In this era of digitalisation where the world has become a global village and distances are no longer a challenge, flow of capital has become easier and faster.

1. India - US intergovernmental
agreement on FATCA
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2. India's avidity for exchange of information
In this era of digitalisation where the world has become a global
village and distances are no longer a challenge, flow of capital has
become easier and faster. Albeit, this globalisation fuelled by
technological advancement has led to seamless transfer of goods,
services, money and man, the same has also stimulated
international tax evasion and avoidance, in particular through tax
havens and non-co-operative jurisdictions.
Where the world has recently witnessed the illegitimate stashing
of money in foreign jurisdictions and banking scandals, co-
operation between tax administrations of different sovereigns has
been considered to be critical in this fight against tax-evasion and
in protecting the integrity of tax systems.
A key aspect of such co-operation shall be the effective and
seamless exchange of information ('EOI'), between the
jurisdictions, to curb the practice of tax evasion followed by
taxpayers around world.
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3. The 1998 OECD report 'Harmful Tax Competition: An Emerging Global
Issue'1 identified the lack of effective exchange information as one of the key
characteristics of harmful tax practices and recommended member countries to
remove impediments to the access of bank information.
The scope of national tax authorities is restricted to the territorial limitations of the
country and hence their powers are also restricted. Thus international co-operation
and mutual assistance for tax purposes is most important which makes exchange of
information an effective worldwide system for recovery of taxes in cross-border
scenarios.
The G20 leaders stated their commitment to the automatic exchange of information
and called for a new single global standard (Multilateral Convention on Mutual
Administrative Assistance on Tax Matters) for automatic exchange of Information.
Many countries namely Austria, Luxemburg, Singapore, Switzerland etc have signed
the Multilateral Convention on Mutual Administrative Assistance in Tax Matter
designed by Organisation for Economic Co-operation and Development ('OECD'),
which inter alia, allowed for exchange of information on request.
India has also signed the aforesaid Multilateral Convention on June 3, 2015.
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4. United States of America ('US') has introduced Foreign Accounts Tax Compliance Act ('FATCA'), a per se unilateral action of the US
government to combat the menace of undisclosed money and wealth of US persons2 stashed in foreign jurisdictions. FATCA at the
outset is an attempt of US to fight against the instances of tax evasion by US taxpayers through concealment of their direct or
indirect interest in offshore financial accounts and assets.
Background - FATCA
FATCA aims at tracking the undisclosed investments made by the US persons in other jurisdiction and thus bringing the
undisclosed income and assets to US tax net. The primary objective of this US global law is to identify the US persons, who have
evaded the US taxes by stashing their money and wealth in financial accounts maintained outside US.
The aforesaid law was introduced with a dual approach, casting obligation on US persons on one hand and on the other making it
mandatory for other sovereigns for effective exchange of information primarily related to assets and accounts directly or indirectly
owned by US persons.
At the first instance, the aforesaid law makes it mandatory for the US persons to report3 to Internal Revenue Service, US ('IRS') any
direct or indirect holding or interest in any of the offshore accounts or assets, non-compliance of which may attract hefty
penalties. Howbeit, the anti-evasive US law is mostly discussed, debated and criticized round the world for the obligation it casts
at the secondary level. FATCA aims at tracking US persons and their undisclosed offshore financial assets and accounts, by way of
effective exchange of information with the rest of the world. It does this through the imposition of strict monitoring and reporting
obligations on foreign government or foreign entities, non-compliance of which is backed by high withholding penalties.
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