Art.1.1(bb)]
Reporting of Required Not required
‘controlling
persons’

9. https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act as on 30th September, 2021

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 The Chamber’s International Tax Journal | September, 2021

Particulars Indian financial institutions’ US financial institutions’ reporting

reporting obligations obligations (on Indian residents)
(on US persons)
Type of All Account information such as name, address
information [Art.2.2(a)] and Indian TIN of resident Indians, account
no., details of U.S. Financial Institution.
Income information such as interest paid on
a Depository Account, U.S. source dividends
paid or credited to the account and other U.S.
source income paid or credited to the account,
to the extent subject to reporting.
There is no requirement for reporting the
account balance or value, gross proceeds from
sale or redemption of property and controlling
persons’ identity.
[Art.2.2(b)]

3.5. Common Reporting Standard Australia10. The United Kingdom, pursuant

Common Reporting Standard (“CRS”) to its International Tax Compliance (Crown
was developed following the implementation Dependencies and Gibraltar) Regulations
of FATCA and the G20’s endorsement of (2014), has signed bilateral CAAs with Isle of
the OECD proposal for a truly global model Man, Guernsey, Jersey and Gibraltar. These
for AEOI. CRS requires the jurisdictions to CAAs refer to the relevant (amended) TIEAs
automatically exchange information from their as their legal basis.11
financial institutions with other jurisdictions
on an annual basis. As of September 2021, 3.6. Country-by-Country Reporting
over 4200 bilateral exchange relationships BEPS Action 13 requires all large
have been activated with respect to 112 Multinational Enterprises (MNEs) to prepare
jurisdictions committed to the CRS, with next a country-by-country (“CbC”) report to
exchanges between these jurisdictions set to increase transparency regarding data on the
take place at the end of September 2021. global allocation of income, profit, taxes paid
and economic activity among tax jurisdictions
Chinese Taipei being ineligible to sign in which they operate. As of September 2021,
the CRS MCAA had signed bilateral CRS over 2900 bilateral exchange relationships
Competent Authority Agreements (“CAAs”) have been activated which include
on the basis of its bilateral tax treaties with relationships under CbC MCAA, EU Council
some of its treaty partners, such as Japan and Directive 2016/881/EU, bilateral CAAs such

10. Cahiers De Droit Fiscal International 2020 by the International Fiscal Association
11. ibid

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as DTAAs or TIEAs, including 41 bilateral On 31st March, 2021, twelve ‘no or

agreements with the United States. CbC only nominal tax jurisdictions’ (Anguilla,
reporting is applicable for the MNE groups Bahamas, Bahrain, Barbados, Bermuda, British
having total consolidated group revenue of at Virgin Islands, Cayman Islands, Guernsey,
least EUR 750 million. Isle of Man, Jersey, Turks and Caicos
Islands, United Arab Emirates) began their
This automatic exchange of first tax information exchanges under the
information under FATCA, CRS and CbC Forum on Harmful Tax Practice’s (FHTP)
reporting ensures that there is no place in the global standard on substantial activities.
world where a person can hide their money The exchanges provide key data on the
to avoid paying taxes. substance and activities of entities in
‘no or only nominal tax jurisdictions’ to the
4. OECD BEPS ACTION 5 - jurisdictions in which the immediate and
EXCHANGE OF INFORMATION ultimate parent and the beneficial owners of
ON TAX RULINGS AND THE the entities are resident. It covers information
SUBSTANCE OF ENTITIES on the identity, activities and ownership chain
The OECD BEPS Action 5 minimum of entities that are either non-compliant
standard provides for the compulsory with ‘substance requirements’ or engage
spontaneous exchange of information on tax in ‘intellectual property or other high-risk
rulings (the “transparency framework”). The activities’.13
transparency framework requires spontaneous
exchange of information on five categories 5. JOINT INTERNATIONAL
of taxpayer-specific rulings: (i) rulings related TASKFORCE ON SHARED
to certain preferential regimes, (ii) unilateral INTELLIGENCE AND
advance pricing arrangements (“APA”) or COLLABORATION (“JITSIC”)
other cross-border unilateral rulings in respect JITSIC brings together the world’s
of transfer pricing, (iii) rulings providing for a national tax administrations and offers a
downward adjustment of taxable profits, (iv) platform to enable its members to actively
permanent establishment (PE) rulings; and (v) collaborate within the existing legal framework
related party conduit rulings. As per OECD’s of bilateral and multilateral conventions and
2019 Peer Review Reports, over 36,000 TIEAs – sharing their experience, resources
exchanges of information took place by and expertise to tackle the issues they face in
31st December, 2019. The Report provided common. Members of the JITSIC Network
58 recommendations for improvement to are actively encouraged to spontaneously
32 jurisdictions. India was recommended to exchange early information on emerging tax
ensure that all information on future APAs is risks that may be foreseeably relevant to
exchanged as soon as possible.12 network members. The JITSIC Network is

