India concludes pact with US on tax evasion under FATCA
India has concluded an ‘in substance’ agreement with the US to combat possible tax evasion by Americans through Indian financial entities.
The ‘in substance’ agreement with India under Foreign Account Tax Compliance Act (FATCA) was concluded on April 11, the US Treasury said.
Market regulator Sebi plans to issue guidelines for market intermediaries in this regard this fiscal, sources said.
The US said India has consented to Model 1 – Intergovernmental Agreement (IGA) under FATCA.
As per Model 1, financial entities will be required to report information on US account holders to the US IRS (internal revenue service) through CBDT.
The FATCA requires the US government to sign IGAs with various countries, including India, where American individuals and companies may hold accounts and other assets.
“Regulatory measures from SEBI and other regulators after the signing of this IGA would immensely help Indian financial institutions to cope up with this complex regulation,” said Amit Maheshwari, Partner Ashok Maheshwary & Associates.
He said other regulators like RBI are also expected to issue guidelines to ensure compliance of FATCA.
Signing of IGA coupled with regulatory measures from SEBI would be helpful for Indian financial institutions and corporates to better comply with this significant legislation, experts said.
Sebi was asked to examine the applicability of the FATCA provisions to all market intermediaries regulated by the capital markets regulator. This was examined by Sebi in coordination with the Finance Ministry.
According to sources, necessary comments and suggestions have been provided to the Ministry and pursuant to the government directions, Sebi would issue appropriate guidelines in 2014-15 to market intermediaries on due diligence and reporting requirements with respect to FATCA.
While FATCA became a law way back in 2010, the final regulations were issued for it in January 2013 and it is set to come into effect from July 1, 2014 after signing of IGAs with different countries.
The law aims to check and impose withholding tax on illicit activities of some wealthy individuals who use offshore accounts to evade millions of dollars in taxes.
A noncompliance with FATCA entails 30 per cent withholding tax on certain US source payments.
The US Treasury had released two formats of the IGA – Model 1 and Model 2. In Model 2, financial institutions will report information directly to the US IRS rather than their local jurisdictions.