Glimpses Of Manual On Exchange Of Information under Section 90 Of The Income-Tax Act, 1961 – Double Taxation Agreement
CBDT has issued an instruction which contains the guidelines and manual on sharing of information among treaty partners. The manual deals with both inbound and outbound request for information.
Glimpses of the manual for exchange of information are as under:
(1) A new proforma is introduced for making requests for exchange of information, which is based on templates developed by OECD/Global Forum.
(2) Separate proforma is to be used for different taxpayers and for different countries, which means if 3 members of a family receive gift from 3 different countries, the total number of proforma to be filled in would be 9.
(3) The request for exchange of information should not be generic. The information should be sought in elaborative and specific manner.
(4) Treaty partners can seek information on data available in a server located in either of the partner’s country.
(5) The request for exchange of information shall not be limited to income-tax only. It can be extended to cover every tax, i.e., sales tax, VAT, etc. However, in few cases, the request shall be restricted to the taxes as listed in various DTAAs and TIEAs.
(6) The period of limitation in respect of use of information is to be decided as per law of country where such information will be used. Such period of limitation should be mentioned in the request being made.
(7) The treaty partners would not be obliged to entertain the requests that are ‘fishing expeditions’ i.e. details of all resident-shareholders of requesting state of a company located in requested state.
(8) The information which is not ‘foreseeably relevant’ for administration and enforcement of the domestic laws concerning taxes shall not be exchanged. However, if requesting State explains the foreseeable relevancy of the desired information, the requested state should not decline.
(9) Information can be sought on following:
(a) Ownership information of companies and other entities
(b) Information about partners and trustees/beneficiaries in case of partnership firm and trusts, respectively
(c) Accounting records of entities and their underlying documents
(d) Price paid for acquiring an asset in foreign jurisdiction
(e) Tax returns of taxpayer or related non-resident parties
(f) Tax paid by Indian taxpayer in foreign jurisdiction
(g) Tax treatment of payment made by Indian taxpayer to foreign resident and information on beneficial ownership
(h) Information relevant to application of transfer pricing provisions
(i) Identification, credentials and source of funds of foreign tax payers
(10) Various illustration, case studies and formats are provided for requesting exchange of information from foreign treaty partner.
(11) The information can also be exchanged for the purpose of administration and enforcement of domestic laws.
(12) If one State has taken any interim or provisional measure under domestic laws for collection of tax, it can request the other State to take similar measures in accordance with their domestic laws which would assist in collection of taxes.
(13) Spontaneous information can be exchanged to take care of following:
– Reduction in or exemption from tax in one State would give rise to tax in other state
– Foreign tax payer has limited liability in India (for example: royalty is taxable at 10%) and the remaining taxes, if any, need to be paid in the foreign country
– Payment to non-resident without withholding tax at full rate, would be taxable fully in other State
– Tax avoidance scheme identified during a tax audit may be used in other state.
(14) Tax officials of one State can visit other state to conduct tax examinations.
(15) Two or more countries can join together to perform a joint audit of related persons having cross border business activities.
(16) The information obtained under tax agreements shall be treated as secret and will be subject to the same restriction as imposed through Sec. 138 and Sec. 280 of Income-tax Act.
The full guidelines can be downloaded directly from Taxmann site @ Agreement for Exchange of Information for Tax Purposes with Foreign Jurisdictions