12. https://www.oecd-ilibrary.org/sites/afd1bf8c-en/index.html?itemId=/content/publication/afd1bf8c-en
13. https://www.oecd.org/tax/beps/tax-transparency-moves-forward-as-no-or-only-nominal-tax-jurisdictions-first-
exchange-information-on-the-substance-of-entities.htm

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 The Chamber’s International Tax Journal | September, 2021

an international platform open on a voluntary prescribed conditions. The

basis to all members of the OECD's Forum enquires made even if there
on Tax Administration (FTA). It currently were no proceeding pending
has 42 members including India. Significant was upheld by the Karnataka
projects undertaken under JITSIC include High Court in the case of U. G.
the Panama Papers leaks and Paradise Papers Upadhya v. Director of Income-tax
leaks projects. [2002] 255 ITR 502 (Karnataka)
and affirmed by the Supreme
6. POWERS TO OBTAIN Court in case of Karnataka Bank
INFORMATION UNDER THE Ltd v. Secretary, Government of India
DOMESTIC LAWS OF INDIA [2002] 255 ITR 508 (SC).
6.1. Income-tax Act, 1961
a) The Income-tax Act, 1961 (“Act”) iv. Power of Survey (Section 133A)
empowers the Income-tax Authorities
(“ITA”) to collect information for v. Power to collect certain
the purposes of tax administration by information (Section 133B)
various means. Such powers enable
the ITA to collect information before vi. Power to call for information by
initiation of proceedings under the Act, specified ITA (Section 133C)
during the pendency of proceedings
under the Act and after completion vii. Power to inspect register of
of such proceedings. It also empowers Companies (Section 134)
the ITA to collect infor mation by
conducting surveys and search. Such viii. Faceless Collection of
powers are discussed below in detail: - Information (Section 135A)
i. Power regarding discovery,
production of evidence, etc. ix. Inquiry before assessment
(Section 131) (Section 142)

ii. Search and Seizure (Section 132) x. Assessment (Section 143(2))

iii. Power to call for information b) Statement of financial transaction or

(Section 133) reportable account - Section 285BA
Section 285BA of the Act requires
The scope under this section reporting of several types of
of the Act is wide enough for transactions by certain specified
the ITA to obtain information persons, including banks, mutual funds
even from third parties about and credit card companies. These
the taxpayer irrespective of the reporting person and transactions
pendency of proceedings in carried out have been specified in Rule
respect of such third person 114E of the Income-tax Rules, 1962
before the ITA subject to (“ITR”) and inter alia include:

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i. cash deposit or cash withdrawals In 2016, the government initiated a

