India’s Black Money Law to Face a Swiss Test

India’s black money law, the statute that arms the tax office to go after citizens with secret foreign bank accounts and assets, will be tested before Swiss courts this year. About half a dozen appeals are coming up for hearing to stop Swiss authorities from sharing information with India on the grounds that not only can the harsh law be applied ‘retroactively’, also be used to impose stricter ‘criminal’ sanctions than those that would have been possible at the time the offences were committed – feature which are incompatible with the Swiss legal system and values, lawyers familiar with the subject told ET. As evidence, the appellants are pointing out the reference to the Black Money Act in the ‘information request’ from the Indian income tax (I-T) department to Switzerland along with notice and summons received by them from the Enforcement Directorate (ED) which can prosecute person involved in money laundering Data received by the I-T department is retiling last year, had observed that “in accordance with ‘principle of specialty’       information obtained through administrative assistance may only be used for tax purposes mentioned in the agreement”. The current provisional of the ‘exchanges of information’ clause under the Indian Swiss Tax Treaty were agreed back in 2011 while the Black money (Undisclosed foreign Income and Assets) and Imposition of tax Act – commonly called the Black Money Act – came in to force in 2015. “This is particularly relevant for two reasons First, there are arguable grounds to suggest that criminal tax provisions under the Black Money Act are different from those under the Income Tax treaty was entered into. Second, the Indian tax authorities (based on their position in other case) are likely to use the information received under the tax treaty to invoke the consequences under the tax treaty to invoke the consequences under Black Money Act, for periods even Auahs Tandon, Partner at the law AZB & Partners. The I-T Act can be used to claim tax on 11-yerar-old undisclosed income, but the Black Money Act empowers the tax department to question asset acquired ago but discovers now.  Dertake steps that are at variance with their local laws. In the present case, if the Swiss were to share information knowing that the end use could be invocations of a criminal law with retrospectives applicability, this participation could be viewed as a violation of their pub.

“Two basic and cardinal rules in the mechanism of information sharing among nations are that such sharing should not be contrary to the public policy of the nation sharing information and such nations are not expected to unlick policy as Swiss local laws don’t permit retrospectives application of criminal laws,” said Ashish Mehta, Partner at Khaitan & Co. It will thus be Interesting to see how the Swiss courts deal with this situation now that Indian authorities have themselves referred to the Black Money Act in their requests for information’s. Two tax official speaking on condition of anonymity admitted that “criminal punishment admitted the law empower” was running into. “In most case this Swiss authorities have taken this stand to hold back information while responding to enquiries,” said one of them. “Be sides, almost all Swiss references in Swiss HSBC account leaks got this response where they said they cannot share any details prior to 2011 unless there wasn’t criminal law infringement,” he said. The Swiss apex court which heard one such matter last year, however, ruled against the information as there was no evidence to substitute that Indian authorities may subsequently invoke the criminals law. “This was because the tax request in that particulars case made no mention of Black Money Act which is not the case details The court, nonetheless, had said that be information transmitted cannot be used for criminal law purposes outside the scope of administrative offences. Use for other, non-treaty purposes, such as criminal prosecution for money laundering is possible only after prior approval by the Swiss authorities.

“One of the primary conditions for administrative assistance in tax matters
(with major countries like Singapore, Switzerland, etc.) is that the information requested by Indian must be ‘foreseeably relevant’ for the purposes of income tax or an identical or substantially similar tax in India,:” said Tandon. New Delhi, however, is bullish that the data obtained from (CRS) would come handily. This includes matter related to all the offers leaks by the International Consortium of Investigative Journalists and case developed on information received through intelligence units, FATCA, CRS and others. “The probe into Pandora Papers is on the priority list with the target for classification of actionable/non-actionable case set at May 31 and deadlines for reference to foreign competent authorities set at June 30. “However, later, a Swiss Federal Court ruling held that as long as Indian did not buy stolen data coupled with the fact that India gave no explicit statement about source of information, information could be shared,” said Mehta.

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