11 key questions on FATCA answered

The Indo-US deal on the Act will help both fight coountries tax evasion. Here’s a primer on how you could be affected

The United States and India struck a bilateral deal on Thursday that would enable them to track the assets of nationals from both countries. As per the terms of the agreement signed by the two nations, the Foreign Account Tax Compliance Act (FATCA) will be implemented from October 1 this year.

FATCA will enable and facilitate smoother exchange of tax-related information between the two countries and help both fight evasion.

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FATCA is rapidly becoming the global standard in the effort to curtail offshore tax evasion. The US has signed agreements with more than 110 jurisdictions and is engaged in related discussions with many other nations.

The deal will be useful in combating tax evasion and avoidance and would be mutually beneficial for both countries. For India the deal comes at a time when the government is implementing its new black money law.

FATCA 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 nationals with financial assets outside the US pay tax in that country.

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Under FATCA, financial institutions have to report accounts of US nationals to the US Inland Revenue Service (IRS) either directly or indirectly. Since India has now signed the deal, it will be the responsibility of the Indian government to give such information. The IRS, on its part, will also share with India, financial information of its citizen holding assets in the US. India will start receiving information from other countries under automatic exchange of information (AEOI) route from 2017 onwards.

Who will be affected by FATCA, what information needs to be shared and how frequently, are some of the questions that we look at. Here’s a primer on FATCA.

What is FATCA all about?
Under FATCA, US nationals, especially those living outside the country, have to report their financial accounts held outside. The Act places the onus of reporting details of their US clients to non-US financial institutions who will report such information to relevant tax authorities. Since India has now signed the deal the government will have to pass on the information to US. But the government will ask financial institutions such as banks, insurance companies and mutual funds to collate the information and pass it on.

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Who all are covered under FATCA?
Those whom the United States government considers as a ‘US person’ will be covered under the act. The following fall under the ‘US person’ category.
A citizen or resident of the United States (including a green card holder).
A partnership, corporation, estate, trust incorporated or created under US law (US incorporated entity)
A non-US incorporated entity having shareholding of 10% or more or ownership (Substantial Ownership) held by:
a. An Individual who was born in the US or is a US citizen or a US resident (including green card holder) or has a US address or US mailing address or US ‘in care of’ or ‘hold mail’ as a sole address.
b. A US incorporated entity as described above.

Are only personal accounts covered under FATCA?
No. FATCA covers both personal and business entities if you are covered under ‘US persons’

If I am not a US citizen can I be covered under FATCA?
Generally FATCA is not applicable to non-US citizens. But if you have one of the following, be prepared with your documents.
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
What if I am a US person?
You will be required to submit addition information along with the assets you are holding.

What if my partner is a US person?
Bad luck. The joint account will be treated like as a US account and the entire account are subject to reporting as a US person.

How frequently will I be asked for information?
It’s a periodic and ongoing process, which will generally be handled by the financial institutions but if there is a change in account information you will be contacted.

What is the kind of information I would be asked for?
Details are yet to be finalised but the basic information that will be certainly required includes
Name
Address
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
Are Indian institutions geared up to meet FATCA norms by September 2015?
No. But work is in progress. In order to reduce the reporting hassle, some funds have stopped accepting investments from US residents.

What if I am shifting to the US, what do I do with my investments in India?
Some mutual funds are advising their clients to sell of their investments in India and re-invest them through an offshore fund route.

Is there a minimum amount below which reporting is not required?
Yes if your investments is below $50,000 US IRS will not bother you

What if I do not proved the required information?
The onus of compliance is one the financial institution with which you are dealing with. If a financial institution does not comply with FATCA, it will have to pay 30 per cent penalty tax on all its US revenues, including dividend, interest, fees and sales.

If you are an Indian base in the US and trying to hide the information from the Indian government then under the new Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, persons having unaccounted overseas assets are being given an opportunity to come clean by declaring their assets till September 30 and paying tax and penalty of 60 per cent. Those who will fail to declare their unaccounted overseas wealth during the voluntary compliance period will have to pay tax and penalty of 120 per cent and face jail term which could extend up to 10 years.