exceeding Rs. 50 lakh for a new data mining programme called ‘Project
current account; Insight’ in order to curb tax evasion. Under
this project, an integrated data warehousing
ii. cash deposit of Rs. 10 lakh or and business intelligence platform shall be
more for any account (other used for carrying on extensive data mining
than a current account and time for monitoring fund flows of taxpayers. The
deposit); data required to be reported as per section
285BA of the Act is to be reported in Form
iii. time deposit of Rs. 10 lakh or 61A on or before 31st May immediately
more; following the financial year on Project
Insight’s reporting portal. The data collected
iv. payment of credit card bills from such reporting is also reflected in Form
exceeding Rs. 10 lakh (Rs. 1 lakh 26AS of the taxpayer.
if payment is in cash);
Further, in order to facilitate effective
v. payment of 10 lakh or more exchange of infor mation in respect of
for acquiring shares or bonds / resident and non-resident, Section 285BA
debentures or units of a mutual r.w. Rules 114F to 114H of the ITR also
fund; provides for furnishing of statement by a
prescribed Reporting Financial Institution in
vi. payment of Rs. 10 lakh or more respect of specified financial transaction or
for acquiring foreign currency; reportable account. The statement shall be
furnished for each calendar year in Form No.
vii. payment of Rs. 30 lakh or 61B on or before 31st May of the next year.
more for acquiring immovable This forms the legal basis under the Act for
property; and implementation of the CRS on AEOI and
the IGA with USA.
viii. payment of Rs. 2 lakh or more
for sale of goods or services. 6.2. Companies Act, 2013
Section 90 of the Companies Act,
The CBDT, vide Income-tax (4th 2013 deals with reporting of significant
Amendment) Rules, 2021, has enhanced beneficial owners in a company. The term
the scope of nature of transactions to be ‘significant beneficial owner’ has been defined
reported. With effect from 12th March, in section 90 to mean any individual, who
2021, information relating to capital gains acting alone or together with others (including
on transfer of listed securities or units of trusts and persons resident outside India),
Mutual Funds, dividend income, and specified holds beneficial interests, of not less than
interest income is also to be reported. The 25% or such other prescribed percentage,
submission of these details is mandatory, and in the shares of the company or the right
non-submission entails strict penalties. to exercise, or exercises significant influence
or control over the company. However, the

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 The Chamber’s International Tax Journal | September, 2021

Companies (Significant Beneficial Owners) ‘individual’ has become increasingly important

Rules, 2018 provide a different definition globally as it provides greater transparency.
of a ‘significant beneficial owner’. As per
the definition introduced in the Rules, a 7. W H I S T L E - B L O W E R
‘significant beneficial owner’ is an individual, PROGRAMMES
acting alone or together, or through one or Whistle-blowing brings to the taxman’s
more persons or trust, possesses one or more attention huge tax avoidance and evasion
of the following rights or entitlements in the matters which may not have been brought
company: to light otherwise. Anonymous tip-offs
and whistle-blowers have led to successful
a) holds indirectly, or together with any investigations in many countries and continue
direct holdings, not less than 10% of to be a useful source of intelligence. In
the shares; Australia, a publicly accessible tip-off
mechanism was created to specifically report
b) holds indirectly, or together with any on tax evasion schemes and their promoters.
direct holdings, not less than 10% of This voluntary reporting mechanism is openly
the voting rights in the shares; available online, and creates the opportunity
for tax authorities to receive increased
c) has the right to receive or participate intelligence on newly marketed tax schemes
in not less than 10% of the total or new promoters, as well as a range of other
distributable dividend, or any other issues.14
distribution, in a financial year through
indirect holdings alone, or together with Understanding the importance of
any direct holdings; whistle-blowing in detecting tax fraud, some
countries provide incentives to encourage
d) has the right to exercise, or actually people to come forward with information that
exercises, significant influence or will assist in the investigation of a case. Such
control, in any manner other than incentive may be in the form of a reward
through direct holdings alone. or percentage of assets recovered from a
successful investigation, or immunity from
Concealing the beneficial ownership prosecution for the whistle-blower. In India,
has been one of the most used strategies under the Income Tax Informants Rewards
for aiding in tax avoidance and evasion. Scheme, 2018 dated 23rd April, 2018, there
Anonymity also enables many other illegal are two types of reward for information
activities like corruption, money laundering, about income tax evasion. One is for
and financing of terrorism. Hence, identifying substantial information regarding evasion of
the significant beneficial owner being an tax on income or assets in foreign countries

14. OECD (2021), Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar
Crimes, OECD, Paris https://www.oecd.org/tax/crime/ending-the-shell-game-cracking-down-on-the-professionals-
who-enable-tax-and-white-collar-crimes.htm

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for which tax is payable under the Black Money (Undisclosed Foreign Income and Assets) and
Imposition of Tax Act, 2015 (“BMA” or “Black Money Act, 2015”) and the other for giving
substantial information about evasion of tax payable under Income Tax Act, 1961.

