Concept of Tax Information Exchange Agreement in India with Tax Havens and Secrecy Jurisdictions

There is a great importance of Tax Information Exchange Agreement in India because as per section 90(1) of Income Tax Act, 1961, the Government of India i.e. Central Government can enter into Double Taxation Avoidance Agreement with other countries so as to avoid double taxation of income in both the countries. The basic concept behind DTAA is to ensure that there should not be an undue hardship in the hands of taxpayers i.e. income earned in one country should not be taxed twice because of source and residence criteria in both countries and most importantly DTAA contains article usually article no. 26 which deals with Exchange of Tax Information which provides for various tax and financial information about the resident persons who have invested or have any significant financial presence in that territory to the other territory.

But what about other countries where there is no provision of income tax for taxing the income i.e. Tax haven Countries and Secrecy Jurisdictions.

Yes, there are many countries and territories which exist in the world where there is no provision of taxation like Bermuda, Bahamas, British Virgin Islands, Cayman Islands, and Argentina, etc. In such cases, DTAA is of no use as there is no double taxation as income will be taxable only in one country or territory. Also if there is no DTAA, there would be no exchange of Tax Information between the countries which results in tax evasion as a person resident in one country can easily park their unaccounted money and wealth in other countries with which India has no DTAA, thereby leading to no exchange of Tax Information. Therefore the concept of TIEA’s emerged so that India can easily have access to sensitive information about their resident persons in other countries. 

India has taken proactive steps to combat the menace of illicit funds generated both as a result of tax evasion and corruption. Firstly, the government of India increased cooperation with other countries by entering into tax treaties i.e. DTAA’s and Tax Information Exchange Agreements, and secondly laying down anti-avoidance regimes like section 94A in jurisdictions where there is a lack of effective exchange of information.

Accordingly, India has entered into TIEA’s with certain countries like Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Jersey, etc. The move is in line with the decision taken in G-20, which took up the issue of Tax Havens and Tax Evasions. In this way, the concept of TIEA is introduced in India. TIEA’s proved to be a boon for the Indian Tax Administration by providing sensitive financial information about the residents of India who have accumulated wealth outside India in these countries.

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