The global Indian takeover story is attracting the attention of I-T sleuths. Taxmen at North Block are now planning to focus their scanner on trans-border takeovers and mergers.
The department has set up a group to prepare modalities for carrying out offshore investigations. The group will study the modus operandi and examine what can constitute legally acceptable evidence in a case involving tax evasion in an offshore transaction. It will present its recommendations to the Central Board of Direct Taxes.
The group will also examine what action the department can take in cases where cross-border transactions lead to evasion of tax in the country, and the evidence also lies outside India. While the double taxation avoidance agreements that India has with other countries have a built-in clause for exchange of information, the flow of information is not very easy and takes time.
The situation has undergone a sea change in the past 5-7 years, a source pointed out, with a massive spurt in cross-border transactions. Outbound FDI from India in the current fiscal is estimated to be over $20 billion. Also, technology has undergone a dramatic change. A firm can now transfer huge sums of money to any entity anywhere in world by the click of a mouse, the source said. This poses a fresh set of problems.
Also, in certain instances of suspected tax evasion in offshore transactions, the department has been unable to proceed due to delayed response from the authorities in other countries.
Cross-border transactions are under the lens of tax departments even in developed countries, especially deals involving unlawful tax jurisdiction or a tax haven. The US has entered into information exchange agreements with some tax havens like Cayman Islands. In fact, recently, a group of senators introduced a Stop Tax Haven Abuse Bill aimed at curbing evasion of US taxes through tax havens.