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