India will seek strong action by the Group of Twenty (G20) nations against tax havens as it feels any unilateral action can act as a deterrent against foreign investment. Multilateral action is more effective, a finance ministry official said, ahead of the meeting of G20 finance ministers and central bankers in Paris.

India will urge the G20 to pressure tax havens into revealing more information on black money from India, the official added. Prime Minister Manmohan Singh's government is under pressure to bring back illicit funds stashed abroad, but finds itself facing jurisdictions with which it has little leverage. A report by Washington-based think-tank Global Financial Integrity (GFI) puts such fund flows at about $16 billion a year from 2002-2006.

Any form of curbs on a country cannot work at unilateral level, as such an action can discourage foreign investments, the official said. India has already made a strong pitch for tax information exchange agreements (TIEAs) with greater teeth at the G20 to facilitate a meaningful exchange of information on fund flows and monies parked in such jurisdictions.

The G20 is a group of systemically important industrialised and developing economies that has emerged as the premier forum for cooperation on economic issues after the financial crisis of 2008. The G20 meet in Paris will discuss the reform of the international monetary system. Some jurisdictions have privacy protection laws that hinder information exchange on tax evaders.

The idea is to generate enough pressure on the issue globally to ensure joint action, the official said. Independent experts also favoured such an approach. Multilateral forum is a better option for India to exert collective pressure on the concerned tax havens. This has also been favoured by the OECD, which has taken the lead by forging G20 initiative in this regard, said Sudhir Kapadia, tax market leader at Ernst & Young.

The official said it was because of multilateral action that a number of tax jurisdictions, including Switzerland , had agreed to share information on bank accounts of tax evaders. New Delhi is pursuing the issue at the steering group of the Global Forum on Transparency and Exchange of Information for Tax Purposes at the Organisation for Economic Cooperation and Development or OECD, of which it is a member.

The official said the peer review process underway at the OECD to examine domestic tax laws of all jurisdictions was aimed at increasing global pressure on everyone to act. India is the vice-chair of the peer review group, where it plays an active role in assessing quality of information exchange permitted by domestic tax laws of different jurisdictions. It has already presented a paper at the forum that seeks domestic laws that are supportive of information exchange on evaders.

The official said the OECD should not merely stop at labelling such tax havens as non-cooperative but also pressure them to change their domestic laws. However, this has not meant that India will not take up the issue bilaterally. It has prioritised 22 countries or jurisdictions for negotiation under the TIEAs. It has already signed pacts with the Isle of Man, Bermuda, the Bahamas, and the British Virgin Islands. India is also upgrading its double taxation avoidance agreements with several countries, after revising its treaty with Switzerland, for greater information exchange.

More than 500 such bilateral pacts have been signed so far after the G-20 pledged to crackdown on tax havens at the London summit. The OECD has released a list of such tax havens based on compliance with international tax standards.