Only 442 entities registered for FATCA so far

Data as of a week before deadline

The total number of Indian financial institutions who have signed up with the American tax authorities under the Foreign Account Tax Compliance Act (FATCA) was less than 500 as per data from less than a fortnight ago.

There were a total of 442 entities, many of which include subsidiaries of the same organisation. For example, at least 23 entities bear the Edelweiss name. This includes Edelweiss Asset Management, Edelweiss Broking, Edelweiss Commodities and so on.

This means that the number of distinct financial institutions who are registered could be significantly lower than the 442 figure would suggest.

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In comparison, India’s emerging market peers have a larger number of registered entities. For example, all other BRIC countries have a higher figure. BRIC is an acronym used to describe fast-growing emerging markets and includes Brazil, Russia, India and China.

Brazil has 3,594 registered entities. The Russian Federation has 1,050 such entities. China’s was lower but it still had more than twice the number of registered entities, at 927, according to IRS data. This leaves the vast majority of Indian entities potentially facing a 30% witholding tax on every payment originating from the US.

“A 30% deduction of tax could wipe out your profit… Internally we made sure our businesses were informed about the new compliance requirement way back in June 13. We have registered all our entities in June 2014 (which was) almost the time when the window for registration opened,” said S. Ranganathan, Group Chief Financial Officer & President – Edelweiss.

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FATCA is an act by which all foreign financial institutions across the world have to report to the US tax authorities on any transactions of clients who could be subject to American tax laws. In the absence of an agreement between India and the US on this matter, it was unclear about how the actual reporting would happen. Vipul Jhaveri, Partner at Deloitte Haskins and Sells said that reporting is likely to happen by first passing on the information to Indian tax authorities.

“The concerned authority for reporting would be CBDT(central board of direct taxes) under the draft IGA. Financial institutions would pass such information on to CBDT, which in turn would pass it on to the IRS. It is expected that the same structure would be followed when the final guidelines are in place,” he said.

“It was only on December 30 that the regulators had said that institutions would have to sign up by January 1st. Many were unprepared. A large number rushed to register right after the announcement. Others who were on holiday for the new year are doing do now for fear of 30% withholding,” said Anish Thacker, tax partner at EY.

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The regulator had earlier communicated to the financial institutions that India had agreed in substance to the agreement, but that it is still to be formalized. It had added in the middle of 2013 they need only register after the formal agreement is signed.

“Registration should be done only after the formal IGA (intergovernmental agreement) is signed. Information in this regard will be communicated to you,” a Sebi circular had said June 30. Meanwhile, one source suggested that an extension may be nigh, though this could not be independently confirmed.