Black Money – Domestic and International Efforts

Sebi, income tax dept to probe Indians named in Paradise Papers


Mains Paper 3:  Money laundering and its prevention.

The following things are important from UPSC perspective:

Prelims: International Consortium of Investigative Journalists (ICIJ), CBDT, SEBI

Mains level: It is important to know how CBDT, SEBI and the government are planning to crackdown on companies and individuals evading taxes. This article talks about the Paradise paper leak which seconds such big leak disclosure by ICIJ since Panama paper leaks of 2015.



Paradise Paper Leak

  1. The income-tax department and the capital markets regulator said they will be scrutinizing the so-called Paradise Papers, documents obtained by a global network of investigative journalists to see if any Indian individual or companies were guilty of wrongdoing.
  2. While the income-tax authorities will investigate companies allegedly evading taxes by using complex offshore structures, the market regulator will be scrutinizing disclosures.

Steps Taken by CBDT

  1. The Central Board of Direct Taxes (CBDT) has asked its investigation wing to reopen the income-tax returns filed by the companies and individuals named in the leaks to see if any of their past incomes have gone un-taxed.
  2. It has also briefed all directors general of investigations across the country about the exposé by the International Consortium of Investigative Journalists (ICIJ). These reports have not named all the companies and directors in those companies.
  3. Wherever names are available their income-tax returns will be checked to see if there is any under-reporting of income.
  4. Also, once more details and names come out, the tax department will take appropriate action.
  5. The Indian Express reported that 714 Indian companies and individuals are listed in the documents.
  6. The CBDT has also reconstituted the multi-agency group headed by its chairman to monitor investigations into the papers. Previously this group made up of officials from the tax department, the Enforcement Directorate, the Reserve Bank of India and the Financial Intelligence Unit had monitored investigations into the so-called Panama papers, another set of financial documents leaked from a Panamanian law firm in 2015, dealing with offshore assets allegedly held by businesses.

Steps taken by SEBI

  1. The Securities and Exchange Board of India (Sebi) has initiated an examination of the listed companies mentioned in the Paradise Papers for disclosure lapses and fund diversion.
  2. Sebi will ask stock exchanges to ask for information from the listed companies on their offshore entities and this will be matched with their statutory disclosures.
  3. These disclosures are made by companies in their annual reports and exchange filings.
  4. Mere existence of an offshore entity is not an offence but not disclosing it is in violation of Sebi Act.

Steps taken by the Government

  1. India renegotiating its tax treaty with countries such as Mauritius, a major source of foreign direct investment into India.
  2. India is also renegotiating its bilateral investment protection agreements with other nations to check abusive practices by businesses.
  3. In June, India joined a multilateral agreement to combat aggressive tax avoidance by multinationals, which at one stroke modified India’s DTAAs with about 93 nations, including Cyprus, Mauritius and Singapore.
  4. The country also actively participated in evolving the treaty text with members of the Organisation of Economic Cooperation and Development

Not all cases mentioned in the Paradise Leak are fraudulent

  1. It may be the case that many cases listed in the Paradise Papers may not actually be tax frauds as setting up holding companies in countries with which India has double tax avoidance agreements (DTAAs) to route investments into India has been a common tax planning practice.
  2. In the investigations into the Panama Papers, the income-tax department found that about 279 cases were “non-actionable”. In the 46 cases in which action has been taken, five criminal cases were filed and investigations are ongoing in other cases.
  3. Indian companies and individuals are allowed to invest abroad but regulations require these outbound capital flows to be reported in tax returns.
  4. Structured data connected to the Paradise Papers investigation will be released only in the coming weeks on the offshore leaks website of ICIJ in phases.


The International Consortium of Investigative Journalists (ICIJ)

  1. It is a global network of more than 200 investigative journalists in 70 countries who collaborate on in-depth investigative stories.
  2. Founded in 1997 by the respected American journalist Chuck Lewis, ICIJ was launched as a project of the Center for Public Integrity, focusing on issues that do not stop at national frontiers: cross-border crime, corruption, and the accountability of power.
  3. In February 2017,ICIJ was spun off to become a fully independent news organization with the goal of extending our global reach and impact even farther.
  4. ICIJ was recently granted its own nonprofit status from U.S. tax authorities.
  5. ICIJ is governed by three committees – a traditional board of directors with a fiduciary role; an Advisory Committee made of supporters and experienced investigative journalists; and an ICIJ Network Committee.

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