Objective of FATCA ?
The US government has recently enacted Foreign Account Tax Compliance Act (FATCA), which is primarily intended to detect and thus discourage tax evasion by persons living and earning in United States.
What does FATCA Mandates ?
FATCA mandates reporting by US taxpayers about certain financial accounts and offshore assets and reporting by foreign financial institutions about accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest.
Impact on Indian Banks
Indian financial institutions with overseas branches have time till 31st December’2014 to register. However, they should register for GIIN only when the formal Inter Governmental Agreement is signed.
CAME and FATCA
Provisions of the FATCA may require the amedment in the Prevention of Money Laundering Act. This calls for the change in the syllabus of the Certified Anti Moneylaundering Expert (CAME) Program and from 1.1.2015, ie exactly after the date of obtaining the GIIN is over the syllabus of CAME would be changed to accommodate the provisions of FATCA in the course-ware.
Impact on Foreign Financial Institutions
FATCA will require FFIs to enter into an agreement with the US Internal Revenue Service (IRS) whereby they agree to:
- Identify their US account holders;
- Report certain information of such account holders annually to the IRS; and
- Withhold tax on payments to recalcitrant US taxpayers and to non-participating FFIs and close accounts belonging to recalcitrant account holders.
NRIs and FATCA
Non-resident Indians (NRIs) living in US and having investments or assets in India are required to declare details of their earnings in India and pay tax thereon to the US government according to the laws of that country. Even if the income is earned in India and is exempt from income tax in India as per the Indian tax laws, it may not be tax free in US and it may be subject to local taxes. Under the new enactment, the IRS of US will get these details directly from the Indian government, so much so, it is advisable for all tax payers to collate this information meticulously and submit it to the US tax authorities to pre-empt any inquiries from them. But it is best to consult your local tax advisor in this regard and be guided accordingly.