India to Implement FATCA

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DELHI – In line with an intergovernmental agreement (IGA) concluded “in substance” with the United States in April, the Reserve Bank of India (RBI) and the Securities and Exchange Board (SEBI) have announced India’s timeline for full Foreign Account Tax Compliance Act (FATCA) implementation as the act comes into effect today.

Under FATCA, participating foreign banks and financial institutions are required to report the offshore accounts and assets of U.S. citizens and foreign firms in which U.S. taxpayers hold substantial ownership.

In agreeing to comply with FATCA, Indian authorities will similarly be granted access to information on Indian taxpayers’ U.S.-based holdings.

After constituting a special investigative team to recover “black money,” or undeclared income, from abroad last month, ensuring FATCA’s full implementation will inevitably be among the Modi administration’s top priorities this year.

According to the RBI, Indian banks will soon be required to comply with FATCA by year-end. “Indian financial institutions would have time up to December 31, 2014 to register with U.S. authorities and obtain a Global Intermediary Identification Number (GIIN),” the bank said in a statement.

A circular released by the SEBI yesterday (CIR/MIRSD/2/2014) outlined relevant deadlines and regulations regarding Indian banks’ compliance with FATCA.

Under the FATCA regime, noncompliance risks a 30 percent withholding tax on U.S.-derived income channeled through domestic financial institutions. After a formal IGA is signed between India and the U.S. on FATCA, Indian financial institutions with overseas branches will have until December 31 to register for a GIIN and financial entities with overseas branches in jurisdictions without an IGA have until July 2014 to register as foreign financial institutions (FFI).

Registration will only be required after the formal IGA is signed, however.

India’s announcement that it will soon officially join the growing list of countries implementing FATCA follows China’s announcement that it reached an “in substance” intergovernmental agreement with the United States on the matter last week.

To date, the U.S. has several intergovernmental agreements (IGAs) regarding FATCA with Britain, Germany, Japan, Switzerland, Norway, Ireland and Spain (among others), and several more are expected to follow later this year.

In April, India announced its IGA with the U.S. would be under the terms of a Model 1 IGA, which includes reciprocity. While the agreement has not yet been formally signed, India is currently treating the IGA as effective from April 11.

Under FATCA, the financial accounts and offshore assets of U.S. individual taxpayers must be reported on Form 8938 of an income tax return if the total asset value exceeds a certain reporting threshold. This threshold varies, but is generally around US$200,000.

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