India has signed a multilateral pact that would help it better understand how multinationals structure their operations around the world and distribute the income and taxes paid. Amit Singhania, partner, Shardul Amarchand Mangaldas-Co, a law firm, said that the 2016 Finance Act laid the groundwork for CBC coverage and that India had now signed the multilateral pact, adding that both developments are evidence of India`s determination to reduce tax evasion and promote transparency and information exchange between nations. Since October 2014[update], 51 countries have signed the Multilateral Competent Authority Agreement (MCAA) to automatically exchange information on the basis of Article 6 of the Convention on Mutual Tax Assistance.  One of the important outcomes of these coordinated efforts is multilateral/bilateral agreements on the exchange of tax information, such as the Automatic Exchange of Information Exchange (AIA) jointly launched by the G20 and the OECD. Information exchanged automatically is usually collected on a regular basis in the country of origin, usually by the payment report by the payer (financial institution, employer, etc.). Automatic exchange can also be used to transmit other types of useful information such as changing residence, buying or injunctioning real estate, VAT refunds, etc. As a result, the tax administration of a tax member`s country of residence can verify its tax documents to verify that taxpayers have properly reported their income from foreign sources. In 2010, the United States adopted the Foreign Account Tax Compliance Act (FATCA) to combat tax evasion by providing information on offshore financial accounts managed by U.S. citizens and citizens. FATCA`s provisions essentially provide for a 30% withholding tax on payments made by the United States to foreign financial institutions, unless they enter into an agreement with the Internal Revenue Service (USRI) to provide information on accounts held by U.S.
individuals or entities (companies/companies/trusts) controlled by U.S. individuals. Because the national laws of sovereign countries (including India) do not directly allow the United States to disclose confidential information to clients by ISPs. The United States has an intergovernmental agreement (IGA) with various countries. The IGA between India and the United States was signed on July 9, 2015. It provides that Indian ISFs provide The Indian tax authorities with the necessary information, which is transmitted periodically to the United States. Under the IGA, the United States will also provide some information on Indians with financial assets in the United States. The text of the IGA signed between India and the United States is available here. The fight against this transnational transfer of funds for prevention and tax evasion shows that national efforts are not enough to combat dirty money.
It is therefore necessary to establish tax cooperation and exchange of tax information between countries. Many efforts are now being made around the world to promote the exchange of tax information. The G20 – OECD WORLD FORUM – has encouraged automatic exchange of information (AIA), the US-sponsored Foreign Account Taxpayer Compliance Act (FATCA), and many provisions under bilateral agreements to avoid double taxes are the biggest attempts.