Apr.29, 2010, 00:59 hrs IST

The Board of Control for Cricket in India (BCCI) was put on notice two weeks ago, after a controversy over money laundering and funding sources hit cricket and the games’ administrative body in India. Tax authorities sent out summons asking BCCI to disclose the balance-sheet of its arm, the Indian Premier League (IPL), ownership and shareholding of franchisees since inception and their contracts with IPL. After searches and surveys, taxmen are now sifting through a mine of information, hoping to track the money trail.

Their task is daunting, given the complex shareholding structures of some of the IPL franchisees that have registered their companies in off-shore tax havens. Private companies that own IPL teams are not obliged to make public disclosures of their shareholding.

However, if the BCCI does not come clean on ownership of the franchisees, tax authorities can lift the corporate veil and source information from countries where these companies are registered. The holding company of one franchisee, for instance, is registered in Mauritius.

There is nothing illegal about routing investments into India through Mauritius. But there is a problem when Indian residents use this route to launder money. The practice, called round-tripping, was rampant in the nineties, when Indian residents converted their blackmoney into legal money by floating shell companies in Mauritius that invested in the Indian equities market. It continues even now, perhaps, in a more complex way.

In the IPL case too, doubts have been raised over money laundering through tax havens. This has prompted tax authorities to look at the source of funds of IPL franchisees. India’s tax treaty with Mauritius has a provision on exchange of information. Tax authorities can, therefore, seek information on the ownership of a company registered in Mauritius.

The island nation has no restrictions on providing access to bank details for tax information exchange purposes. Several legal hurdles, however, have to be crossed before banking information is handed over to another country. Transactions have also become more complex in a globalised world, with taxpayers often jumping jurisdictions to hide their identity and source of funds.

A company registered, say, in Mauritius can borrow funds from an entity in another off-shore tax haven like Cayman Islands, compelling tax authorities to look beyond Mauritius to track the money trail. Today, India does not have tax information exchange agreements with tax havens, including Cayman Islands or Bermuda, though it has initiated the process of negotiating pacts with these countries. So, verifying the ownership of some of the IPL franchisees could take a long while if the money has come through many jurisdictions.

There is, however, a ray of hope. Tax havens have been forced to put their house in order, after the G20 threatened to clamp down against them. They have promised to implement exchange of information agreements with their treaty partners, in sync with standards set by the Organisation for Economic Cooperation and Development (OECD).

In due course, these countries will have to share information if the treaty partner places a request. Bank secrecy will not come in the way and they will also have to disclose details on the ownership of companies registered in their jurisdictions. Countries that do not comply with these norms face the threat of being black-listed again for harmful tax practices.

OECD’s global forum on transparency and exchange of information has stepped up its efforts in the international fight against tax evasion, launching a peer review of countries including India and Mauritius. The review will assess if the information exchange agreements are indeed effective. Countries will be rated as compliant, largely compliant, partially complaint and non-complaint, depending on the outcome of the review.

A peer review could put pressure on countries such as Mauritius, that have an easy tax regime to attract investments, to become more transparent in sharing information with their treaty partners. Some comfort for Indian taxmen on the IPL trail. The IPL mess needs to be cleaned up, even if it is a long haul.