Particulars Income-tax Act, 1961 Black Money

Act, 2015
Interim Up to 1% Up to 3%
Reward (Max. Rs. 10 lakh or Rs. 15 lakh where Rs. 1 crore or more in (Max. Rs. 50 lakh)
cash has been seized)
Final Reward Up to 5% Up to 10%
(Max. Rs. 50 lakh) (Max. Rs. 5 crore)

The reward is on the amount of meaning of ‘tax claim’. Accordingly, Brunei

additional taxes recovered. Similarly, there shall be required to lend assistance to India in
is also a scheme for rewarding benami the collection of tax imposed under the BMA
transactions infor mants. Various other also. Henceforth, while entering into new
jurisdictions such as Canada, UK, South treaties or renegotiating treaties, where the
Korea, Kenya, Nigeria also reward the taxes for which assistance may be provided
whistle-blowers. are limited to the taxes mentioned in such
treaty, India may add the tax imposed under
C. ADDITIONAL MEASURES the BMA also in such treaties in order to
FOR ENFORCEMENT OF receive assistance for collection of such taxes.
TAX LIABILITIES IN A CROSS
BORDER SCENARIO Article 27(1) further provides that
8. ASSISTANCE IN COLLECTION the assistance is not restricted by Article
OF TAX CLAIMS 1 of the Convention relating to persons
Article 27(1) of the OECD and UN covered. Hence, assistance is not limited
Model Tax Convention provides the legal to the persons resident in either of the
basis for mutual assistance in collection of Contracting State. Article 27 further inter
‘revenue claim’. The definition of ‘revenue alia also provides the conditions and time
claim’ in Article 27(2) is wide enough to limit for making a request, way of collection,
cover taxes of every kind, not contrary to the measures of conservancy and limitation on
Convention or any other instrument to which assistance. Further, the MCAA also provides
the Contracting States are parties. However, for assistance in recovery of tax claims.
various treaties such as India-Belgium DTAA Under the domestic laws of India, section
and India-Bangladesh DTAA have limited 228A of the Act provides the legal basis for
the scope to the taxes covered under such assisting in recovery of tax in pursuance of
DTAA. The India-Brunei TIEA entered into agreements with foreign countries.
force on 30th January, 2020 has specifically
provided for tax imposed under the Black With the increasing mobility of people
Money Act, 2015 to be included in the and capital, assistance in collection of taxes

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 The Chamber’s International Tax Journal | September, 2021

has increasingly gained significance. Exchange taxpayers in 201217. In Asia, one developing
of information provides the taxman with the country reported that more than 950,000
relevant information needed for assessment taxpayers made a disclosure in 2016. In
but assistance in collection of taxes shall help Europe, as part of the disclosure programme,
the taxman in actually recovering the relevant the foreign taxable income worth of EUR
taxes. 1.3 billion was identified in Belgium (2016-
19), more than EUR 700 million in Hungary
9. VOLUNTARY DISCLOSURE (2014-17), and EUR 128 million in Norway
PROGRAMMES (2015-19). Further assets worth of EUR 32
Various countries have implemented billion were identified in France (2013-17),
Voluntary Disclosure Program to provide an EUR 51 billion in Brazil (2016-17) and EUR
opportunity to their taxpayers to voluntarily 4.2 billion in Norway (2015-19)18. However,
disclose unreported onshore or offshore in India the one-time compliance window
incomes and assets. This facilitates bringing provided under BMA was not as successful
back the money into the formal economy in since only around 300 taxpayers came forward
a cost-effective manner, saves expensive and to disclose their income and assets19. Thus,
contentious audits and litigation and helps on implementation of voluntary disclosure
the taxpayer to avoid criminal proceedings. mechanism, billions of Euros worth of
Voluntary disclosures and offshore tax income and assets have been disclosed,
investigations have already helped to identify generating tax and penalty in the short-term.
about EUR 107 billion as additional revenue The subsequent taxation with respect to the
(tax, interest, penalties)15. Of this amount, disclosed assets generates revenue in the long-
EUR 29 billion were reported by developing term.
countries16.
10. BLACK MONEY ACT, 2015
Further, after implementation of EOIR In the year 2015, the Government has
and AEOI standards, millions of taxpayers enacted the BMA which provides for separate
have come forward to voluntarily disclose taxing of any undisclosed foreign income
their income and assets. For instance, a small and assets with severe penal consequences
European country reported that more than against the tax evaders in respect of the
60,000 taxpayers made use of the voluntary black money stashed abroad. In this regard,
disclosure mechanism in year 2016 to 2019 section 8 of the BMA empowers specified
out of which 27,800 taxpayers came forward ITA with the powers regarding discovery
in year 2019 which increased from 3,300 and production of evidence which are co-

