HSBC Swiss account holders can't hide from Indian tax department anymore, here's why

MUMBAI: It’s the end of the road for many playing the cat and mouse game with the Indian tax office that has been trying for the past five years to uncover their secret bank accounts with HSBC Switzerland.
A week ago, many of these wealthy clients received emails from the British bank, asking them to authorise a party in Switzerland so the Swiss government can obtain the account-holders’ consent for sharing information with Indian authorities.

The emails, by an HSBC relationship manager, also mention that if a client does not give her consent within a specified time, the Swiss government, which has the information, will publish it in the official gazette.

The email notice pertains to accounts that were operational on or after January 1, 2011. The nature of the information, along with a template of a consent letter, will soon reach HSBC’s clients in India through the third party in Switzerland. Once the account-holder signs and directly emails the consent letter to the Swiss government, the latter will share information — like the balance amount in an account, past transactions and beneficiaries — with New Delhi.

A third party — a Swiss national or entity like a law firm — is being involved as the Swiss government cannot share the information with a foreigner. “Switzerland wants to give these account-holders a chance to give their consent. But even if they don’t, the information will appear in the official gazette and can be freely accessed by the Indian government. The HSBC email mentions a letter it received from the Swiss government and local Swiss laws under which this can happen,” a senior tax professional familiar with the development told ET.

Responding to an email from ET, a HSBC spokesperson said the bank didn’t comment on customer relationships. The turn of events will significantly weaken the stand of those who have been arguing that the income-tax department cannot act on stolen data.

The information was handed over to the French government by a HSBC Geneva employee who walked out of the bank with 11 floppies of data.

Many Clients Closed Accounts

In early 2013, income-tax officials tried to persuade those whose names figured in the stolen list to send a twopage letter — asking for account information and surrendering rights under the Swiss secrecy law — to two inhouse HSBC lawyers. But few did and many later told the bank not to part with the information as they had signed under duress. But under the present circumstances, with the Swiss authorities stepping in, it may be no longer possible to hold back information even if account-holders refuse consent.

The accounts, however, are not in individuals’ names, but are mostly in the names of companies which are owned by discretionary trusts based in tax havens such as Panama. Individual Indian taxpayers and even those who were earlier non-residents have been pulled up by the tax department as they have been named as beneficiaries of the trusts. According to two chartered accountants, quite a few of them have closed accounts before January 2011.

“Funds had been moved either to Dubai or Singapore or some other place. There is no way the tax department in India can penalise or prosecute them-…But those who didn’t are in the soup. It’s not clear whether they can avail the one-time window proposed in the new black money Bill for disclosing foreign assets,” he said. But the developments around HSBC and Switzerland’s willingness to part with information have send signals to the banking industry.

A month ago, officials of Credit Suisse Switzerland advised clients in India (over telephone) to produce certificates from one of the Big 4 audit firms that their money lying with the bank is legal and tax has been paid on it. The Swiss bank’s officials said if clients were unable to do so, the funds would be remitted through a draft that the bank would courier to a client’s postal address in India. Responding to ET’s email, a Credit Suisse spokesperson said the bank would not like to comment.