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India and the United States, on Thursday, signed an agreement to implement Foreign Account Tax Compliance Act (FATCA) from October 1 of this year. The FATCA will enable and facilitate smoother exchange of tax-related information between the two countries, and help both fight evasion.
The intergovernmental agreement (IGA) on FATCA was signed in the Finance Ministry by Revenue Secretary Shaktikanta Das and the US Ambassador to India Richard Verma.
"FATCA is a mutual effort to combat tax evasion and it would be mutually beneficial for both the countries. The agreement would detect, discourage offshore tax evasion. This kind of exchange of information is top priority for governments," Verma said after the signing.
Talking to reporters after signing the agreement, Das said: "We reassured the US government of the binding commitment to fight the menace of evasion and bring transparency in the matters of payment of taxes, which are legitimately due to the government."
"It is hoped that the exchange of information on automatic basis, regarding offshore accounts under FATCA would deter tax offenders, would enhance tax transparency and eventually bring in higher equity in to the direct tax regime which necessary for a healthy economy," Das said.
FATCA is an US Act, which seeks to facilitate flow of financial information between countries. Under the intergovernmental agreement, Indian financial institutions would have to reveal information about US tax payers to the revenue department, which would be passed on to the US tax authorities. The US' Internal Revenue Service (IRS) will also share with India financial information, which will enable the latter to better implement its new black money law.
According to the black money law FAQs released by the Finance Ministry earlier this week, India will start receiving information from other countries under automatic exchange of information (AEOI) route from 2017 onwards.
The current reporting period for FATCA beginning October 1 would be for July-December 2014. If a financial institution does not comply with FATCA, it will have to pay 30 per cent penalty tax on all its US revenues, including dividend, interest, fees and sales.
"It is imperative that the industry stakeholders ready themselves for implementing the required infrastructure and processes, which is required to meet the exacting requirements of these regulations," said Himanish Chaudhuri, partner-governance, risk and compliance, KPMG in India.
"While it is expected that there will be operational challenges in the near term, there are definite long-term benefits from this system of automatic and periodic exchange of taxpayer information," Chaudhuri added.
The agreement, according to a government press release, "underscores growing international co-operation to end tax evasion everywhere... The signing of IGA is a reaffirmation of the shared commitment of India and US towards tax transparency and the fight against offshore tax evasion and avoidance."
