Signing of tax pact with US under FATCA gets nod
The agreement under the Foreign Account Tax Compliance Act will enable exchange of information on cases of tax avoidance through overseas entities
The Cabinet on Tuesday approved the signing of an inter-governmental agreement between India and the US seeking to impose higher withholding tax on Indian companies on their US income, if they do not provide information about their clients to the US government.
The agreement under the Foreign Account Tax Compliance Act (FATCA) will enable exchange of information on cases of tax avoidance through overseas entities. FATCA is a US legislation to ensure foreign financial institutions provide information about clients who could be subject to American tax laws.
Indian institutions had to sign up with the Internal Revenue Service (IRS) of the US for this purpose. They had to obtain a Global Intermediary Identification Number before January 1, 2015, and have to report the assets of such clients to the IRS.
Financial institutions such as bank, brokerage or mutual fund, which do not sign up with IRS will face a 30 per cent withholding tax on all payments from the US. The idea is to capture the details of US taxpayers’ unreported foreign financial accounts, stock, securities, mutual funds and insurance or annuity schemes with a cash value above $50,000.
The US has given India time till September 30 to put in place a framework to track these assets. The deadline had been extended twice because a number of regulatory concerns had surfaced in between.
The Securities and Exchange Board of India had reportedly raised questions over issues, which include penalties imposed on financial institutions under FATCA.
It was also decided to join the multilateral competent authority agreement on automatic exchange of information. According to sources, the decision will enable India to get information from the US and from other jurisdictions with which India has similar agreements, about the assets that Indians hold abroad.
Prime Minister Narendra Modi had strongly supported automatic exchange of information during the G20 leaders summit on November 16, 2014, in Brisbane, and stated this would be instrumental in getting information about unaccounted money hoarded abroad and enable its eventual repatriation.
So far, 52 countries have signed the agreement on automatic exchange of information.