15. 2020 Global Forum Annual Report - Tax Transparency and Exchange of Information in Times of COVID-19
available at https://www.oecd.org/tax/transparency/documents/global-forum-annual-report-2020.pdf
16. ibid
17. ibid
18. ibid
19. https://economictimes.indiatimes.com/news/economy/policy/black-money-disclosure-only-300-come-out-in-one-
time-compliance-window-rs-3000-crore-assets-declared/articleshow/49175050.cms

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 Global Tax Enforcement

terminus with the Code of Civil Procedure, and no disclosures have been made by
1908. Further, section 10 of BMA provides him even under the one time compliance
that assessment can be initiated under BMA window, the Assessing Officer under BMA
on receipt of information from an income-tax may commence proceedings under the BMA
authority under the Act, from an authority against such assessee.
under any law for the time being in force
(FEMA, Customs, etc.) or any information 11. FUGITIVE ECONOMIC
coming to the notice of the Assessing Officer OFFENDERS ACT, 2018
under BMA. It is also pertinent to note that India has enacted the Fugitive
recently, the Mumbai bench of the Hon’ble Economic Offenders Act, 2018 (“FEO Act”)
Income Tax Appellate Tribunal in the case with the intention to confiscate properties
of Mr. Yashovardhan Birla vs. CIT (SA No. of economic offenders who have left the
61/Mum/2021 and BMA No. 01/Mum/2021) country to avoid facing criminal prosecution.
has held that there cannot be simultaneous A ‘fugitive economic offender’ has been
proceedings under the BMA and the Income- defined as an individual against whom
tax Act, 1961. This shall provide great relief an arrest warrant has been issued by any
to taxpayers who may be subjected to court in India in relation to a Scheduled
simultaneous proceedings for the same assets Offence and such person has: (i) left India
/ income under the two legislations. to avoid criminal prosecution, or (ii) being
abroad, refuses to return to India to face
It is interesting to note that when the prosecution. The Scheduled Offences is an
BMA was first introduced, the term ‘assessee’ offence where the value of the offence/s is
did not include persons being ‘not ordinarily at least Rs. 100 crore and inter alia includes
residents’ or ‘non-residents’. Only resident the wilful attempt to evade tax under BMA
and ordinarily residents were intended to be and money laundering. Two well-known bank
covered. Subsequently, the scope and coverage loan defaulters have been declared as fugitive
of the BMA was widened vide an amendment economic offenders and their properties
brought about by the Finance (No.2) Act, have been confiscated by the Enforcement
2019, with retrospective effect from 1st Directorate under the FEO Act on account
July 2015. This brings both ‘not ordinarily of money laundering and defaulting on loan
residents’ and ‘non-residents’ within the repayments. Their extradition is also under
charge of the BMA, where such person was process.
resident in India either in the previous year
to which the income referred to in section 4 12. AMENDMENT TO THE
relates; or in the previous year in which the DOMESTIC LAWS
undisclosed asset located outside India was Once the governments receives
acquired. information and discerns the tax avoidance
strategies, it often amends the domestic laws
Hence, if any information regarding to plug the loopholes. One such example is
undisclosed foreign income and asset of an in the case of New Zealand, which in the
assessee, whether resident or non-resident, is wake of certain revelations in the Panama
received under the exchange of information, Papers, became aware of the possible

