Singapore Turns Down India's Request for Information
Published on Tue, Jun 26,2012 | 13:56, Updated at Tue, Jun 26 at 14:16Source : Moneycontrol.com
By: Shalini Jain, Associate Director - Tax & Regulatory Services, Ernst & Young
The Indian tax authorities are on a drive to unearth black money of Indians stashed in bank accounts abroad. One of the attempts is to gather information by invoking the Exchange of Information clause of the Double Taxation Avoidance Agreements signed with other countries. Recently, India received information on about 1,500 transactions from Denmark and Finland under Double Taxation Avoidance Agreements with these countries. Further, to promote international cooperation and to prevent fiscal evasion, the Double Taxation Avoidance Agreements between India and Switzerland was amended vide recent Swiss Protocol which introduced a more effective provision for Exchange of Information that provides a mechanism for the exchange of banking information, as well as information without domestic interest.
In all these attempts, the recent decision in case of Comptroller of Income Tax (Singapore) v AZP on the issue of exchange of information between India and Singapore is of great relevance. In this case, the Singapore High Court rejected the request of the Indian tax authorities for the production of documents and bank statements held by a bank in Singapore with respect to an Indian National. The basis of rejection as stated by the Singapore High Court was that the requirement of 'foreseeable relevance’ was not met under the provisions of the Double Taxation Avoidance Agreement between Singapore and India (‘DTAA’).
The Comptroller of Income Tax, Singapore made an application to the Singapore High Court on the request of the Indian tax authorities for production of information related to an Indian national. The information was held by AZP, a bank in Singapore, which was the defendant in this case.
The request of the Indian tax authorities was pursuant to Article 28(1) of DTAA as amended by Second Protocol between the Governments of both the countries. The request was for production of records and information related to two bank accounts held by two different companies, not incorporated in India (i.e. Non-Indian companies) in relation to an Indian National.
The Indian tax authorities seized documents of an Indian national and they were of the belief that the documents indicated existence of undeclared income and bank accounts overseas. The Indian tax authorities suspected that Indian national’s undeclared income was remitted to these accounts. The main documents on which the Indian tax authorities relied were two unsigned transfer instructions allegedly issued by the Indian national.
One transfer instruction was a letter dated 19 December 2005 instructing a bank in Switzerland to transfer money from an account held with a bank in New York to the account in Singapore Bank. The second transfer instruction was a letter dated 16 July 2000 to Switzerland Bank to transfer money with a bank in Dubai, supposedly held by the company which also had a bank account in Singapore. There was no evidence that money had been transferred to or from the Singapore bank account at all. The Indian national declined to any of these transactions taking place.
The main reason due to which the request got rejected was due to the Second Protocol signed on 24 June 2011, which came into force on 1 September 2011, to amend the agreement between the Governments of India and Singapore for the Avoidance of Double Taxation and prevention of Fiscal Evasion.
The Second Protocol removed the requirement that the Comptroller could only obtain and release the information requested, where it was relevant only to Singapore’s tax laws. The amended Article 28 requires the contracting states (i.e. India and Singapore) to exchange information for the purposes of enforcing tax laws in both states, even if the contracting states do not require or collect the information for the purposes of its own tax laws and administration. Thus, the amendment was to have a wider scope of exchange of information between the countries. But as per the amendment, the provisions of the Protocol were applicable to taxable periods on or after 1 January 2008.
The Singapore High Court stated that Article 28(1) of the DTAA as amended by the Second Protocol and Income Tax Act of Singapore provides that exchange of information can take place on satisfaction of three conditions which are as follows:
• Information is forseeably relevant for carrying out provision of DTAA,
• Making the order is justified in the circumstances of the case, and
• The exchange of information is not in contrary to the public interest.
The Singapore High Court mentioned that the requirement of forseeably relevance requires the Comptroller of Income tax to show some clear and specific evidence that there is connection between the information requested and enforcement of requesting state’s tax laws. Further, it was also mentioned that fishing expeditions were not allowed and the requests supported by evidence should be legitimate and consistent with the standards.
The Singapore High Court stated that as the transfer instructions for transfer of money were dated December 2005 and July 2000, which were outside the period for which Article 28(1) as amended by Second Protocol applies (i.e. taxable period beginning on or after 1 January 2008). The Indian tax authorities did not provide evidence of any transaction between the two companies and the Indian national on or after 1 January 2008. Due to these reasons, the Singapore High Court did not grant the information requested given the lack of clear and specific evidence supporting the request. The Singapore High Court stated that the first requirement of foreseeable relevance was not met and hence the other two requirements need not be dealt with. Hence, this was a failed attempt by the Indian tax authorities to obtain information from Singapore.