Sunday, 20 September 2015

Introduction of FATCA in India.

The Indian Cabinet, chaired by Prime Minister Narendra Modi, approved signing of an Inter-Governmental Agreement (IGA) between India and the U.S. for implementation of the U.S. Foreign Account Tax Compliance Act (FATCA). 

Indian Finance Minister Arun Jaitley this week said India was not a tax haven and that taxes that were payable by foreign investors should be paid. The era of Indian information sharing and cooperation has begun. This is a major development for Indian financial institutions and U.S. persons with assets in India.
FATCA is a U.S. law which seeks to facilitate flow of financial information. FATCA requires Indian banks to reveal account information of persons connected to the U.S.  Non-compliant financial institutions could be frozen out of U.S. markets and subjected to punitive withholding taxes.
Foreign financial institutions (FFIs) in India, i.e. an insurance company, bank, or mutual fund, would be required to report all FATCA-related information to Indian governmental agencies, which would then report these information to Internal Revenue Service (IRS).  Foreign Financial Institutions must report account numbers, balances, names, addresses, and U.S. identification numbers. There is punitive 30% withholding tax on any financial institution that fails to report.
India agreed to sign a Model 1 FATCA Model Intergovernmental Agreement (IGA) with the U.S.  The IGA would likely require Indian financial institutions to report information on U.S. account holders to India’s Central Board of Direct Taxes, which would then share the information with the U.S. Internal Revenue Service (IRS).  The agreement would provide the Internal Revenue Service (IRS), access to details of all offshore accounts and assets beyond a threshold limit held by Americans here, while a reciprocal arrangement would be offered for Indian authorities as well.
Many Indian financial institutions have already registered on the IRS’s FATCA Registration Portal. The IRS has published a searchable list of financial institutions. The FFI List Search and Download Tool is located on the IRS’s FATCA website. The tool can be used to search for the name of a specific foreign financial institution and find out if it has registered under FATCA. As of today, 739 financial institutions in India have registered with the IRS.  Users can also download an entire list of financial institutions with the tool. See the FFI List Search and Download Tool and User Guide. Countries complying with FATCA can be found at FATCA – Archive.
Who is Reported?
Financial institutions in India will carry out a detailed due diligence on all their clients and report details of their U.S. clients to the Internal Revenue Service.  U.S. persons for tax purposes are generally considered as:
• A citizen of the U.S. (including an individual born in the U.S. but resident in another country, who has not renounced U.S. citizenship);
• A lawful resident of the U.S. (including any U.S. green card holder);
• Most U.S. visa holders (including H-1 and L-1 visa holders);
• A person residing in the U.S.
• Somebody who has spent considerable period of time in the U.S.
• American corporations, estates and trusts may also be considered U.S. persons
Which Accounts?
Indian financial institutions need to report certain accounts to the IRS under FATCA. The need for identifying U.S. person(s) arises from the fact that money invested in India needs to be reported to IRS in the U.S.  While the threshold limit for reporting will be specified by the regulators in India based on FATCA regulations, institutions will have reporting requirements under FATCA, in terms of threshold limits. As per FATCA, U.S. persons need to report to IRS in the following scenarios:
• If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year.
• The threshold is higher for individuals who live outside the U.S. .
• Thresholds are different for married and single taxpayers.
There is a provision for third party reporting under FATCA for FFIs which states, “Foreign financial institutions may provide to the IRS, third-party information reporting about financial accounts, including the identity and certain financial information associated with the account, which they maintain offshore on behalf of U.S. individual account holders”.
While the IRS has recently targeted Swiss, Israeli and Indian banks, India continues to be a focal point for the U.S.  government. While new criminal prosecutions start and continue, our law firm expects unabated aggressive enforcement of the U.S. tax laws, including increased criminal prosecutions and civil investigations. We have been advising our clients to expect the unexpected (and the worst) in their tax treatment and disclosure of offshore assets, particularly for Indian assets.
The fact that 77,000 banks have registered and over 100 countries will be providing government help to the IRS means that no foreign account is secret. U.S. persons must report worldwide income and most must file IRS Form 8938 and Foreign Bank Account Reports (FBAR) to report foreign accounts and assets. With such comprehensive databases, noncompliant taxpayers should beware; the government has better and more complete information than ever.

