 "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 came out on 30th December, and asked institutions to register by 1st January.
The institutions have to sign up under the Foreign Account Tax Compliance Act (FATCA). The act is one under which foreign financial institutions are required to provide information on clients who would be subject to taxation under American laws. Regulatory authorities have been asked to require entities under their supervision to register with the Internal Revenue Service.
The Reserve Bank of India and Sebi both asked entities to sign up on Tuesday. They were asked to do so by January 1st, giving them one day to comply.
"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 Sebi?s circular. The person said that there is a lot of confusion over reporting and disclosures. Earlier, it was mandated that domestic institutions will report to the Indian tax authorities, who will then report to the US tax authority. As the IGA is yet to be signed, there is no clarity on reporting and submission of information, the person said.
Sebi in its circular had said that non-registered entities would be subject to a withholding tax. This works out to 30 per cent of any capital which is sent out of America.
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Earlier the confusion also extended to whether or not Indian entities were to register or not.
"SEBI in one of its earlier notifications to intermediaries had suggested them to register with US IRS post the formal signing of IGA. This has resulted in confusion as the January 1 2015 deadline prescribed by US has not got postponed and Indian financial services intermediaries with US clientele who have not yet registered due to ignorance or confusion, will have to register in hurry," said Tejesh Chitlangi, Partner at IC Legal.
Earlier, the Securities and Exchange Board o f India had said that India had agreed in substance to an agreement in this regard. However, it had added in June this year that entities only need register after the formal agreement is signed.
"Registration should be done only after the formal IGA is signed. Information in this regard will be communicated to you," the Sebi circular dated June 30th had said.
This changed on Tuesday following a government note on the matter.
"The Government of India has informed SEBI vide communication dated December 30, 2014 that Foreign Financial Institutions (FFIs) need to register with the US IRS and obtain a Global Intermediary Identification Number (GIIN) before January 01, 2015, or at the earliest, in order to avoid withholding," said the Sebi circular.
Those who have registered but have not received an identification number can indicate to withholding agents that an application has been made. Such entities get an additional 90 days to provide the identification number, added the regulator?s note.