To streamline the corporate culture of India, Indian government formulated the Indian Companies Act 2013 (PDF). The 2013 Act has brought many far reaching and reformative steps in the corporate environment of India.
The 2013 Act has also widened the powers of Serious Frauds Investigation Office (SFIO) of India. Now even the Central Government permission is not required by Central Bureau of Investigation (CBI) to prosecute senior bureaucrats for corruption cases monitored by Supreme Court of India.
The Ministry of Corporate Affairs (MCA) has also issued some Rules under Chapter XIV of Indian Companies Act, 2013 pertaining to Inspection, Inquiry and Investigation by Indian Authorities and Serious Frauds Investigation Office (SFIO). The Suggestions Regarding Rules Pertaining to Inspection, Inquiry and Investigation (SFIO) by Perry4Law (PDF) has already been provided by us in this regard.
However, corporate frauds, financial frauds and cyber crimes are still on rise in India. Companies in India are not at all following cyber law due diligence requirements and this has resulted in increased cyber crimes and online frauds in India. These irregularities and crimes can be easily detected if an e-discovery exercise is undertaken by law enforcement agencies of India.
The transfer pricing laws in India also need to be strengthened as many telecom companies have been avoiding payment of taxes due to inadequate transfer pricing laws of India.
Corruption among corporate world has also necessitated use of e-discovery and cyber law due diligence by and against Indian companies. For instance, Indian and foreign corruption and technology related due diligences in India has gained importance. Corruption and the regulatory measures to prohibit corrupt practices have assumed new meaning with the passing of the Jan Lokpal and Lokayuktas Act, 2013 by the Parliament of India.
Now Economic Times has reported that as part of its strategy to combat black money, India will soon operationalise its first-ever Income Tax office in Cyprus to tackle funds flowing from the island nation even as it mulls rolling back suspension of tax benefits on investments made from that country.
Sources said final approvals from the Prime Minister’s Office (PMO) have been obtained to post an Indian Revenue Service officer as First Secretary in the country, one of the main sources of foreign direct investment into India, and also at seven other foreign locations which include France, Germany, Netherlands, Japan, UAE, UK and USA.
“The offices have already been set up in these countries and with the posting of these officers they will begin operations in the next one month,” sources privy to the development said.
The government had decided to set up the Income Tax Overseas Units (ITOUs) in these eight countries as part of its multi-pronged strategy to combat black money and streamline flow of investments from these nations into India. Two such ITOUs are already operational in Mauritius and Singapore.
India and Cyprus had entered into a Double Taxation Avoidance Agreement (DTAA) in 1994. But in November this year, India classified the island nation as a notified jurisdictional area and suspended the tax benefits.
Following the notification by the Finance Ministry, all payments made to Cyprus attracted a 30 per cent withholding tax and Indian entities receiving money from there were required to disclose the source of funds. India took the decision to withdraw tax benefits on grounds that Cyprus was not providing information requested by tax authorities under the taxation treaty.
After this decision Cyprus had said the Indian government has agreed to withdraw a notification that suspended tax benefits for investments from the island nation but this is subject to the foreign nation adopting the global convention on exchange of tax information.
In a recent statement on renegotiation of the existing DTAA (Double Taxation Avoidance Agreement), Cyprus also said a new tax treaty is expected to be finalised soon. Cyprus also said it would adopt provisions of Article 26 of the OECD Model Tax Convention relating to exchange of information in a new DTAA between the two countries.
The government’s intention to increase the numbers of ITOUs is drawn from the idea that these units could obtain hassle-free information on tax and financial data of investments made by individuals and institutions in these countries and facilitate exchange of data on legal investment or routing of money in India and vice-versa.
This is a good step in the right direction but much is still to be done in this regard.