Taxman Chasing Assets in Europe Faces Setback on EU Court Order

Many Indians playing the cat-and-mouse game with tax sleuths would use a recent ruling by the Court of Justice of the Euro pean Union (CJEU) to buy time to hide their ownerships in secre offshore companies.

In what has come as a setback to tax offices, the court has ruled against giving the ‘general public’ access to information on ‘beneficial ownership’ of companies and other legal entities. The court, which has its seat in Luxembourg, believes the general public’s access to such data constitutes a “serious interference with the fundamental rights to respect for private life and to the protection of personal data”, according to its ruling on November 22, 2022.

With this, authorities outside the EU, including the Indian income tax department, cannot freely fish out information from the share register that holds information on beneficial owners (BOs) of registered entities. A BO stands for the last natural person (s) who ultimately owns an entity.

CJEU interprets EU law so that it’s applied in the same way in all member countries, and settles disputes between national governments and EU institutions.

The ruling would not only come in handy for Indians who are share- holders of undisclosed entities in the EU but would also be used in their efforts to persuade authorities in non-EU jurisdictions like the British Virgin Islands (BVI), a popular tax haven, to hold back the re- lease of shareholder information.

At present, the income tax (1-T) department receives data from banks and financial institutions of countries like Switzerland with whom India has an information-sharing agreement. On other occasions, the information is obtained as the response from respective jurisdictions to specific queries from India. However, all details relating to BOS or changes in the list of shareholders are not always available to the banks which have accounts of the companies or trusts.

Under the circumstances, a window to directly collect information online from a state-endorsed share register in Europe-similar to the way one obtains from the registrar of companies (ROC) by paying a small fee-would have made it dramatically easier for the I-T department to quicken probes and establish their cases.

Typically, Indians hold their over- seas assets through discretionary trusts and companies. Often the trust, set up in a jurisdiction like Jersey or Guernsey, holds shares of companies which may be registered in places like the BVI or Luxembourg or Switzerland and have bank accounts in Switzerland, Singapore and Hong Kong. Often receiving information from respective countries takes time as all jurisdictions are not cooperative.

The Luxembourg share register is in possession of detailed information on a BO a person’s full name, nationality, date of birth, country of residence, private or professional address, identification numbers (if any), and the nature and extent of the beneficial interest held. Access to such a bona fide database would understandably help the I-T department, cha- sing black money abroad, to build a stronger case.

“This is an important development highlighting the importance of data privacy rights of all the stakeholders involved and has already resulted in changes in the manner granting access to information. Governments across the globe will need to strike a balance between stakeholders’ data privacy rights and granting access to beneficial ownership information. An extreme position in either direction could have unintended consequences,” said Ashish Mehta, Partner at Khaitan & Co.

The EU court ruling comes at a time when global and inter-governmental forums like OECD and G20 have reasserted issues like tax evasion and black money. S-ET

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