Irdai directs insurers to comply with FATCA rules

All insurers to undertake a value search for new accounts opened after Sept 1 and up to Oct 31 by Dec 31

Insurance regulator Irdai has directed all insurers to register and submit information to CBDT for compliance with the obligations under Foreign Account Tax Compliance Act (FATCA) – Common Reporting Standards (CRS).

The Insurance Regulatory and Development Authority (Irdai) has also told insurers to have appropriate corporate governance mechanism to ensure compliance with the reporting requirements is put in place with oversight of the MD/CEO and the designated director or any equivalent official of the insurers.

The requirements and obligations stipulated under the income tax rules are towards implementation of the provisions of the FATCA and CRS and are based on agreements of the Government of India with the USA and other countries.

“All insurers (including GIC) are hereby advised to register on the e-filing portal of the income tax department and take the necessary steps to comply with the reporting requirements,” Irdai said.

Insurers would have to segregate the reportable accounts into ‘pre-existing’ and ‘new’ ones and also separately identify the individual and entity accounts as defined in the rule 114H, for compliance with the applicable due diligence procedures.

All Insurers (reporting entities) must undertake a value search for new accounts opened after September 1 and up to October 31 by December 31, Irdai said. The complete due diligence, wherever required, in case of such accounts must be completed by the March 31, 2016. Insurers shall also ensure the on-boarding of all new accounts opened on or after November 1 based on FATCA/CRS compliant forms and documentation, it added.

The Foreign Accounts Tax Compliance Act (FATCA) is a significant structural step in governments’ efforts to improve global tax compliance. FATCA aims to promote cross border tax compliance by implementing an international standard for the automatic exchange of tax information relating to US investors. The provisions call on tax authorities all over the world to obtain detailed account information from financial institutions relating to US investors and exchange that information automatically with the United States Internal Revenue Service on an annual basis.

The regulator has also asked all the insurers to develop suitable IT systems for generating and maintaining the information relating to the reportable accounts and also for carrying out the due diligence procedures. The IT systems should also provide adequate functionality for audit.

Separately, it has floated draft rules on expenses of management of insurers transacting the business of life insurance. The draft says expenses of management include remuneration/commission to the agents/insurance intermediaries and other expenses debited to revenue account.

However, it does not include charge to profit such as income tax, wealth tax and service tax etc. The draft exposure draft also talks about “allowance of head office for foreign branch @5 per cent of the gross premium income written outside India” and “separate allowance for pure risk products.”