India, US sign FATCA to curb tax evasion

Come September 30, India and the US will start sharing information about bank accounts or financial investments made by their citizens in each other’s countries. This move will help curb offshore tax evasions.

Both countries, on Thursday, signed an Inter Governmental Agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA) to promote transparency on tax matters.

“This will bring in greater transparency in tax administration and enforcing tax compliance as well as prevention of offshore tax evasion. This is a major step in the Government’s resolve to fight the menace of black money,” Revenue Secretary Shaktikanta Das said after signing the agreement on behalf of India. US Ambassador to India Richard Verma was another signatory.

The US enacted FATCA in 2010 to obtain information on accounts held by its taxpayers in other countries. It allows US financial institutions to withhold a portion of payments made to foreign financial institutions (FFIs) who do not agree to identify and report information on US account-holders.

Besides, FATCA India also signed multilateral agreement on June 3, which will enable automatic exchange of information on multilateral basis with about 92 countries or so starting 2017.

“It is going to be very difficult for anyone who has offshore assets, which are undisclosed, who have offshore banking accounts or offshore investments which have not been reported to the tax authorities,” he said while combining international agreements with new Black Money Law.

Commenting on the new agreement, Bahroze Kamdin, Partner with Deloitte Haskins & Sells LLP, said that with new international agreements on FATCA and CRS (Common Reporting System), Indian financial institutions will be will be required to be geared up to exchange tax information of more than 60 countries. “Fresh capital flows into equity and debt markets, with most countries now sharing information and subject to other commercial factors, may depend upon the tax exemptions given in source country and the total tax outflow for the investor,” he said.

Rakesh Nangia, Managing Partner of Nangia, said that now that the FATCA signing is out of the way, focus will now shift on the regulators such as the RBI, SEBI, etc., to expedite and issue the necessary guidelines for reporting.

“Addressing the menace of unaccounted assets has been high on the agenda for most governments for some time now. Progress is being made and more such information exchange agreements are on the anvil. Going forward it will be very difficult for the offenders to hide,” he said.

COMMENT NOW