The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 Sanjay Sanghvi CTC - IMC|Mumbai|28 April 2015 Key Provisions & Implications

The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015

Sanjay Sanghvi

CTC - IMC | Mumbai | 28 April 2015

Key Provisions & Implications

Copyright © Khaitan & Co 2015 | 2

Introduction

Focus on unaccounted money and assets outside India

Information received from countries like France, Germany, etc.

Need for stringent laws to curb tax evasion

Bringing tax evasion under the net of Prevention of Money Laundering Act, 2002

Foreign Asset Bill proposed to be applicable from 1 April 2015


Structure of the Foreign Asset Bill

Foreign Asset Bill is divided into 7 chapters and 88 sections

Foreign Asset Bill

Preliminary

Basis of charge

Tax Management

Penalties

Offences and Prosecution

Onetime disclosure window


Scope of the Foreign Asset Bill

Foreign Asset Bill applies to all persons who are ‘resident and ordinarily resident’ in India

“Undisclosed asset located outside India” means an asset (including financial interest in any entity) located outside India:

held by the assessee in his name or where he is a ‘beneficial owner’; AND

he has no explanation about the source of investment in such asset; OR the explanation given by him is in the opinion of the assessing officer unsatisfactory

“Undisclosed foreign income and asset” means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India


Tax rates & Implications

30% tax without any exemption, deduction or set off of losses

300% penalty on the tax amount

Interest under sections 234A/ 234B/ 234C of the Income-tax Act

Penalty of INR 10 lakhs for failure to furnish details of foreign income and assets or furnishing inaccurate details

Stringent prosecution provisions e.g.:

Imprisonment of 6 months to 7 years - for failure to furnish return of income in due time or failure to furnish any information relating to an asset located outside India

Imprisonment of 3 years to 10 years – for evasion of tax / penalty / interest


Onetime compliance…

Bill provides for a ‘onetime compliance opportunity’ for ALL persons (residents or non-residents) who have not previously disclosed their foreign assets for tax purposes

Not ‘Amnesty scheme’ like VDIS 1997

Opportunity to be availed by filing a ‘declaration’ in prescribed form and paying tax of 30% and penalty of 100% of the tax amount

No interest is payable

Tax to be paid by a date to be notified by Government

Tax so paid will not be refundable

Such asset not included in the ‘taxable income’ of the taxpayer under the Income-tax Act


…Onetime compliance...

Declaration will not be used for imposing penalty or prosecution under Income-tax Act, Wealth Tax Act, Foreign Exchange Management Act, Companies Act or Customs Act

Declaration will be treated as ‘void’ if ‘misrepresentation ‘or ‘suppression’ of facts

Mechanics not specified Whether CIT to examine / cross check

declaration? Whether ‘hearing’ will be given by CIT? Legal remedy if declaration is treated as

void – whether ‘appealable’ or ‘Writ’?


…Onetime compliance

This opportunity not available in certain cases:

person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974; or

Search case is pending or notice of reopening issued; or

‘Any information’ received by Competent Authority under DTAA or TIEA in respect of the undisclosed asset, etc.


Some issues

Whether a person on whom search has been initiated can avail of onetime window opportunity for a period not covered within the 6 year period which is reopened under section 153A of the Income-tax Act?

Can Independent evidence found by tax department be used for imposing penalty / prosecution where declaration is filed by taxpayer under onetime opportunity

Treatment of Undisclosed Assets – How an asset acquired by using undisclosed amount lying in a foreign jurisdiction would be treated if it subsequently comes to the knowledge of Tax Authorities and was inadvertently / unintentionally left out from reporting in the declaration filed during the onetime compliance opportunity?

No limitation period provided for treating a declaration as ‘void’


Some issues

Whether income earned prior to the enactment of the Foreign Asset Bill is covered under the new law?

Section 72(c)

Implications for on-going investigations due to disclosure of names having foreign accounts in HSBC, Geneva and other lists

Income-tax Act v Foreign Asset Bill?

Principles of natural justice applicable to the Bill for bona fide errors?

Implications of owning an undisclosed foreign asset under the Prevention of Money Laundering Act, 2002

Foreign Asset (including foreign bank account) must be reported and applicable taxes paid

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The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 Sanjay Sanghvi CTC - IMC|Mumbai|28 April 2015 Key Provisions & Implications