Sunday, November 3, 2013

India Signs OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters (11/3/13)

Nigam Nuggehalli, Artful dodges in Swiss tax pacts (Business Standard 10/30/13), here.  Excerpts of the introduction are:
The Swiss banking regime is in the news again with the announcement that Switzerland finally decided to sign, on October 16, the Organisation for Economic Co-operation and Development-sponsored Multilateral Convention on Mutual Administrative Assistance that provides for a liberal exchange of information between countries on potential money launderers and tax dodgers. 
As usual, appearances are deceptive. Switzerland will not be subject to a liberalised information exchange regime without a further discussion in and eventual ratification by the Swiss parliament. Therefore, the scope and timing of Switzerland's participation in a regime that enables transparent exchange of information remain uncertain. 
Until then, in order to access information on Indian-source money stashed by tax dodgers and money launderers in Swiss banks, India has to depend on the double taxation avoidance agreement (DTAA) that went through certain revisions in 2000 and 2010. The original and revised versions present a fascinating insight into, on the one hand, the evolution of India as a country attractive to foreign investment and, on the other hand, India's traditional obsession with untaxed money in Swiss banks.
The article then provides a nice summary of the events leading to this new agreement and the immediate effect of the new agreement.


  1. Here is how the Administration is going to try to crack the Delaware nut...

    The plan is to impose a domestic version of FATCA (DATCA I call it) which would be the equivalent of what they are unilaterally imposing on the world. As part of that effort, they created inter government Agreements (IGAs) where they hold out the promise of reciprocity to other governments signing up for the FATCA financial data exchange. It was their carrot to offset the extortion threat of the 30% withholding.. (this IGA was Not envisioned in the Hire Act that birthed FATCA, and Congress certainly had no intention to impose on itself what it was demanding of the world. In Fact, few voting for the Hire Act even today knew that FATCA was there.)

    Treasury's Robert Stack, the man now in charge of the IGA negotiations (psuedo treaties) around the world has said this to EU Parliamentarians in answer to questions about Delaware..

    ".....The US recognizes the importance of reaching equivalent levels of exchange, uh, under ‘our law’, that we are getting from other jurisdictions. And the administration has included in its budget proposal a provision that would permit U.S. Financial Institutions to make such equivalent exchanges. Under the U.S. political system, uh, different from some Parliamentary systems, we need to work that through Congress but we are um, we are committed to doing that. Once we’ve done that, to go to the question of beneficial ownership in Delaware, once we have equivalent levels of exchange, we would expect our own financial institutions would be required to look through entities and report on individuals just as non U.S. institutions are required to do under our IGA"

    Video Link...

    The proposal is found on page 202 of the Analytical Perspectives of the Obama FY 2014 budget

    Do you think the Democratic Senators of Delaware and Nevada are enthusiastically supporting these changes? Me either... They are NOT co sponsoring any of the legislation now being created. The chances of the FATCA recprocity in the Obama budget surviving the committees now formed to negotiate it, seems slim to none to me. Hypocrisy will probably win the day yet again. America can not afford to give up its status as the Greatest Tax Haven, so instead it will extend its efforts at beating up on the Swiss to maintain its dominance and deflect attention from where the real problems lie, and that is back in the homeland!

  2. I take you mean "India Signs OECD Multilateral Convention" rather than Conviction. You've been a tax lawyer for too long :)

  3. "A civil Foreign Bank Account Reporting (FBAR) penalty of $100,000 was
    also ordered for failing to report money Wu held in foreign bank
    accounts".....Jack, do I read this correctly : a 1time total of $100K for 6 years of missing FBARs in multiple accounts ?

  4. Thanks Urban. I have corrected the title.

    And, I have been a lawyer too long. Could not think of anything else to do.

  5. GlobalCapitalism,

    Thanks for your comments/questions. They are very good. I do not know the answer to the question but draw some inferences which I will state, with qualifications.

    1. As to the FBAR civil penalty, the sentencing court in a criminal case would have no authority to determine the FBAR civil penalty. I infer that that was agreed to as part of the plea agreement, but still do not think, even as part of the plea, that the sentencing court could "order" the penalty. Note in this regard that such a penalty is not restitution, so the court could not gerrymander a valid order for the FBAR penalty as restitution.

    2. I infer that the penalty is the willful penalty.

    3. I don't know the breakdown of the "$282,000 in fines and fees." I will see if I can get that information and get back later. But, on the court's authority, it does have authority to impose fines as permitted by the statute and I would think the $282,000 would be within the scope of its authority (the fees tend to rather minimal, at least relative to possible fines).

    4. As with the FBAR penalty, the sentencing court has no authority to impose the civil fraud income tax penalty. Again, that could have been included in the plea agreement so that the taxpayer is contractually bound in subsequent civil proceedings, but the sentencing court would not have authority to order it.

    Jack Townsend

  6. I was just surprised to see the word "civil" when we have a criminal case dealing with a willful FBAR failure. Jack is it fair to say that many of these plea agreements are like a turkish bazar with unpublished details and unique ?

  7. The devil is in the details.

    It is correct that beneficial ownership of a Delaware company is near-impossible to discover, and that there is some inconsistency in referring on companies incorporated in foreign jurisdictions such as Belize as 'shell' or 'sham' companies without applying the same term to companies incorporated under the laws of certain US states.

    On the other hand, the same know your customer rules apply when opening a bank account when an account is opened in the name of an entity, i.e. identification requirements of the person opening the account and with signature authority over it.

  8. This appears to be simply tax withholding under the European Savings Tax Directive agreement whereby Switzerland withholds 35% of interest and dividend income on accounts held by residents of EU countries. Unlike other EU countries, which report income to other EU governments, EU residents with Swiss accounts can choose to either 1) have information sharing, thus waiving bank secrecy or 2) have 35% withheld.

  9. Ah yes, "tax dodgers and money launderers." No mention of Indians living/working in Switzerland or elsewhere outside India, or those seeking protection from loss of value in the rupee.

  10. There are differences between tax crimes and gun and drug and sex crimes.

    In the tax area, it is possible to undo the damage through restitution and interest thereon. There is no way to undo a gunshot death, overdose death or rape. I have no statistics on recidivism rate, but I suspect that it is higher with violent and sex crimes than tax crimes. Also, it is more likely that someone convicted of violating tax laws may have no previous criminal record, that would probably happen less often in the case of gun/drug/sex crimes.

    Intent may be more difficult to prove in tax cases, because of complexity of the tax code, than in gun/drug/sex crimes.

  11. The Saturday/Sunday Nov. 2-3 2013 print edition had a story mentioning that some Swiss banks are strongly pressuring their customers to declare accounts. I haven't found the story online.

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