Enactment of FATCA and signing of IGA
In 2010, the USA enacted “Foreign Account Tax Compliance Act” (FATCA) with the objective of tackling tax evasion through obtaining information in respect of offshore financial accounts maintained by the US residents and citizens. The provisions of FATCA essentially provide for 30% withholding tax on US source payments made to Foreign Financial Institutions, unless they enter into an agreement with the Internal Revenue Service (US IRS) to provide information about accounts held with them by USA persons or entities (firms/companies/trusts) controlled by USA persons. Since domestic laws of sovereign countries (including India) may not permit sharing of client confidential information by FIs directly with the USA. USA has entered into Inter-Governmental Agreement (IGA) with various countries. The IGA between India and USA was signed on 9th July, 2015. It provides that the Indian FIs will provide necessary information to the Indian tax authorities, which will be transmitted to USA periodically. Under the IGA, USA will also provide certain information about Indians having financial assets in the USA. The text of the IGA signed between India and USA is available here.
New Global Standards on Automatic Exchange of Information
To combat the problem of offshore tax evasion and avoidance and stashing of unaccounted money abroad requiring cooperation amongst tax authorities, the G20 and OECD countries working together developed a
Common Reporting Standard (CRS) on Automatic Exchange of Information (AEOI). The CRS on AEOI was presented to G20 Leaders in Brisbane on 16th November, 2014. The Hon’ble Prime Minister of India, speaking on the occasion, supported the new global standard, as it would be instrumental in getting information on unaccounted money hoarded abroad and its eventual repatriation. The CRS on AEOI requires the financial institutions of the “source” jurisdiction to collect and report information to their tax authorities about account holders “resident” in other countries, such information has to be transmitted “automatically’ on yearly basis. The information to be exchanged relates not only to individuals but also to shell companies and trusts having beneficial ownership or interest in the “resident” countries. Further, the reporting needs to be done for a wide range of financial products, by a wide variety of financial institutions including banks, depository institutions, collective investment vehicles and insurance companies.
Commitment to Implement CRS on AEOI
In keeping with its leadership role in developing the new global standard, India is one of the early adopters of the CRS and had committed to exchange information automatically by 2017. The Government of India has also, on 3rd June, 2015, joined the
Multilateral Competent Authority Agreement (MCAA) for exchanging information as per the above timelines. 102 jurisdictions had committed to exchange information as per the new global standards, 49 of them from 2017, 51 from 2018 and the balance from 2019. There are 7 jurisdictions that have committed from 2020. Each year new jurisdictions are committing to the exchanges with the efforts of OECD. The list of committed jurisdictions can be seen
here.
India has activated AEOI relationship for receiving information from 111 jurisdictions. The list can be seen 'here’.
India has activated AEOI relationship for sending information with 86 jurisdictions as can be seen 'here’:
Steps taken for Implementation of CRS on AEOI and IGA
In view of our commitment to implement the CRS on AEOI and also the IGA with the USA, and with a view to provide information to other countries, necessary legislative changes have been made through Finance (No. 2) Act, 2014, by amending section 285BA of the Income-tax Act, 1961. Income-tax Rules, 1962 were amended vide Notification No. 62 of 2015 dated 7th August, 2015 by inserting Rules 114F to 114H and Form 61B to provide a legal basis for the Reporting Financial Institutions (RFIs) for maintaining and reporting information about the Reportable Accounts. These Rules have been developed in consultation with Regulators and Financial Institutions in order to address their concerns wherever possible.
A comprehensive Guidance Note was released on 31st August 2015 to provide guidance to the Financial Institutions, Regulators and officers of the Income Tax Department for ensuring compliance with the reporting requirements provided in Rules 114F to 114H and Form 61B of the Income-tax Rules, 1962. The Guidance Note is intended to explain the complex reporting requirements and provide further guidance wherever required. The guidance note was thereafter updated number of times and the latest version was brought out in November, 2016.
