has denied preparing a list of tax dodgers for the Indian authorities amid
mounting pressure on the alpine state. Even with a global standard on Automatic
Information Exchange (AIE) in the works, repatriating money from offshore havens
like Switzerland may not be easy.
An investigatory body, recently set up by India’s
new government to unearth black money, trumpeted the disputed cooperation to the
Times of India: “This is a breakthrough development in the fight against black
money. Until now, the impression was that Switzerland is creating hurdles in
this battle,” Arijit Pasayat, vice-chairman of the Special Investigations Team
(SIT), told the newspaper.
But an official denial of such a list from the Swiss State Secretariat for
International Financial Matters (SIF) hints at a more challenging task ahead for
Indian investigators. “Such reports [of lists being prepared] are untrue,” SIF
spokesman Mario Tuor told swissinfo.ch.
SIF added in a later statement that there had been no further developments in
the issue since Swiss negotiators met with Indian counterparts in Delhi in
February. “Switzerland is committed to resolving any open question with India
and trusts that India shares its understanding that any solution can only be
found within the established national and international legal frameworks,” the
The expectations from the new Indian investigations team are high, but so are
the challenges it faces. What will this mean for jurisdictions like Switzerland,
and to the broader fight against tax evasion globally?
Various estimates peg the amount of unaccounted
Indian money between $2 trillion to $3 trillion (CHF1.8 trillion to CHF 2.7
trillion). Some CHF4.25 billion of Indian assets were parked in Swiss banks last
year (down from CHF5.7 billion in 2012), according to the Swiss National Bank,
but there is no way of knowing how much of this wealth has been declared.
It is easy to see why the new Indian government is keen to improve its record of
collecting tax, partially by plugging these leaks of wealth abroad. Tax revenues
in India represents only around 15% of total economic output – compared to
nearly 40% across the European Union.
Rudolf Elmer, a Swiss banker-turned-whistle-blower, is sceptical that SIT will
prove any more successful than the United States in dragging information out of
“The US requested information from about 350 Swiss Banks, but has so far
received information on very small number of Americans who hold a Swiss
account,” he told swissinfo.ch. “I hope I am wrong but I would be very surprised
if the Indian investigation team will be more effective than the American team.”
Perhaps a more profitable route for India would be to utilise the Organisation
for Economic Cooperation and Development’s (OECD) Declaration on Automatic
Exchange of Information in Tax Matters, which Switzerland endorsed in May.
The standard obliges countries and jurisdictions to obtain financial account
information from their financial institutions and exchange information
automatically with other jurisdictions on an annual basis.
On endorsing the declaration, the Swiss
government Switzerland said it would start negotiating bilateral tax deals with
“selected” countries. “In an initial phase, priority would be given to the
introduction of the automatic exchange of information with countries with which
there are close economic and political ties…and which are considered to be
important and promising in terms of their market potential for Switzerland's
finance industry,” a statement read.
But India should not become fixated with Switzerland, according to observers,
but should also negotiate with other jurisdictions.
Soon after Indian Prime
Minister Narendra Modi’s came to power in May, the new
government constituted the Special Investigations Team
(SIT), pursuant to a pending court order.
The Indian Supreme Court had acted on a writ petition filed
by former Law Minister Ram Jethmalani, and in July 2011 the
court specified the terms of reference for the team.
The previous Indian government had not complied with the
order and had sought a review.
But the new government moved swiftly to implement the order.
Modi had repeatedly invoked bringing back black money from
foreign banks on his campaign trail.
SIT is tasked with developing a comprehensive action plan
that will create institutional structures and investigations
into unaccounted assets being stashed in foreign banks by
SIT comprises two former Supreme Court justices, a deputy
governor of the central bank and a gamut of senior
bureaucrats from the Department of Revenue, the Intelligence
Bureau, Enforcement Directorate, the Central Bureau of
Investigation, the Research and Analysis Wing, Revenue
Intelligence and the Central Board of Direct Taxes.
“I think that Switzerland has become such a
talisman for Indian corruption campaigners that one could risk losing sight of
the other dirty-money players: notably Britain, Mauritius, Singapore and Hong
Kong, Luxembourg, the U.S. and various others,” said Nicholas Shaxson,
journalist and author, Treasure Islands: Tax Havens and the Men who Stole
Shaxson, who also writes for Tax Justice Network - a coalition advocating for
tax transparency, believes India must pursue a more coherent, organised effort,
taking a global leadership position in the campaign against illicit financial
“I am not sure that the Indian government has been banging the drum for
transparency internationally, although it should,” he said. “It does seem odd
that a country like India that has been such a victim of looting, capital flight
and illicit outflows has not articulated a clear position internationally on
“So many of the countries that are victims of western tax havens are led by
people who are involved in those same practices. It is a terribly difficult
problem to solve, but India is far from alone.”
Opinion is split on how potent a tool the
OECD-backed AIE will be once it is up and running on a global scale.
“India may not be a directly beneficiary of the Agreement but it definitely
opens up the possibility of diplomatic dialogue by India with various countries
to achieve transparency through information exchange,” Girish Vanvari, partner
and co-head of tax at KPMG Mumbai, told swissinfo.ch.
Monica Bhatia, head of the Global Forum on Transparency and Exchange of
Information for Tax Purposes, is also optimistic. “This is expected have a
significant deterrent effect on taxpayers who seek to hide money abroad and will
help enforcement efforts of the tax administration,” she said.
The OECD believes the standard will be truly international and be implemented
across the globe. It hopes AIE will be helpful to the Indian government in
addressing the black money hidden abroad.
However, some critics believe the OECD standard focuses too much on income.
Typically tax evaders do not invest their money in assets which generate
reportable income such as interest and dividends.
Further assets held in vaults and free ports, real estate and trusts, among
others are not covered in the standard. The standard also assumes reciprocity,
and has no sanctions for “recalcitrant jurisdictions”. Countries such as Russia,
Cyprus, Mauritius, Seychelles, among others have not endorsed the standard.
If AIE does not produce the desired results, India does have other tools at its
disposal, according to Mark Herkenrath, head of international finances policy at
Bern-based pressure group Alliance Sud.
“If transparency on tax evaders is hard to come
by on account of banking secrecy, India must approach countries like Switzerland
to get information of account holders via the routes of corruption, money
laundering or drug trafficking. Switzerland has strong laws on such issues and
has helped countries in the past,” he said.
And experts have suggested a series of urgent measures that India can address
domestically such as reducing disincentives against voluntary compliance by
rationalizing tax rates and reducing costs of compliance.
“Greater control and monitoring of real estate transactions in the country,
insistence on routing through bank account all transactions over certain limits,
reforms in vulnerable sectors such as financial services, real estate, natural
resources and bullion, will all contribute to cracking down on generation of
black money,” Sonu Iyer, Partner, Ernst & Young in New Delhi said.
“If one were to believe the intent communicated by the new government and
considering their absolute majority in the Parliament, this would be the most
opportune time to address the issues relating to tax transparency,” KPMG’s