How Tax Information Exchange Treaties Are Working

By on 14/08/2014
An EU capital markets union would give companies wider access to capital across the 28-nation bloc. Photo: iStock

With the hunt for offshore money laundering picking up pace, how are the laws being implemented? The core element is the OECD’s Tax Information Exchange Treaties, which in 2013 built on its ‘on request’ basis to move to an ‘automatic’ level which complemented rather than replaced ‘on request’.

India, as an OECD country, has just released information on how the treaties are working after a year. Frustratingly, information shows that some suspect Indian accounts are in tax havens which have yet to ratify the mutual treaties. However, over the course of the last year, India received 24,000 pieces of data on suspect overseas accounts.

This relates to 600 accounts. The largest source of this data, in fact over 40% of it, came from the New Zealand tax authorities. New Zealand is not a tax haven but it is easy there to set up shell companies to launder money or hide ‘black money’. Other countries that have supplied significant amounts of data include Spain, UK, Sweden, Denmark, Finland, Portugal, Japan and Slovenia.

This forms part of a crackdown by the Indian authorities who are chasing a claimed $590 billion held in tax havens outside India.

India is also using and disseminating this information in a new way. Normally, such information would only come through an exclusive wing of the Central Board of Direct Taxes (CBDT). However, this programme is coming through the Central Economic Intelligence Bureau (CEIB).

They, in their turn, are passing relevant information on to bodies involved with tax evasion, violation of foreign exchange act and money laundering. These include the Income Tax Department, Enforcement Directorate, Financial Intelligence Unit and the Directorate of Revenue Intelligence.

The CBDT says that it is working within the norms of the OECD, using the Tax Information Exchange Treaties as well as the Double Taxation Avoidance Agreements. It says that these figures and data have increased over the last year but are set to ‘explode’ in the future.

The treaties are clearly working, although there are still areas to work on. For example, poorer countries need to set up the expensive framework the same as a rich country, but the traffic is unlikely to be reciprocal even if the treaties are. While a West African country may stash illegal funds in Switzerland, for example, it’s unlikely that the reverse is true. However, it’s interesting to see the treaties in action, used in new ways, to counter the scourge of ‘black money’.

About Graham Scott

Graham is an experienced editor and publisher and an award-winning writer. He has travelled extensively and is interested in world cultures.

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