The government may have to wait a little longer to get a trail of illegal money stashed by Indians in Liechtenstein.
The two countries are in negotiations to provide tax-related information to each other, but the talks are stuck over one critical issue - under which treaty the information should be shared.
India has proposed to sign a Tax Information Exchange Agreement (TIEA) with Liechtenstein, but the European country, bordering Switzerland, is insisting on a Double Taxation Avoidance Agreement (DTAA).
"Liechtenstein wants a DTAA, but we have proposed that there should be a TIEA. They will have to get back on it," said a finance ministry official, who did not wish to be identified. Two other officials confirmed India was negotiating a treaty with Liechtenstein, but there were some issues.Liechtenstein is a low-tax jurisdiction and the government is worried that if it signs a DTAA it would be used for routing investment from a third country like in the case of other tax havens such as Mauritius.
Under the treaty, a Mauritius-based investor does not pay capital gains tax either in India or in Mauritius. Thus, Mauritius has become an attractive route for investment into India.
The treaty also has loopholes in the clause for 'exchange of information'. India is trying to review the DTAA with Mauritius to prevent tax evasion and strengthen exchange of information.Last year, Germany, under a treaty with India, had given names of 26 Indians who had opened secret accounts in the LGT Bank of Liechtenstein. The Indian government has come under widespread criticism from the Supreme Court as well as Opposition parties for not taking any action against the people involved.
However, in the absence of a bilateral treaty with Liechtenstein, India cannot seek any administrative assistance or details on Indian clients of the LGT Bank. If it goes for a TIEA, information would be exchanged relating to a specific criminal or civil tax investigation or civil tax matters under investigation. In DTAA, on the other hand, there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. India has completed negotiations of 10 new TIEAs with Bahamas, Bermuda, British Virgin Islands, Isle of Man, Cayman Islands, Jersey, Monaco, Saint Kitts & Nevis, Argentina and Marshall Islands out of 22 identified jurisdictions.Negotiations with four countries are under progress and the response is awaited from another four, who want to sign DTAA instead of TIEA.
India has DTAAs with 79 countries. It has initiated process of negotiation with 65 countries to broaden the scope of article of exchange of information to include exchange of banking information. Negotiations and re-negotiations of DTAAs with 23 countries have been completed.
