Offshore properties may face scrutiny

Concealed real estate assets located abroad could face heightened scrutiny due to the implementation of a global real-time data sharing framework by national authorities. This represents the next phase of governments\’ efforts to combat tax evasion and money laundering.

The Organisation for Economic Cooperation and Development (OECD) presented recommendations to the leaders of G20 nations during the New Delhi summit, focusing on tax compliance related to offshore property holdings. These recommendations, requested by the Indian presidency, have substantial implications.

The OECD highlighted the expansion of cross-border real estate holdings and proposed both short-term and long-term models for enhancing tax transparency concerning such assets held overseas. One model adheres to the conventional data-sharing approach, while the other, more innovative model involves direct access to interconnected digitalized ownership registers, accessible in real-time by relevant government agencies.

This framework is designed to seamlessly link national registers, featuring a unified query portal, with defined access protocols, confidentiality standards, and an international legal instrument or treaty to facilitate cross-border access. Once implemented, this framework will elevate global information sharing, which currently primarily focuses on financial holdings.

Experts suggest that the OECD, in part, attributes the shift in investor preference from financial assets to real estate over the past decade to the automatic exchange of financial information among nations. The proposed model for tax transparency of real estate assets is anticipated to be a potent tool for ensuring tax compliance.

Rakesh Nangia, Chairman of Nangia Andersen India, explained that the Indian government introduced a Schedule FA to combat tax evasion and money laundering, which has been a part of income-tax return forms since FY11-12. Presently, tax authorities lack visibility into the foreign real estate holdings of their residents. With this data made available, tax authorities will be able to compare declarations in tax returns with real estate holdings data, potentially triggering further investigations in case of discrepancies.

Furthermore, real-time information retrieval would empower tax authorities to access data as needed, eliminating the reliance on periodic data exchanges.

Amit Maheshwari, a tax partner at AKM Global, observed that the OECD\’s specific proposals will enhance transparency in cross-border real estate transactions, benefiting not only tax authorities but also other regulatory bodies, anti-money laundering agencies, and law enforcement authorities.

Maheshwari emphasized that the implementation of these recommendations is likely to promote greater accountability and compliance among investors holding overseas real estate assets. However, investors may become more cautious about concealing real estate assets or income in offshore accounts. These recommendations could lead to increased tax compliance and a shift in tax-related investment strategies.

The G20 leaders\’ declaration in New Delhi acknowledged the OECD report, and it is anticipated that future summits will drive the adoption of these measures, according to Nangia.

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