Swiss Supreme Court rules that it will not interfere in information sharing requests by Indian authorities

18 Jul 2022 , 11:58 AM

The Swiss Federal Supreme Court’s decision that the Swiss authorities can share such confidential information with India even if persons who are ultimate beneficiaries have not received any money from secret offshore trusts and numbered bank accounts has dashed the hopes of many resident Indians who were counting on the court to stop, or at least delay, the flow of data to the income-tax department here.

Legal representatives of some Indian residents argued before Swiss courts that the Indian tax office cannot tax the recipients in the absence of any financial distribution from foreign trusts, hence such personal financial information is irrelevant.

But over the past two weeks, the highest court has ruled repeatedly that it will not pass judgment on the justifications for the information requests made by the Indian government or whether those requests will be used to support tax claims. The Supreme Court ruled that Switzerland will provide information to India upon request without considering the information’s final significance or intended use.

The orders apply to foreign trusts with numerous beneficiaries, some of whom are connected to significant Indian corporate houses, that are located in tax havens.

Discretionary trusts, where trustees have the discretion to disburse the income, capital gains, or principal amounts from the trust to the beneficiaries, are a frequent arrangement employed by wealthy Indian families to retain money away from the prying eyes of the I-T department. Such a trust typically contains shares of a firm that was founded in the same tax haven or in a separate one and has accounts with a Swiss bank, with the family members listed as the trust’s beneficiaries.

On the grounds that the beneficiaries indirectly controlled the trust by choosing the trustees they nominated, some tax appellate courts in India have made an effort to lift the curtain separating the trust and the beneficiaries.

The decisions may limit the legal options open to Indians — or people of other nationalities with hidden bank accounts and tax haven arrangements — who want to keep their own governments from learning about their wealth.