What G20 decided on crypto and foreign assets

When leaders of G20 meet and deliberate upon various socio-economic and geo-political policy decisions, it is naturally seen as being progressive. But when they also discuss ‘tax’, it arouses everyone’s curiosity. In their joint declaration, the G20 leaders agreed to continue cooperation towards a globally fair, sustainable and modern international tax system appropriate to the needs of the 21st century.

The G20 has reaffirmed its commitment to the swift implementation of the ‘Two-Pillar’ international tax package. ‘Pillar One’ allocates certain portion of the taxing right to market jurisdictions, from residential jurisdictions. For instance, under ‘Pillar ‘One, India will be able to impose certain portion of income tax on the sales generated in the Indian marketplace by giant e-commerce digital platforms like Amazon, Google, Facebook, ChatGPT etc, which otherwise claim non-applicability of any Indian tax liability in the absence of any permanent establishment (PE) of these companies in the country. However, unilateral measures like equalization levy will require withdrawal after implementation of ‘Pillar One’.

The big US-based multinational companies (MNCs) such as Apple, Amazon, Google and Facebook have consistently used complex networks of international subsidiaries incorporated in low tax jurisdictions or tax havens with multiple routes to minimise their tax incidences by moving their bases or profits from higher tax jurisdictions to lower tax jurisdictions or tax havens. Pillar Two provides for the levy of a global minimum corporate tax rate of 15% on all such big MNCs, whereby any shortfall between such global minimum tax rate and the tax rate in the low tax jurisdiction will have to be paid by such MNCs as a top-up tax.

One of the major highlights of the joint declaration is the G20’s call for the swift implementation of the Crypto-Asset Reporting Framework (CARF) and amendments to the ‘Common Reporting Standard’ (CRS).

CARF, developed in light of the rapid growth of the crypto-asset market and pursuant to a mandate from the G20, provides for the reporting of tax information on transactions in crypto assets in a standardized manner, with a view to automatically exchanging such information with the jurisdictions of residence of taxpayers on an annual basis. So, now crypto transactions undertaken by Indians on foreign-domiciled crypto exchanges will also come under the purview of automatic exchange of information protocol under CARF, and as such it will no longer be possible to hide or conceal such crypto transactions. Similarly, under the amended CRS, requiring more tax transparency with respect to financial accounts held abroad, it would become next to impossible for Indians not to disclose their foreign bank accounts and assets holdings abroad to the tax authorities.

The G20 has also taken note of the OECD (Organisation for Economic Co-operation and Development) report on enhancing international tax transparency on real estate and the Global Forum Report on facilitating the use of tax-treaty-exchanged information for non-tax purposes. At present, the confidentiality laws of a tax haven /low tax jurisdiction often come in the way of Indian tax authorities, and also any information obtained through any tax treaty agreement in respect of any undisclosed foreign asset or real estate holding of an Indian resident, can’t be readily used by other regulatory agencies like the Enforcement Directorate, Central Bureau of Investigation, Serious Fraud Investigation Office, etc., other than the income tax department. But, following a request from the Indian G20 presidency, a methodology is being worked out to streamline the wider use of treaty exchanged information between interested jurisdictions.

So, post this historic G20 summit, convened successfully under India’s presidency, non-disclosure of any crypto transaction, foreign bank account, or real estate holding abroad by an Indian resident to Indian tax authorities may prove to be a very costly affair in terms of regulatory fines and penalties.

Mayank Mohanka is the founder of TaxAaram India and a partner at SM Mohanka & Associates.

Updated: 11 Sep 2023, 10:57 PM IST