SHARETIPSINFO >>Research Reports >>HSBC under scanner for tax evasion >> (09-05-2013)


HSBC, the major global bank, has been courting controversy which seems to be rearing its ugly head every now and then. Allegations of tax evasion have been made by US authorities against its clients who are Indians based in America.

HSBC is now likely to face penalties from the US tax department for having accounts of clients of Indian origin who have been accused of evading taxes. In response to these charges, HSBC has come out with a statement expressing its  full cooperation with the US department of Justice and Internal Revenue System (IRS).
These agencies are ascertaining whether the Bank and its employees have in any way behaved inappropriately with clients who are under the scanner. This news has been disclosed as a part of “regulatory and law enforcement investigations” by the HSBC, UK, along with the declaration of their first quarter results.

According to their report, HSBC, USA was given a ‘John Doe’ summon by the IRS, in April 2011, to reveal its records of its clients based in the US of its branch in India.  HSBC, UK, further clarified that “We have cooperated fully by providing responsive documents in our possession in the US to the IRS.”
‘John Doe’ summons  is a name given by the US tax department, Internal Revenue System, to a third party to reveal the details of the person who is a potential tax liability. This anonymous person, in IRS lingo, is referred to as ‘John Doe’.

HSBC, UK also disclosed that the US branch had received a subpoena by the US markets regulator SEC asking them to show records that dealt with the cross border procedures and policies of its Private Bank Suisse SA and whether it had followed the rules and regulations laid down for US residents.
The bank has given assurances that HSBC, US is cooperating with the authorities. It further mentions that “it is not practicable at this time for us to determine the terms on which these ongoing investigations will be resolved or the timing of such resolution or for us to estimate reliably the amounts, or range of possible amounts, of fines and/or penalties.”

HSBC, UK is concerned that the penalties could be a significant amount. It was two years ago that the US Justice department had asked HSBC, USA to declare if any accounts at HSBC, India were being used by their Indian clients to evade taxes and make them known to the IRS.
According to US Federal laws, income tax has to be paid on all  domestic or foreign income. US taxpayers are required to declare their overseas accounts if their accounts exceed $10,000 at any given time in the year.

Suspicions came up when Vaibhav Dahake was declared a tax evader with accounts in British Virgin Islands and HSBC India. He had these accounts to allegedly stash away his undeclared income.

According to court reports at that time, HSBC and its employees in the US had given an assurance to Vaibhav Dahake that his account in their bank in India would not be reported to the IRS. What really raised the government’s antenna was the opening of two representative offices in 2002 and 2007 in New York and California respectively, with the aim to help resident Indians open accounts in India.
The US government is not convinced that although these offices have been shut since 2010, HSBC has closed its NRI accounts in India. According to reports, “NRI clients had told IRS investigators that NRI representatives in the US assured the clients that they could invest in accounts at HSBC India without paying US income tax on interest earned on the accounts and that HSBC would not report the income earned on the HSBC India accounts to the IRS.”

Meanwhile, under the Inter Government Agreement and FATCA( Foreign Asset Tax Compliance Act), the Indian government has been reached out to extend cooperation with the IRS. They have been asked to supply details of accounts of  US based Indians in Indian financial institutions and banks. Clearly, the US authorities are digging deep into the matter. It won’t be long before more details are revealed.

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