New G20 Initiative Gives India Boost in Fight Against Tax Avoidance
DELHI – On Sunday, the G20 approved a mechanism that will see the automatic exchange of tax information by 2017 – 2018. The move is a particularly significant one for India, who has been struggling to curtail the amount of tax it misses out on from offshore accounts.
In a communique, the G20 said: “We endorse the finalized global Common Reporting Standard for automatic exchange of tax information on a reciprocal basis which will provide a step-change in our ability to tackle and deter cross-border tax evasion.We will begin exchanging information automatically between each other and with other countries by 2017 or end-2018.”
Under the current framework, tax information is only available upon request, making the process of identifying tax evaders complicated. Once it comes into effect, the new system would entail that detailed taxpayer information be freely accessible to governments, allowing for greater cross-border transparency and making it difficult for companies to keep their money in tax havens.
For India, tax avoidance, or “black money”, is an especially important issue. The country loses approximately $US 7 billion a year from offshore accounts, and has been struggling to balance receiving continued foreign direct investment (FDI) with collecting on the taxes that it is owed.
The problem is exemplified by India’s protracted dispute with Cyprus and Mauritius. The two island nations have low corporate tax rates and are commonly used by foreign holding companies as a means to access the Indian market without paying the necessary taxes. Cyprus was recently blacklisted as a notified jurisdictional area (NJA) by India over its refusal to share certain tax information.
India has accordingly been vocal in its opposition of offshore accounts and the restriction of tax information, but has so far achieved little in reducing the amount it loses every year. However, the new framework proposed by the G20 would mean that the various banks and brokers of countries like Cyprus would be obligated to share their clients’ details, allowing India to quickly determine which companies are withholding from paying tax. The Asian superpower would then be able to collect on some of the vast amounts of tax it is currently owed.
Arvind Mayaram, India’s Finance Minister, said: “”We support further coordination and collaboration by our tax authorities on their compliance activities on entities and individuals involved in cross-border tax arrangements.”
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