Swiss top court quashes move to stall transfer of info to India

The Swiss Federal Supreme Court has ruled that even if persons who are ultimate beneficiaries have not received any money from secret offshore trusts and numbered bank accounts, the Swiss authorities can still go ahead with sharing such confidential information with India - a stand that has dashed hopes of many resident Indians who were banking on the court to stall, or at least delay, the flow of data to the income-tax department here.

Counsels hired by rich Indians have been arguing before the Swiss courts that such personal financial information has no relevance to the Indian tax office because the latter cannot tax the beneficiaries in the absence of any distribution of funds from foreign trusts.

The top court, however, has laid down in multiple rulings over the last two weeks that it would not sit in judgement on why Indian authorities have sought information and whether they can claim tax on the back of such data. According to the supreme court, Switzerland will share information if India seeks it without judging the data's ultimate relevance and end use.

The rulings pertain to foreign trusts in tax havens with multiple beneficiaries, some of whom are related to large Indian business houses.

"There has been a sea change in the stance of the authorities and courts, as at one point in time no data was shared in cases where requests were based on stolen data. Today, the bend is to share information and heavy reliance is placed on the good faith of the requesting nation in information-sharing proceedings. Taxpayers will need to take requisite arguments regarding non applicability of taxes on such structures in their home country," said Ashish Mehta, partner at the law firm Khaitan & Co.

A common structure used by wealthy Indian families to hold funds away from the prying eyes of the I-T department is through 'discretionary trusts' - where trustees have the discretion to distribute the income, capital gains, or principal amounts from the trust to the beneficiaries. Typically, such a trust holds shares of a company, incorporated in the same or in a different tax haven, having accounts with a Swiss bank, while the family members are named as beneficiaries of the trust.

Some of the tax appellate benches in India have attempted to look through the veil separating the trust and the beneficiaries on the grounds the latter indirectly controlled the trust by handpicking trustees who they appointed.

The verdicts may diminish the legal recourse available to Indians - or individuals of other nationalities with secret bank accounts and tax haven structures - trying to prevent their respective governments from accessing information on wealth.

Under the circumstances, once the information reaches India, the long, customary tussle between the I-T department and the individuals would begin: the department would send a fresh notice claiming tax on the amount lying in the trust, the persons concerned would go on appeal which would move from the first appellate to the tribunal and then the High Court --- a process that could take at least five years. In all likelihood, the tax office may slap a separate notice under the more draconian Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act for the possible lapse in not disclosing the foreign assets under the ‘FA schedule’ in the I-T return. On April 12, 2022, ET had reported that about half a dozen appeals were coming up for hearing to stop Swiss authorities from sharing information with India on the grounds that not only can the harsh law be applied `retroactively’, it could also be used to impose stricter `criminal’ sanctions than those that would have been possible at the time the offences were committed ---- features which were incompatible with the Swiss legal system and values.