Panama Papers: Officers asked to be specific in sending queries

With 'Panama Papers' showing British Virgin Islands as most-favoured location of Indians for offshore accounts, Income Tax Department has asked its field officers to be specific in their information requests to the authorities there and reply promptly to their queries.

Noting that a large number of information requests are pending with the British Virgin Islands (BVI) and the clarifications sought by them have not been provided in a timely manner, the Department said the replies must be given to them within 15 days to expedite the process.

The I-T Department on May 12 issued an internal guidance to officers on requests for exchange of information (EOI) made to BVI in order to achieve better outcome from the requests.

It has asked the officers not to opt for 'Request to refrain from notifying the taxpayer' in the proforma for sending EOI request.

A request to 'refrain from notifying' the taxpayer should not be made in a routine manner and such request should be made only if it is essential and can be justified on the basis of documentary evidences, the department said.

"The reason that the taxpayer concerned is likely to file an appeal against the supply of information would generally not be a valid reason for making such a request," it said.

Field officers, it said, should keep in mind that this option should not be exercised while seeking information that is not likely to be in possession of the BVI tax authorities, but instead is likely to be available only with the taxpayer.

"In such a situation, if the request to refrain from notifying the taxpayer is made, then the BVI authorities may not be able to approach the taxpayer to obtain the requested information," it said adding information like details of bank account, immovable property etc are generally not readily available with tax authorities.

Only under exceptional cases, a request can be made that the taxpayer/holder of information may not be so notified. This may be justified by stating that the information is of a very urgent nature and the process of prior notification to the taxpayer will delay supply of information and undermine the investigation, it said.

"Even though the EOI Cell of India has been making continuous efforts to improve the efficiency and efficacy of the information exchange process with BVI, a large number of deficiencies are being observed in the EOI requests sent by field officers," the guidance note said.

Commenting on the guidelines, Rakesh Nangia, Managing Partner, Nangia & Co, said, "Currently, the EoI request sent to BVI is vague and general in nature, which leads to the request being considered as having been made in a casual and perfunctory manner and hence do not receive adequate attention by the BVI authorities.

"These guidelines will surely help the field officer understand the structuring of BVI companies, ask the right questions and thereby making the EoI request more efficient and effective."

The guidance also provides background to field officers on the procedure for incorporating a company in the BVI and shareholding / directors of BVI companies.

It also highlights that the details of shareholders of BVI company are not publicly available as well as cites unique legal provisions in BVI of "keeping shares registered in the name of nominee and not in the name of actual owner".

The Department wanted officers to seek agreement/ correspondence between actual owner/beneficial owner and nominee shareholders to assess if the offshore holdings are legal or illegal.

BVI licensed Mossack Fonseca is the law firm at the center of an unprecedented leak of confidential information - The Panama Papers.

With respect to demonstrating foreseeable relevance under India-BVI Tax Information Exchange Agreement (TIEA), I-T Department recommended that while making initial EOI request all the relevant facts and background of the case are clearly brought out and the relevance of information for the purposes of administration and enforcement of Indian tax laws is described out in sufficient detail.

A large number of EOI requests are pending with the BVI and one of the main reasons for delay in receipt of information from BVI is that the clarifications sought by BVI are not provided in a timely manner.

"Such delays are viewed unfavourably by the BVI Competent Authority. Also, in such cases, requests are sometimes treated as 'closed' by the BVI Competent Authority for want of clarifications, depriving us of the valuable information which would have been useful for investigation/assessment," it said.

The Department said whenever a clarification is sought by the BVI authorities, the same must be provided within 15 days.

Investigators, probing the 'Panama Papers', have found that a number of Indians offshore asset investments have been made in the tax haven of British Virgin Islands (BVI).

The North Caribbean island country has figured a number of times in cases of black money and overseas probes of various investigative agencies like the I-T department, Enforcement Directorate and the CBI.