Fund houses start due diligence of foreign investors
Fund houses have started asking foreign investors and distributors to furnish necessary details to comply with Foreign Account Tax Compliance Act (FATCA).
Fund houses have started collecting necessary information from foreign investors about their tax residency status in order to comply with the requirement of Foreign Account Tax Compliance Act (FATCA) provision.
The FATCA regulations is an anti-tax evasion law for which fund houses are required to report information on US investors to US IRS (Internal Revenue Service) through CBDT. India has agreed ‘in substance’ to FATCA by signing an Intergovernmental Agreement (IGA) with US in effect from April 11, 2014. Simply put, the legislation is meant to prevent wealthy US individuals from parking money overseas to avoid paying taxes.
As a part of a due diligence, the fund houses has asked foreign investors particularly from USA and the distributors who have clients from USA to furnish the documentary evidences of tax residency and other information.
Sundaram Mutual Fund, in its addendum dated September 1, has asked investors and distributors to furnish such documents to comply with the regulation.
The addendum says, “FATCA due diligence will be directed at each investor and on being identified as a reportable person/ specified US person, all the folios will be reported. In case of folios with joint holders, the entire account value of the investment portfolio will be attributable under each such reportable person.”
Last year on July, SEBI had asked fund houses to register with US by December end and obtain a Global Intermediary Identification Number (GIIN). Following this, many fund houses had temporarily stopped accepting fresh investments from US residents.
“FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts. The objective of FATCA is the reporting of foreign financial assets; withholding is the cost of not reporting,” said a senior fund official from foreign fund house.
Also, US NRIs can potentially be a sizeable market for the Indian mutual fund industry, he added. Currently this market has not been tapped properly, say fund officials.
