FATCA /CRS
Foreign Account Tax Compliance Act (known in short as FATCA) is a legislation to counter tax evasion in the United States of America (USA) FATCA was introduced by US Dept of Treasury (Treasury) and US Internal Revenue Service (IRS) to encourage better tax compliance by preventing US persons from using banks and other financial organisations to avoid US taxation on their income and assets.
As on 13th July 2015, 112 countries have agreed to comply with FATCA agreements (67 signed IGAs, 45 IGAs agreed in substance). As on 4th June 2015, 61 countries are signatories of Multilateral Competent Authority Agreement (MCAA) committed to reciprocal tax information exchange.
India and the USA have signed the reciprocal version of model 1 IGA for FATCA on 9th July 2015.
India signed the OECD’s CRS (Common Reporting Standards) on 3rd June 2015.
The IGA has 2 models – India has signed Model 1 IGA wherein banks will have to report information to the prescribed authority who in turn will submit information to the IRS.
In Model 1 IGA, the Foreign Financial Institution (FFI) has to report all FATCA related information to their governmental agencies, which would then report the FATCA related information to the IRS. Some Model 1 IGAs are reciprocal, requiring the US to provide certain information about residents of the Model 1 country to the Model 1 country in exchange for the information that country provides to the USA. An FFI covered by a Model 1 IGA will not need to sign an FFI agreement but needs to register on the IRS’s FATCA Registration Portal or file Form 8957.
Like FATCA, Common Reporting Standard (CRS) is a reciprocal exchange of information on financial accounts on an automatic basis with other countries/ non-sovereign territories so as to combat the menace of offshore tax evasion and avoidance and stashing of unaccounted money abroad. India would be obligated to get its financial institutions to share financial account information of accountholders who are tax residents in any of these countries. Likewise, India would also get similar information through financial institutions of such treaty countries.
CBDT has notified Rule 114H for Due Diligence Requirement under FATCA, major requirements for the Bank as under: All the concerned financial institutions should register on the related e-filling portal of Income Tax Department as Reporting Financial Institution by submitting the requisite details. Thereafter, the reports can be submitted online by using the digital signature of the ‘Designated Director’ by either uploading the Form 61B or ‘NIL’ report.
As per RBI Circular RBI/2015-16/165 DBR.AML.BC.No.36 /14.01.001/2015-16, dated August 28, 2015, for the new accounts opened after September 1, 2015, the due diligence procedures specified in Rule 114H (4) and 114H (6) would be applicable.
All the FIs have to submit reports online using the digital signature of the designated director by either uploading Form 61B or Nil Report by September 10, 2015. The first reporting will be with respect to calendar year 2014 if an account has been identified as US reportable account consequent to completion of duediligence procedures as laid down in Rule 114H. Therefore, the reasons for the Nil report should be captured as under:
a. For pre-existing accounts:
Option 1: Due diligence procedure not completed
Option 2: Due diligence procedure completed but no reportable US account identified
b. For new accounts:
Option 1: Alternative procedure invoked Option 2: Due diligence procedure as applicable to new accounts completed but no reportable US account identified
All the regulated entities should take action appropriately for the implementation of due diligence and reporting requirements as laid down in the Rules and ensure compliance in a manner that lends itself to credible auditability including audit of the IT system which should be suitably upgraded to not only maintain the information required under the Rules but also to record and store the due diligence procedures. In due course, the detailed guidelines for carrying out audit of IT system for ascertaining the degree and level of compliance with due diligence procedures as laid down in the Rules will be issued.
Statutory Auditor should verify whether the Bank has put a process in place for complying with guidelines under FATCA/CRS and submitted reports as required by FATCA.