An Alpine haven disappears

India has done well to rework its tax treaty with Switzerland to obtain information on Indians hiding their money in Swiss accounts. However, the new openness will come into force with prospective effect. Past transgressors cannot be brought to book with the new double taxation avoidance agreement that complies with the norms prescribed by rich country club, Organisation for Economic Cooperation and Development (OECD). This is unfortunate. For years, Swiss banking secrecy laws have made it impossible for foreign governments to pursue suspected tax evaders.

With the G20 turning the heat on tax havens and the OECD keeping a watch on non-compliant jurisdictions, Switzerland is now under pressure to revise its bilateral tax pacts to share banking and ownership information. Bilateral tax treaties are inked after hard negotiations. India features in OECD’s white-list of countries that have substantially implemented global tax standards. So, it is possible to argue that India should have renegotiated the treaty with Switzerland from a position of strength, to secure information on past transactions as well. Guesstimates on the money parked by Indians in Swiss banks run to several hundred billion dollars.

Both countries will adopt the OECD’s rules on exchange of information in the revised pact. The stringent rules are aimed at nabbing tax evaders and hence welcome . This will mean that Switzerland cannot deny taxpayer related information to India simply because it is held by a bank or a financial institution. Also, Swiss authorities have to share data even if they do not have domestic interest in such information.

However, fishing expeditions will not be allowed. India will have to make specific requests to obtain information on suspected tax evaders. The Swiss law also gives the accountholder the right to appeal against a request for data transfer. Judicial reviews could delay sharing of information. For India , the key is to establish audit trails on all financial transactions, making the fullest use of our information technology prowess.