India's non-signing of Automatic Info Exchange agreement - ‘Confidentiality’ vs 'disclosure' crossfire

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India's backing out at the last minute as 51 countries signed the historic multilateral convention on global automatic exchange of information has stunned many in the tax world.  Finance Minister Arun Jaitley, in his blog, has sought to pin India's non-participation on the issues regarding constitutionality of 'confidentiality' clauses in India's DTAAs, and has called for a re-consideration of this strict view (taken by the Court). The Finance Minister has further opined that in a choice between unauthorized disclosure and disclosure as per treaties, the latter is both a fair and beneficial proposition.
 
With the Government seemingly caught in a crossfire between 'confidentiality' clause in DTAAs and insistence on name disclosures by Indian Courts, is there a way out of this impasse? Is disclosure of names, but by honouring tax treaties, the more beneficial option, as suggested by the Finance Minister? Will India staying out of the multilateral convention, stem the information flow and put a big question mark in its its fight against tax evasion & black money?


Comments


Philip Baker
Queen's Counsel

I wonder if the Indian Government has, with respect, approached this matter from the wrong direction.  They are, quite properly, concerned about signing up to clauses guaranteeing confidentiality while it may be the case that they will be ordered by the Courts to disclose information that has been received under an exchange.  However, it is not the signing of an exchange of information clause in a treaty or other agreement that is the issue, but rather the actual supply of information by the other government.  That other government has to be reassured that information it supplies will be kept confidential.  If it does not have that assurance, then it should not supply the information, and is entitled to refuse to do so.  In 99% of cases, India must surely be able to give that assurance to the other country – the information will be kept confidential, and the other country can supply it.  The disclosure of information is only likely to be ordered by the Courts in India in a tiny number of cases.  Meanwhile, India can still supply information to the other government (always providing that government guarantees to keep it confidential, which should surely be no problem), so that India can participate in IGAs and EoI agreements.
 
Thus India could sign up to an IGA to implement FATCA with the US, secure in the knowledge that India can supply information to the US (which is what the US wants), and the US can supply most information to India (if it is a reciprocal agreement), but perhaps a small amount of information cannot be supplied to India if it might be disclosed under a Court order.
 
It should also be noted that the latest version of the OECD Model Article on Exchange of Information adds the following phrase:  “Notwithstanding the foregoing, information received by a Contracting State may be used for other purposes [other than the collection of tax] when such information may be used for such other purposes under the laws of both States and the competent authority of the supplying State authorises such use.”  Thus, India can always receive information which may be publicly disclosed if it might be disclosed under the law of the state supplying the information, and the two states agree.