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Black Money: Automatic Information Sharing with Switzerland from 2019

Switzerland has ratified automatic exchange of financial account information with India and 40 other countries. This will facilitate Switzerland to share information about suspected black money with India and other 40 nations.

According to the Swiss Federal Council, the implementation of the exchange sharing agreement has been planned for 2018 and hence the first set of data is likely to be exchanged in 2019. The Swiss Federal Council is a top governing body of Switzerland. The exact date of automatic information exchange would be notified by the Swiss Federal Council soon as there were no procedural delays for the implementation.

However, the Swiss banks have started seeking new safeguards so as to protect the details of their clients against misuse that could expose them to crimes such as kidnapping or blackmail. So, the Swiss Council had stated that they will prepare a situation report before the first exchange of data. As per thr process, it will be ascertained whether the states and territories concerned have put in place a standard, especially those concerning confidentiality and data security. It will be assessed whether the democratic processes in these states and territories are robust or not and whether corruption is high or not etc.

Background

Switzerland has long been perceived as one of the safest havens for black money stashed abroad by Indians. The participation of Switzerland which is the world’s largest home for overseas wealth in the information sharing agreement would be a major boost in ending tax avoidance.

As a step towards fighting black money stashed abroad, ‘Joint Declaration‘ for implementation of Automatic Exchange of Information (AEOI) was signed between India and Switzerland on November 2016. Switzerland agreed for the introduction of the AEOI (Automatic Exchange of information) on tax matters under the guidance of G20, OECD and other global organisations.

AEOI, based on Common Reporting Standards, when implemented fully would put in place a system wherein bulk taxpayer information will be sent periodically from the source country of income to the country of residence of taxpayer. It would enable India to get access to information virtually from almost all the countries in the world including offshore financial centres.

Switzerland has said the AEOI will be implemented based on the Multilateral Competent Authority Agreement (MCAA) on the Automatic Exchange of Financial Account Information (AEOI). The MCAA is based on the international standard for the exchange of information developed by the OECD. India, on its part has promised to safeguard the confidentiality of the data received.

India joined the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information on 3rd June, 2015. According to the OECD, MCAA is a multilateral framework agreement that provides a standardised and efficient mechanism to facilitate the automatic exchange of information and avoids the need for the conclusion of several bilateral agreements.

Black money is that amount of money which is liable for taxation, but on which tax is not paid or evaded. It is usually received in cash from underground economic activity and, as such, is not taxed.

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India, Switzerland sign Joint Declaration for implementing AEOI

India and Switzerland have signed a Joint Declaration for implementation of Automatic Exchange of Information (AEOI) in respect of accounts of Indians held abroad.

Under the pact, both countries will start collecting data in accordance with the global standards in 2018 and exchange it from 2019 onwards.

Thus, it will help India to get access details of bank accounts held by Indians in Switzerland for 2018 and subsequent years on an automatic basis from September 2019. It is considered as a big step towards fighting black money stashed by Indians overseas.

The pact is based on the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA) also known as Common Reporting Standards (CRS) on AEOI.

Background

Switzerland always had been at the centre of the debate on black money allegedly stashed by Indians abroad. It used to be known for very strong secrecy walls around its banking practices till a few years ago. However, after huge global pressure had forced Switzerland to sign MCAA on AEOI and do away with its tough secrecy clauses in its local laws given to the banks.

What is the Multilateral Automatic Exchange of Financial Account Information (MCAA)?

  • MCAA is multilateral convention on administrative assistance in taxation matters developed by the Organisation for Economic Co-operation and Development (OECD).
  • It was signed by 53 jurisdictions in July 2015 based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters. India had joined it in June 2015.
  • It sets up a system wherein bulk taxpayer information will be periodically be sent by source country of income to the country of residence of the taxpayer.
  • This agreement obliges signatories to exchange a wide range of financial information among themselves periodically and automatically.
  • Its main aim is to prevent international tax evasion and avoidance and help member countries to curb tax evasion and deal with the problem of black money.

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