India joins multilateral convention on tax matters

India has become the latest signatory to the multilateral convention on mutual administrative assistance in tax matters, which would help in combating tax avoidance and evasion, besides improving the effectiveness of the exchange of information and cooperation in tax matters.

The instrument was earlier available only for members of the OECD and the Council of Europe, but was amended in 2010 and thrown open to all countries from last June.

By signing the convention, India and the other 31 signatories send a strong signal that countries are acting together to ensure that individuals and multinational enterprises pay the right amount of tax, at the right time and in the right place, said a government spokesman.

Many more countries are expected to sign the convention in future. It provides for a wider network of countries co-operating in exchange of information and assistance in tax collection. Out of the 31 signatories, 12 have ratified the convention so far. The signatories to the convention include Brazil, France, Germany, Indonesia, Japan, Russia, Turkey, the UK and the US.

According to the spokesman, the multilateral instrument is the single legal basis for multi-country cooperation, as against other treaties (including the Double Taxation Avoidance Agreement), which are bilateral. The convention provides for an extensive network and consistent application of provisions leaving limited scope for deviation.
 
It not only facilitates the exchange of information, but also provides for assistance in the recovery of taxes. This will give a fillip to the efforts of the government in bringing money illegally stashed abroad.

The convention also provides for simultaneous tax examinations and participation in tax examinations in other countries. It provides for examination of tax affairs of the taxpayers simultaneously in their own territory and share the relevant information to each other. This allows tax officials to enter into the territory of the other country to interview individuals and examine records.

The convention also explicitly provides for automatic and spontaneous exchange of information, and allows exchange of past information in criminal tax matters. The information received under the convention can also be used for other purposes besides those related to tax co-operation, including the countering of money laundering with the approval of the supplying state.