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The picture regarding the number and proportion of Indian financial institutions which had registered with the American tax authorities under the latter's Foreign Account Tax Compliance Act (Fatca) is still not clear.
As already reported, after being officially told for months that there was no hurry to do so and entities should wait for a formal agreement between the Indian and US governments on this, the authorities here had on December 30 advised those concerned to register before January 1. Else, they noted, there would be a withholding tax of 30 per cent on earnings from American clients.
As of a fortnight earlier, the number registered was 442; this is still the latest available. And, many of these were subsidiaries of the same organisation. For example, at least 23 entities bear the Edelweiss name — Edelweiss Asset Management, Edelweiss Broking, Edelweiss Commodities and so on. This means the number of distinct financial institutions registered could be significantly lower than 442.
| INDIA LAGS PEERS IN FATCA REGISTRATION |
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In comparison, its peers in emerging markets have a much larger number registered. For example, every one of the BRIC countries has a higher figure -- 3,594 from Brazil, 1,050 from Russia, 927 from China, according to the US Internal Revenue Service (IRS).
“A 30 per cent deduction of tax could wipe out your profit…Internally, we made sure our businesses were informed about the new compliance requirement way back in June 13. We registered all our entities in June 2014, almost the time when the window for registration opened,” said S Ranganathan, group chief financial officer & president, Edelweiss.
Fatca is a US law whereby foreign financial institutions across the world would have to report to the IRS on any transactions of clients who could be subject to American tax laws. In the absence of an agreement between India and the US on this matter, it was and remains unclear how the actual reporting would happen.
“It was only on December 30 that the regulators had said institutions would have to sign up by January 1. Many were unprepared. A large number rushed to register right after the announcement. Others who were on holiday for the new year are doing so now,” said Anish Thacker, tax partner at EY.
The Securities and Exchange Board of India had earlier told financial institutions that the government had agreed in substance to an agreement in this regard but it was yet to be formalised. And, said they need only register after the formal agreement.
