The G20 today decided to put in place a mechanism for automatic exchange of tax information between various countries by 2017, a development which will help India in dealing with the menace of black money stashed abroad.
The new framework would mark a significant forward movement from the current practice of information exchange mostly on the basis of requests and only in the cases of suspected tax evasion or other financial crimes.
“We endorse the finalised 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,” said the G20 communique.
The new global standard, as formulated by Paris—based Organisation for Economic Cooperation and Development (OECD) in July, would be common for all countries.
It would facilitate a “systematic and periodic transmission of bulk taxpayer information by the source country of income to the country of residence of the taxpayer concerning various categories of income or asset information.”
India has been at the forefront in raising the issues concerning tax avoidance and automatic exchange of information with a view to curbing tax evasion.
Minister of State for Finance Nirmala Sitharaman, RBI governor Raghuram Rajan and Finance Secretary Arvind Mayaram are representing India at the two day meeting here.
To enable automatic exchange of information on an annual basis, the financial institutions, including banks, brokers and fund houses, would have to mandatorily collect necessary details from their clients and submit the same to their respective regulators.
“We support further coordination and collaboration by our tax authorities on their compliance activities on entities and individuals involved in cross—border tax arrangements,” the communique added.
It further said that the G20 leaders are strongly committed to a global response to cross—border tax avoidance and evasion so that the tax system supports growth—enhancing fiscal strategies and economic resilience.
The development assumes significance in case of India, as it has been facing difficulties in getting information on cases of suspected tax evasion from other countries, especially Switzerland, which has been maintaining that such details can not be shared without specific proof of financial irregularities by the concerned Indian client of Swiss banks.
An initial framework was released by OECD in this regard earlier this year and India became one of the ‘early adopters’ of this global convention.