India Investigating Illicit Use of Offshore Companies

December 13, 2010 Offshore TaxationTax HavensTaxation in India

India - A Multitude of People and Cultures (Mosaic)Indian tax authorities are beginning a series of new investigations to uncover evidence of tax evasion committed by over 100 different Indian companies suspected of dodging their tax obligations through intricate offshore company structures.

On December 12th the Finance Ministry of India announced that it would launching investigations to uncover evidence of tax evasion committed by over 100 high net-worth Indian businesses with operations in offshore tax havens. The investigation, which has been dubbed “Lifting the Corporate Veil”, will be run by the Income Tax department in conjunction with the foreign taxation unit of the Central Board of Direct Taxes (CBDT).

At the preliminary stage of investigations the CBDT already unearthed evidence of business structures that facilitate billions of rupee in tax evasion. The new investigation is aimed at scrutinizing companies which have undergone “financial restructuring” through multiple purchases, takeovers and acquisitions of overseas business entities. The CBDT believes that in some instances “a chain of overseas takeovers may be part of an exercise for an elaborate treaty shopping or tax evasion exercise.” It has already been announced that at least seven large companies potentially engaged in such behavior have been identified in the British Virgin Island alone. Additionally, tax officers are already been sent to Mauritius, the Isle of Mann, Cyprus and Bermuda to personally recover additional data needed for the investigations and any subsequent prosecutions.

It is expected that the upcoming in-depth investigations of the companies will reveal evidence of the violation of foreign exchange rules, money laundering, and other illicit activities. Any uncovered evidence of illegal actions not directly concerned with tax evasion will be immediately passed on to the appropriate authorities.

Photo by Dinesh Cyanam