In keeping with what was decided at the G20 Finance Ministers meeting in September last year, India on Wednesday joined the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information. The declaration to comply with the provisions of the agreement was signed in Paris by the Indian ambassador to France, Mohan Kumar.
Prior to Wednesday’s agreement, 54 countries had joined the MCAA. India is among six countries that joined this pact in Paris, taking the number to 60. The target is to reach 94 countries by 2017.
The new system, dubbed the Common Reporting Standards (CRS) on Automatic Exchange of Information (AEOI), is very wide in scope and obliges the treaty partners to exchange a wide range of financial information, including that about the ultimate controlling persons and beneficial owners of entities.
To be able to comply with the new system, amendments have been made to section 285BA of the Income Tax Act, 1961. Necessary rules and guidelines are being formulated in consultation with financial institutions.
Previously, information was exchanged between countries on the basis of specific requests relating to cases of tax evasion and other financial crimes. AEOI, when fully implemented, sets up a system wherein bulk taxpayer information will periodically be sent by the source country of income to the country of residence of the taxpayer.
According to Gaurav Karnik, Partner-Tax and Regulatory Services, Ernst & Young LLP, such an agreement will definitely help India curb tax evasion. “If countries that were previously reluctant to provide such information are forced to comply, then that is a good thing. It will work in helping the Indian government curb tax evasion and track funds leaving the country,” he said.