Black money trail: Use of tax agreement with Germany denied

February 9th, 2011 - 9:30 pm ICT by IANS  

New Delhi, Feb 9 (IANS) The government Wednesday told the Supreme Court that it did not use a taxation agreement with Germany to seek information on Indians who have parked their black money in LGT Bank in Europe.The government denied the allegation that its intentions were malafide in seeking information from Germany on Indian account holders in LGT Bank in Liechtenstein, a small independent principality (monarchy) in Europe which is not a part of Germany.

India has a Double Taxation Avoidance Agreement (DTAA) with Germany. The agreement deals with the avoidance of taxation on the same transaction in both countries.

The contention that the “government had malafide intention in seeking the information from the German government under the DTAA is misconceived and contrary to the record,” said an affidavit filed by Finance Ministry Joint Secretary Anoop Kumar Srivastava.

The government affidavit maintained silence on the names of people who have illegally stashed away huge amounts of money in foreign banks located in tax havens.

The 18-page affidavit mentioned all mundane details but refrained from naming the names and addressing the issue of bringing back the black money that has been parked in banks outside the country.

“It is submitted while seeking information relating to the Indians in LGT Bank from the German authorities, pursuant to media reports, the CBDT (Central Board of Direct Taxes) did not do so under the DTAA,” said the affidavit.

The affidavit said that the “request was not made under the DTAA by the central government but the response by Germany was in terms of the DTAA being the legal framework for exchange of information.”

“The German authorities sought to invoke the DTAA for spontaneously sharing the information (with their Indian counterparts),” the affidavit said.

The German authorities obtained the information on the account holders of LGT Bank in Liechtenstein from an employee of the bank.

The government said this in the wake of contention by petitioner and jurist Ram Jethmalani that the German authorities had volunteered to give information on Indian account holders in LGT Bank but the government, instead of directly seeking the information, routed it through the DTAA mechanism.

The affidavit comes on the eve of the hearing by the apex court bench of Justice B. Sudershan Reddy and Justice S.S. Nijjar on Jethmalani’s petition.

He has sought direction to the government to take steps to bring back the money deposited by Indians in foreign banks.

Jethmalani has contended that more than $1 trillion has been kept by Indians in foreign banks.

The central government told the court that it was playing a pro-active role in the global crusade against black money that included transparency in the exchange of information between different countries.

“As a consequence of this initiative and the pressure brought to bear by India, many of the tax havens have now agreed to end banking secrecy,” the affidavit said.

It added that in addition to this, the principle of domestic interest while exchanging information for tax purposes is also being relaxed.

The government referred to various steps that have been taken or were being taken by way of forging international co-operation and putting in place a regulatory framework, included signing DTAAs, for accessing information on stashed away money.

The affidavit said that Global Financial Integrity report has said the “mispricing” (of transactions) accounted for 77.6 percent of the illicit outflow.

It said that the “provision governing transfer pricing are being strictly administered which has helped to check the shifting of profits outside India”.

“In the last 18 months mispricing of Rs.33,784 crore has been detected as against detection of Rs.14,655 crore in the previous four financial years,” the affidavit said, adding that a “substantial awareness has been built towards cross-border transactions.”

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