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 The Chamber’s International Tax Journal | September, 2021

misuse of New Zealand trusts by trust and and for a similar transaction, Cairn Energy
company service providers. New Zealand had sought international arbitration for their
trusts were being interposed as a further cases and won the arbitration against the
layer in international chains of ownership Indian government, India passed the Taxation
to make it more difficult for authorities Laws (Amendment) Act, 2021 on 13th
to readily trace both ultimate beneficial August, 2021, to withdraw the retrospective
ownership and financial flows. Once this nature of the amendment and make it
information came to light, the New Zealand prospective from the date of enactment of
government moved quickly to strengthen the the Act containing the amendment (i.e. 28th
disclosure rules for foreign trusts. New rules May, 2012). The rules for settling the existing
were introduced to require foreign trusts cases for offshore indirect transfer of Indian
(i.e. trusts settled by non-residents) to be assets made before 28th May, 2012 have also
registered with Inland Revenue, including full been notified on 1st October, 2021.
particulars of settlors, trustees, beneficiaries or
persons with power in relation to the trust or 13. DISCOURAGING PROFESSIONAL
trustee. Consequently, there has been a major ENABLERS
reduction in the number of foreign trusts Professional service providers such
now administered in New Zealand – a 75% as banks, financial institutions, legal and
decline in the number of foreign trusts from tax advisors, financial advisors, corporate
11,671 (as at 31st May, 2016) to 2,965 (as at service providers, etc. play an important
31st May, 2019).20 role in incorporation and operation of
the sophisticated schemes and structures.
India is also well-known for the Various jurisdictions have enforced penalty
amendment of its domestic law to plug the and prosecution provisions targeting the
loopholes, some even being retrospective. professional enablers. France, in October
One such retrospective amendment was 2018, introduced a new tax fine for
amendment to section 9(1)(i) to the Act to intermediaries who are facilitators of serious
bring to tax the indirect transfer of assets breaches by taxpayers. Assistance to the
located in India. This amendment was taxpayer in concealing its identity, situation
pursuant to the Supreme Court decision in or activity, claiming deduction, tax credit
the case of Vodafone International Holdings or reduction or exemption by improper
B.V. v. Union of India [2012] 341 ITR 1 (SC) issuance of documents and carrying on any
which held that section 9(1)(i) is not a ‘look action intended to mislead the administration
through’ provision and, thus, it cannot by would be punished. The amount of fine is
a process of interpretation be extended to set at 50% of the income derived by the
cover indirect transfers of capital assets / intermediaries from the services provided
property situated in India. However, after an to the taxpayer, but shall not be less than
interesting turn of events, where Vodafone EUR 10,000. The French court, in a case

20. OECD (2021), Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar
Crimes, OECD, Paris https://www.oecd.org/tax/crime/ending-the-shell-game-cracking-down-on-the-professionals-
who-enable-tax-and-white-collar-crimes.htm

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 Global Tax Enforcement

of sale of ready-made shell companies 5,00,000 in the case of a listed company

by a company service provider, has also and Rs. 1,00,000 in the case of any other
sentenced the perpetrators to imprisonment in company. Various other jurisdictions such
addition to levying penalty. A bank involved Argentina, Australia, Chile, Israel, Mexico,
in the scheme was also prohibited from South Korea, Sweden, UK, USA have enacted
conducting business in France for five years. specific provisions / for targeting professional
Similarly Italy also provides for penalty and enablers.21
prosecution for professional enablers and
may also prohibit professional enablers from 14. CRYPTO-CURRENCY AND
conducting professional activities. CRYPTO-ASSETS
As an attempt to regulate crypto-
India has through section 132 of the currencies and Crypto-assets, the FATF, in
Companies Act, 2013 constituted National June 2019 has revised its ‘Guidance for a risk-
Financial Reporting Authority (“NFRA”), based approach to virtual assets and virtual
an oversight body for the accounting and assets service providers’ to define Virtual
audit professions. The NFRA is charged with Assets (“VA”) and Virtual Assets Service
powers to investigate matters of professional Providers (“VASPs”) and recommended the
misconduct by chartered accountants or countries to regulate VASPs for Anti-money
chartered accountancy fir ms. It has the laundering / Countering the Financing of
power to impose penalties upto five times Terrorism purposes.22 In its second 12-month
of the fees received (not being less than Rs. review of the implementation of its revised
1,00,000), in case of individuals and upto Standards on VA and VASPs, FATF noted
ten times of the fees received (not being that 58 out of 128 reporting jurisdictions
less than Rs. 5,00,000), in case of firms, and have implemented the revised FATF
debar the chartered accountant or firm for up Standards, with 52 of these regulating VASPs
to 10 years. Further, section 143(12) of the and 6 of these prohibiting the operation of
Companies Act, 2013 requires an auditor of a VASPs. The other 70 jurisdictions have not
company to report an offence of fraud to the yet implemented the revised Standards in their
Central Government if the auditor has reason national law.23 These gaps in implementation
to believe that an offence of fraud, involving provide an opportunity to the criminals to
an amount of Rs. 1,00,00,000 or more, is misuse VA and VASPs for money laundering
being or has been committed in the company or terrorist financing. Further, in March 2021,
by its officers or employees. Failure to report the FATF had published a revised draft of
such fraud, shall result in a penalty of Rs. its Guidance, which was open to comment

