NEW DELHI: While India is yet to sign a final pact with the U.S. for the Foreign Accounts Tax Compliance Act (FATCA), close to 1,000 Indian financial institutions and their overseas units are believed to have already registered with the U.S. tax authorities under this new regime. The tricky situation has arisen because India and the U.S. “reached an agreement in substance on the terms of the Inter Governmental Agreement” and India is already “treated as having an IGA in effect from April 11, 2014”.
At that time, it was agreed that India would sign the IGA by December 31, 2014 — which was the earlier deadline for many other jurisdictions as well. However, the U.S. has now agreed to extend this deadline. Earlier, Sebi and other regulators had asked the Indian financial institutions and their overseas units to go ahead with their registration with the US tax department, Internal Revenue Service, which is the nodal agency for the FATCA compliance.
Accordingly, close to 1,000 entities, including banks and mutual funds, have registered themselves and have got Global Intermediary Identification Numbers, sources said. This number would help the US authorities track any possible non-compliance in foreign jurisdictions by the resident individuals and companies from the U.S.
In the meantime, certain reservations have been expressed by various quarters, including from the government side and from the industry participants, about some FATCA provisions. There are reports that Sebi has also written to the Finance Ministry with its own concerns about the FATCA, although it could not be independently ascertained. Earlier, RBI is also said to have had its own reservations.
Under the FATCA regime, overseas financial institutions need to provide details about accounts held by Americans or foreign entities where the U.S. taxpayers hold a substantial ownership interest, as also about all major transactions. By way of a circular issued in June, regulator Sebi had informed market entities, including stock exchanges, mutual funds, portfolio managers and depositories, about FATCA.
If a financial institution does not comply to FATCA, it would have to pay 30 per cent penalty tax on all its U.S. revenues, including dividend, interest, fees and sales. The reporting and other compliance burdens on the financial institutions get simplified if their country has signed an IGA in this regard with the U.S.
Finance Minister Arun Jaitley recently said the consequences of not signing the FATCA agreement with the U.S. could be disastrous and it would negate the efforts being undertaken by our government to revive the economy. As per the IGA proposed between India and the U.S. , a financial institution will be required to submit the necessary information to the regulators and tax authorities in India, which in turn would pass on the details to the IRS. For some countries, the institutions would report directly to the IRS, failing which they will face the withholding tax.