Bermuda Named In India Tax Probe

December 12, 2010

1Assorted_international_currencies India’s Finance Ministry has embarked on a major investigation into more than a hundred offshore “financial structuring deals” undertaken by Indian business entities in various off-shore jurisdictions including Bermuda.

New Delhi investigators are probing investments and deals to the tune of billions of rupees executed in what they are calling “tax havens” like Bermuda, Mauritius, the Isle of Man, Cyprus and the British Virgin Islands.

These deals will be scrutinised by the investigators, who are also travelling to some of these countries to collect additional information, it is being reported by the Press Trust of India today (Dec. 12).

The investigation, called “Lifting Corporate Veils”, will examine overseas deals, including some big ticket ventures, to investigate whether “a chain of overseas takeovers may be part of an exercise for an elaborate treaty shopping or tax evasion exercise.”

According to an Indian media report quoting sources privy to the investigations, Indian Finance Ministry has identified a seven companies in the British Virgin Island alone that are possible front companies for such investments.

Certain Indian entities allegedly invested in companies set up in these offshore tax havens to avoid taxes or pay close to zero tax under the guise of financial restructuring.

“Privacy and confidentiality and freedom from all taxes in these havens are guaranteed. Company structures are flexible and the process of incorporation is fast and efficient while doing financial structuring in these places,” sources said.

India signed a pact with Bermuda in October to facilitate exchange of information between the two countries regarding tax evasion.

The Tax Information Exchange Agreement (TIEA) conforms to the guidelines issued by Organisation for Economic Development & Cooperation for countries considered tax havens to share information. The concept of TIEA was developed by OECD for promoting cooperation in tax matters via exchange of information.

Signed by then Premier Dr Ewart Brown and India’s Minister of State for finance S. S. Palanimanickam, both countries can share details on banking, ownership and past information on tax matters.

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Comments (3)

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  1. Googlybda says:

    But our Premier says that concerns about our tax haven status are overblown. In fact the TIEA with India would bring more business. Is there one shred of evidence that the agreement with India was for anything more than enabling India to investigate tax evasion using Bermuda and other tax havens?

  2. David E. Chapman says:

    I agree with you sentiments towards being cautious Googly, as this was a concern that some had with tax information exchange agreements with the US. This website ( makes some good points on the topic and shows that such TIEA’s have both pros and potential cons, but also that 1) Bermuda is by far not the only country to sign them as many similar jurisdictions like Jersey and Guernsey for example have as well as 2) they have not signaled mass flight of businesses or a reticence to do business in those countries that have them. It is more about giving confidence to the international community, including national interests like India, that Bermuda is operating in a fair and transparent way.

  3. Googlybda says:

    David, the link you provide does show that TIEA’s have both pros and cons.
    The main one being that they enable tax havens to stay off the “black list” of the OECD.
    This in it’s self does not enable Bermuda to attract more business and does not enhance the motivation to use Bermuda. You will note that TIEA’s are geared to providing information to tax authorities with regard to probable tax evasion.
    This is a major issue for Bermuda as a significant number of companies and individuals no doubt use Bermuda for this purpose. Others have used it for investment fraud and Ponzi schemes e.g. Madoff and IPOC.
    Bermuda clearly does not want these companies, however they exist and blacken the name of Bermuda.
    However, this does not go to the central issue of why Bermuda should be “more” than cautious….The attack on Tax Avoidance worldwide!
    Tax avoidance if done carefully is legal. Without a doubt it is widespread and used by many legitimate companies and individuals.
    The use of tax avoidance has in the last 20 years become very aggressive, to the point where tax authorities all over the world recognize that huge amounts of tax are being avoided in this way. In many cases hiding under the guise of tax avoidance when in fact they are more characteristic of tax evasion. Be that as it may, tax avoidance is under attack, there is no other word for it.
    Why does this affect Bermuda? Because one of the key planks in our International Business Model is Zero tax on profits or capital gains! We are a tax haven!
    If the tax authorities around the world close the loopholes in their own legislation this will have a dramatic effect on Bermuda’s viability.
    President Obama has declared war on tax havens such as Bermuda! Only the Republicans can blunt his sword somewhat. They need tax dollars and Bermuda and other tax havens are easy targets.
    The UK has placed f900 million pounds of funds to go after tax evaders and avoiders, whilst the parliament has a task force looking at how to strengthen the tax law including GAAR provisions.
    India is going to great lengths to get a handle on where international investment is coming from and is very aggressive and effective in going after tax dodgers.
    I could go on and on.
    What I would like to hear from you David or anyone else is a case for continuing with the status quo (same business model) and hoping that this will all blow over.
    This factor of losing a key tax advantage around the world is bigger than in cost of doing business in Bermuda and also the hassle that international business is put through regarding immigration.
    I would like to hear more than platitudes and more honesty and transparency regarding Bermuda’s Future.
    Once we accept reality, we can move on to finding meaningful solutions.