21. OECD (2021), Fighting Tax Crime – The Ten Global Principles, Second Edition: Country Chapters, OECD, Paris.
www.oecd.org/tax/crime/fighting-tax-crime-the-ten-global-principles-second-edition-country-chapters.pdf
22. FATF (2019), Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, FATF,
Paris, www.fatf-gafi.org/publications/fatfrecommendations/documents/Guidance-RBA-virtual-assets.html
23. FATF (2021), Second 12-month Review Virtual Assets and VASPs, FATF, Paris, France, https://www.fatf-gafi.
org/media/fatf/documents/recommendations/Second-12-Month-Review-Revised-FATF-Standards-Virtual-Assets-
VASPS.pdf

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 The Chamber’s International Tax Journal | September, 2021

until 20 April 2021. 24 The draft Guidance fraud and offering and selling unregistered
has recommended that supervisors of VASPs securities in connection with his role in
should exchange information promptly and BitClub Network 27. It is hoped that in the
constructively with their foreign counterparts. near future as the crypto-assets start to
be regulated and relevant information is
The need to extend exchange of exchanged, such crypto-assets will no longer
information in the area of crypto-assets create any tax havens as they currently have.
has also been highlighted by the OECD
in its report on Taxing Virtual Currencies D. CONCLUDING REMARKS
- An Over view of Tax Treatments and A number of measures have been
Emerging Tax Policy Issues 25. The OECD taken globally for exchange of information
is currently developing a technical proposal as well as collection of taxes based on such
to obtain an adequate level of reporting information. This has led to enforcement of
and exchange of information in the area of taxes globally and ensuring that the dishonest
crypto-assets. In 2020, the Committee on do not enrich at the expense of the honest
Fiscal Affairs (CFA) has approved a work taxpayers. Further, a lot of measures are
plan to review the Standard for Automatic still underway or inadequately explored, such
Exchange of Financial Account Information as exchange of information about crypto-
in Tax Matters. The review is also expected to currency and crypto-assets and FCInet.
identify financial assets (such as e-money and Development on these fronts may probably
crypto-assets), products and intermediaries one day lead to a world where there are no
that should be included in the scope of the tax havens. However, it is pertinent to note
Standard, or of AEOI generally, because they that, such enforcement is costly, for both,
are potential alternatives to covered financial the government (i.e. tax administration costs)
products, in particular for those seeking to as well as for the taxpayers and the requisite
avoid reporting under the Standard.26 reporting entities (i.e. tax compliance costs).
These costs are increasing everyday with
The J5 are also focused on cases new compliances brought in to regulate the
involving money laundering and tax evasion tax avoidance and evasion. Hence, for every
utilising crypto-currency. In 2020, FIOD, additional compliance, the resources spent on
Netherlands collaborated with IRS-CI, USA the tax administration and compliance should
to develop leads in BitClub Network, a be analysed vis à vis the additional taxes
crypto-asset mining scheme worth at least collected. Jean Baptist Colbert has rightly said
$722 million. This resulted in a Romanian “The art of taxation consists in so plucking
citizen being arrested in Ger many and the goose as to get the most feathers with the
admitted to conspiring to engage in wire least hissing.”

24. https://www.fatf-gafi.org/publications/fatfrecommendations/documents/public-consultation-guidance-vasp.html
25. OECD (2020), Taxing Virtual Currencies: An Overview Of Tax Treatments And Emerging Tax Policy Issues,
OECD, Paris. www.oecd.org/tax/tax-policy/taxing-virtual-currencies-an-overview-of-tax-treatments-and-
emergingtax-policy issues.htm
26. https://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=C(2020)47&docLanguage=En
27. https://www.irs.gov/pub/irs-utl/j5-media-release-07-13-2020.pdf
mm

18