Tax treaties can’t be amended to drop confidentiality clause: official

If the Supreme Court insists on disclosures of all names, India won’t be able to sign any further treaties for exchange of information

Vrishti Beniwal  |  New Delhi  November 1, 2014 Last Updated at 00:29 IST

India cannot amend its Double Taxation Avoidance Agreements (DTAAs) to drop the confidentiality clause that has come into sharp focus after the government handed over a list of foreign bank account holders to the Supreme Court this week and failed to sign a multilateral agreement in Berlin on automatic exchange of information.

“We cannot amend bilateral tax treaties unilaterally and the confidentiality clause cannot be removed even if there is a re-negotiation. The clause is put as per international standards,” a finance ministry official who did not wish to be identified told Business Standard.

The government is awaiting clarity from the Supreme Court on the issue when it next hears the case on December 3 after receiving a status report from the Special Investigation Team (SIT) on black money. If the court insists on disclosures of all names, including those where prosecution has not started, India won’t be able to sign any further treaties for exchange of information as they all require confidentiality.

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The SIT, in its first report to the Supreme Court, had reportedly suggested re-negotiating DTAAs to drop the confidentiality clause. However, its chairman, M B Shah, on Thursday said the confidentiality clause is there in international agreements and India cannot violate it for the time being.

The government on Wednesday handed over details of 627 accounts of Indians in HSBC Geneva to the Supreme Court. It is now debatable whether sharing names in a sealed envelope with the court, which passed it on to the SIT (which already had the list) without opening, would be a breach of confidentiality.

There are two different interpretations of how this clause is interpreted. While one interpretation is that the names could be revealed in the apex court even if prosecution has not started, the general interpretation is that names given under the DTAA could only be used for tax and other specified purposes.

Switzerland on Thursday said information exchanged under the Swiss-India tax treaty cannot be disclosed “in principle” to a court or any other body outside the proceedings of a “specific and relevant” case.

Germany had already raised the issue with India in May when the SC directed that eight genuine accounts from Lichtenstein must also be disclosed.

However, Attorney General Mukul Rohatgi, in an interview to a TV channel, said giving documents in a sealed cover to a court cannot be deemed to be a breach of the confidentiality agreement because the court did not even look at it.

“Secondly, if a breach actually occurs and we are unable to give a satisfactory explanation to the reciprocating court, then it is possible that that reciprocating state may either refuse to deal with us and give us further information, but certainly information will dry up,” he added.

Officials admitted that the Supreme Court asked the government to reveal all the names in HSBC list to it and then handed it over to SIT, asking it to investigate because investigations by the Income Tax departments under political masters could be manipulated and have been manipulated in the past.

Based on the evidence gathered, the assessing officer can give a clean chit, impose penalty or prosecute a person whose names figured in the list.

India has to sign agreement with the US on Foreign Account Tax Compliance Act by December-end. If the SC does not agree with international interpretation, there could be a problem in signing the agreement. Even if these issues are resolved, not much time will be left for the Cabinet to approve it. Not signing it would mean that remittances from the US to India are subjected to 30 per cent withholding tax.