Financial institutions rush to meet FATCA deadline
A number of financial institutions rushed to meet a registration deadline after a late-night regulatory circular on Tuesday urged them to sign up with American tax authorities. The circular had advised registration by Thursday.
The institutions have to do so under America’s Foreign Account Tax Compliance Act (Fatca). It requires foreign financial institutions to provide information on clients who would be subject to taxation under American law. Regulatory authorities have been asked to require entities under their supervision to register with the US’ Internal Revenue Service (IRS).
“A lot of people have applied (on Wednesday)… (The situation) is still is still a little unclear (since the Indian government itself has not signed the agreement on Fatca),” said one lawyer.
A senior official with a large domestic fund house said there was lot of panic following the circular, issued by the Securities and Exchange Board of India (Sebi); the Reserve Bank (RBI) issued one, too. The person said there was confusion over reporting and disclosures, since an inter-government agreement (IGA) is yet to be signed.
Sebi in its circular had said under the US law, non-registered entities would be subject to a withholding tax, of 30 per cent of any capital sent out of America.
Earlier, the confusion was also on whether Indian entities were to register or not. “Sebi in one of its earlier notifications to intermediaries had suggested they register with the IRS post the formal signing of an IGA. This resulted in confusion, as the January 1 deadline prescribed was not got postponed and Indian financial services intermediaries with a US clientele who have not yet registered due to ignorance or confusion will have to register in a hurry,” said Tejesh Chitlangi, Partner at IC Legal.
Sebi had said in June that entities only need register after a formal agreement was signed. This changed on Tuesday, following a government note on the matter to it and RBI, on the need to register and get a Global Intermediary Identification Number before January 1.
TROUBLE FOR FINANCIAL INSTITUTIONS
There was ‘panic’ after regulators gave a one-day window to register with the US tax authorities
Under Fatca, foreign financial institutions also have to register and report on clients subject to US jurisdiction
Regulators had said in June that India had agreed to the Fatca agreement in substance
But it had asked intermediaries not to register with the US Internal Revenue Service till a formal agreement was signed
No agreement has yet been signed
However, a fresh missive on Tuesday asked entities to sign up by Thursday
Many did so through the online process
However, there is still a lack of clarity on the application and reporting of Fatca, in the absence of a formal agreement
Not signing up results in a penalty in the form of a 30 per cent withholding tax on all US payments
