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CA Final · Direct Tax Laws & International Taxation · Application and Interpretation of Tax Treaties

A DTAA between India and Country Q contains an Exchange of Information article modelled on Article 26 of the OECD Model. Country Q's tax authority asks the Indian competent authority for details of bank accounts held by a Q resident in India, and Indian domestic law does not require India to have a domestic tax interest in this information. Which statement best reflects the treaty position?

India cannot refuse merely because it has no domestic tax interest or because a bank holds the information. The OECD-style exchange of information article overrides both grounds, provided the request is foreseeably relevant and confidentiality safeguards are respected. The taxpayer's consent is not needed.

  1. AIndia may refuse because it has no domestic tax interest in the information
  2. BIndia may refuse because bank secrecy under domestic law always overrides the treaty
  3. CIndia must give the information only if the Q resident consents in writing
  4. DIndia cannot refuse merely for lack of its own domestic tax interest or because the information is held by a bank, subject to the treaty confidentiality safeguardsCorrect

Explanation

Article 26 of the OECD Model states that a contracting state cannot decline to supply information solely because it has no domestic tax interest in it, nor because it is held by a bank or financial institution. Exchange is, however, subject to confidentiality and relevance requirements. Consent of the taxpayer is not required, so option C is wrong.

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