1.       What is FATCA?
2.       What does FATCA entail?
3.       Who is a US person?
1.  What is FATCA?
FATCA is an acronym for the United States (US) Foreign Account Tax Compliance Act (FATCA), which was introduced by the US Government in October 2009, but became law as part of the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010. FATCA is aimed at ensuring that US persons with financial assets outside of the US are pay US tax.
Under FATCA, Foreign Financial Institutions (FFIs) have to report accounts of US persons to the US Inland Revenue Service (IRS) either directly or indirectly. They have the option of entering into agreements directly with IRS, or through the Inter Governmental Agreements (IGA’s) signed by their home countries.
In order to implement FATCA norms in India, the Government of India has reached an “in substance" Agreement to sign an Inter Governmental Agreement (IGA) with the U.S.A.
2.  What does FATCA entail?
FATCA requires US persons including individuals who live outside the United States, to report their financial accounts held outside of the United States, and requires non-US financial institutions to report details of their US clients to the relevant tax authorities.
3.      Who is a US person?
A U.S. person is:
A citizen or resident of the United States (including a green card holder).
A partnership, corporation, estate, trust incorporated or created under U.S. law (U.S. incorporated entity)
A non U.S. incorporated entity having shareholding of 10% or more or ownership (Substantial Ownership) held by
a.       An Individual who was born in the U.S. or is a U.S. citizen or a U.S. resident (including green card holder) or has a U.S. address or U.S. mailing address or U.S. ‘in care of’ or ‘hold mail’ as a sole address.
b.      A U.S. incorporated entity as described above.
4.      What is the impact of FATCA in India?
The Government of India has concluded an 'In Substance' agreement with the Government of USA for entering into an Inter Governmental Agreement (IGA) for implementation of FATCA. In view of this all banks and other financial institutions in India will be required to identify, establish and report information on financial accounts held directly or indirectly by US persons.

5.  Is FATCA applicable to both personal accounts and business accounts?
FATCA legislation will affect both personal and business customers who are treated as ‘US Person’ for US tax purposes. The FATCA legislation will also affect certain types of businesses with US owners.
6.      What will be required of ING Vysya Bank Limited?
The Bank must:-
Undertake certain identification and due diligence procedures involving our new customers
Fulfill reporting requirements as may be defined by RBI/tax authorities in this regard.
Therefore we would be reviewing our existing customer base to confirm our customers’ FATCA status, and where necessary we may contact our customers for further information and documentation.
7.      Will FATCA be applicable to me if am not a US person?
In general FATCA does not apply to non- US persons. However, if any one of the indicators mentioned below is found, you may be required to provide additional information/documentation to determine if you are a US Person under FATCA.
  US citizenship or US residence
  US place of birth
  US address including US PO boxes
  US telephone number
  Repeating payment instructions to pay amounts to a US address or an account maintained in the US
   Current Power of Attorney or signatory authority granted to a person with a US address
   If ‘Care of’ or ‘Hold mail’ address which is the sole address for the account holder

  1. What happens if I am a US person?
    If you are a US person you may have to submit some additional information and documentation. Please visit the IRS web site in this regard.
  2. What happens if one of the joint owners is a US person?
    A joint account that has one US owner is treated as a US account and the entire account is subject to reporting as US person.
  3. What will happen in case of a non US incorporated company? Will FATCA be applicable?
    Yes. FATCA covers a wide range of entities and not just US incorporated entities
  4. How frequently will I have to provide information for FATCA purposes?
    FATCA is an ongoing process. If there is a change in the account information, we may be required to contact you to obtain additional information/documentation.
  5. What customer information is ING Vysya Bank expected to report to the U.S. IRS through the local regulator?
    The Inter Governmental Agreement is yet to be finalized. While the reporting requirements will be finalized in the IGA, it is likely to include but may not be limited to the following information:
    Name, address and Tax Identification Number (TIN) of each account holder that is a specified U.S. person
    If the account holder is a Passive Non Financial Foreign Entity (NFFE), the name, address and TIN of each substantial beneficial owner of that entity that is a U.S. person
    Account number
    Account balance or value

  1. When do I have to provide the requested information and/or documentation for FATCA?
    We will contact you in this regard in the near future.

  1. What will happen if I do not provide the requested information?
    In light of the aforementioned, we urge you to cooperate. For more information on FATCA please visit IRS website      

No comments: