India: Foreign banks startled by new black money law
Banks overseas, spooked by India’s stringent new black money law, are asking tough questions of people and entities from the country looking to open accounts with them, reports the Economic Times. That’s because it’s not just those who possess unaccounted wealth who will get punished, those found guilty of helping them move that money also face harsh action under the law that went into force earlier this year.
The Modi government’s pursuit of black money comes as countries sign global agreements and tax treaties.
These agreements include provisions for cooperation on evasion. That’s persuaded a number of overseas financial institutions to reach out to local experts to vet prospective customers.
Given the reduced global tolerance for evasion, banks are likely to face closer scrutiny relating to customers’ tax residential status, legal and beneficial ownership of accounts, and their use of power of attorney.
Such intermediaries are asking for income tax returns, sources of funds and other related information to ensure all foreign transactions are above board, said a banker familiar with the development.
The new law “has caused concerns amongst intermediaries such as banks and consultants… especially considering that the law does not provide for detailed guidelines on what could be considered abetment and what precautions would be necessary for such intermediaries,” said Rajesh H Gandhi, partner, tax, Deloitte Haskins & Sells LLP. “One would expect financial intermediaries like banks, including foreign banks to put in place a more stringent due diligence and KYC process for on-boarding customers of Indian origin as well as ask for more documentation from existing customers.”
The Central Board of Direct Taxes, the apex direct taxes body, will soon issue detailed guidelines on what it considers abetment and the action that will be taken, said a finance ministry official.
The Undisclosed Foreign Income and Assets (Imposition of Tax) Act 2015 imposes civil and criminal liabilities on any person who helps or induces another to make a wrong declaration relating to tax. This will be punishable with rigorous imprisonment ranging from six months to seven years. This provision will also apply to banks and financial institutions aiding the concealment of foreign income, assets of resident Indians or falsification of documents.
The law makes hiding wealth overseas a criminal offence attracting up to 10 years of rigorous imprisonment.
A number of tax havens considered popular with Indians such as the Isle of Man and the British Virgin Islands have begun to share data on bank accounts held there. It is also understood that Switzerland has seen a decline in accounts held by Indians following the country’s willingness to cooperate on data sharing.
With these tax jurisdictions now actively parting with information, Indian authorities will be better positioned to monitor bank accounts there for any wrongdoing. And, with the information flow expected to get stronger, few want to take chances.
