New Delhi, November 28, 2017

India ranks 19th out of the 180 countries covered under the leaked data in terms of the number of names involved

Tax advisors servicing the 714 Indians named in the vast leak of financial records, dubbed the Paradise Papers, might find themselves in the tax sleuth's cross-hairs.

The Economic Times reported on Tuesday that two unnamed sources who had knowledge of the matter said that tax advisors of Indians named in the list could be caught up in the income tax (I-T) department's net too. However, according to the report, Finance Secretary Hasmukh Adhia, who the paper said appeared to be "non-committal" on the issue, said that the authorities could not "disclose the processes which are initiated or which are going on". While responding to the financial daily's queries, Adhia said that the authorities could reveal what actions have been taken "as and when the investigations are completed".   

But how will the authorities go after the concerned tax advisors? According to the financial daily, the government will utilise an income tax provision, which was introduced last year, that empowers revenue authorities to penalise an individual who has aided in or advised for tax evasion. One unnamed source told the financial daily that the government was going to test a recently passed section under the income tax law that allowed for tax advisors being pulled up under Section—277A.

There are other options at the tax sleuth's disposal. While speaking to the financial daily, KPB & Associates Partner Paras Savla explains: If it's proved that any advice was given with the only intent of helping a client "escape tax", then action can be taken against a tax advisor. In fact, such penal provisions are provided under the Income-Tax Act and the recently amended Benami Act. However, Salva cautioned that the "distinction between tax planning and tax evasion is required to be understood" since, in the case of advice given for tax planning, penal action would not apply.   

Most tax advisors, for their part, have told the financial daily that such government action would cause panic in their professional community.

Individuals on the list are already under the scanner. As reported earlier, hours after the Paradise Papers leak of financial documents, pointing at possible illegal offshore dealings, the government swung into action and re-constituted a multi-agency panel led by the chairman of the I-T department to carry out a probe into it.

The Central Board of Direct Taxes (CBDT) has alerted its teams across the country to carry out investigations based on the returns filed by individuals on the list. "We will match the information in the Paradise Papers to ascertain cases of tax evasion," said CBDT Chairman Sushil Chandra, who will also head the multi-agency panel. Besides I-T department officials, the panel comprises representatives of the Enforcement Directorate, the Reserve Bank of India, and the Financial Intelligence Unit.

India ranks 19th out of the 180 countries covered under the leaked data in terms of the number of names involved, reported the Indian Express, which first reported on the matter in India. Further, according to the report, 714 Indians find mention in the papers.

Writing for the Business Standard, Naveen Wadhwa, the deputy general manager at Taxmann.com, explains what the Paradise Papers reveal: "The papers reveal information on the offshore activities of various high-net-worth individuals (HNIs) and multi-national companies. As per these papers, many offshore companies seem to be 'sham' entities engaged in the practices of tax evasion, tax avoidance, manipulation of the market, money laundering, round tripping, parking black money, and bribing, among other things."

The leaked data, obtained by German newspaper Süddeutsche Zeitung, as was the case with the Panama Papers, and investigated by the International Consortium of Investigative Journalists (ICIJ), originates from two firms – Bermuda's Appleby and Singapore's Asiaciti – as well as from 19 tax havens across the world.  

[The Business Standard]