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

Copyright © Khaitan & Co 2015 | 3 Structure of the Foreign Asset Bill  Foreign Asset Bill is divided into 7 chapters and 88 sections Foreign Asset Bill PreliminaryBasis of charge Tax Management Penalties Offences and Prosecution Onetime disclosure window

Copyright © Khaitan & Co 2015 | 4 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

Copyright © Khaitan & Co 2015 | 5 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

Copyright © Khaitan & Co 2015 | 6 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

Copyright © Khaitan & Co 2015 | 7 …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’? 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’?

Copyright © Khaitan & Co 2015 | 8 …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.

Copyright © Khaitan & Co 2015 | 9 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’

Copyright © Khaitan & Co 2015 | 10 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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