Govt launched probe against 30,000 ‘shell’ firms in 2016-17
NEWDELHI: India launched its biggest fight yet against the use of shell companies to evade tax or launder money by targeting around 30,000 companies and their directors in 2016-17, a government official said on condition of anonymity.
The number is significant because the finance ministry and various investigative agencies launched only 1,150 investigations against shell companies in the previous three years.
Shell companies meticulously comply with statutory requirements such as filing tax returns and annual reports so that they do not draw attention, unlike defunct companies—the dead wood in the corporate world— which do not comply with these requirements and are from time to time struck off from the Registrar of Companies (RoC) data base. Recently, the RoC struck off around 162,000 such defunct companies from its database, said the official cited above.
Often, though, such companies are used to launder money and evade tax.
Addressing chartered accountants on 1 July, Prime Minister Na rend ra Mo di said the government had identified 37,000 shell companies.
The finance ministry has asked the corporate affairs ministry to routinely comb the database of companies to identify entities that are fronts for financial crimes and tax evasion.
“Companies with low capital base, negligible operations and promoters who ostensibly hold that position for some other beneficial owner are indication sofa company being a front for tax evasion ,” explained another government official, who also spoke on condition of anonymity.
Many of the shell companies identified in 2016-17 came on radar of the authorities for suspicious transactions after the government’ s decision to demo ne ti se high-value currency notes in November. Many of them are incorporated in Kolka ta but with beneficiaries across the country. These entities are now being investigated under the laws dealing within come tax, money laundering, foreign exchange violations, benami (or proxy) transactions and undisclosed foreign income or assets.
“These companies are either used for money laundering or have the potential for being used. In many cases, the agencies have established their wrong doing,” said the first official quoted above.
It isn’t easy to identify a shell company, said a third government official who asked not to be identified.
“We are now asking companies to furnish the A ad ha ar number of director son the board at the time of incorporation. Eventually, all existing companies have to link the A ad ha ar number of their directors with their director identification number (DIN) issued under the company law.” DIN is used to identify directors and to track the number of directorships a person has.