Nilava Nandi

Nilava NandiWhile entire nation is busy with common legal compliance, they have ignored the most important change in the Indian Financial system that has challenged the financial institutions (FIs) to pace up their compliance mechanism. India and US have signed Inter Government Agreement (IGA) on July 09, 2015 on FATCA and CRS. Now these two terms although sounds very short, but in reality it doesn’t seem so. FATCA stands for FOREIGN ACCOUNT TAX COMPLIANCE ACT and CRS implies Common Reporting Standards. The main objective is to ensure exchange of information and transparency and to reduce tax evasion. FATCA was enacted in 2009 and became law as a part of Hiring Incentives Restore Employment Act, 2010, alias HIRE in short. Government of India (GOI) in order to get mutual benefit out of it executed Common Reporting Standards (CRS). So let us now study these two by breaking it down into simple questions and the way it can be complied with or requires to be complied. Comprehensive analysis include:-

Comprehensive Analysis of FATCA & CRS

Serial Number Areas Answers
1 What is FATCA? FATCA is an acronym of US term Foreign Account Tax Compliance Act introduced in 2009 but became law as a part of Hiring Incentive to Restore Employment Act, 2010, also known as HIRE. The main objective is to require US person holding financial assets outside US to pay tax. The Act requires foreign financial institutions (FFIs) to provide information about their US customers to IRS and in case of non US entities about their US owners.
2. What is CRS? Its full form is Common Reporting Standards. The main objective is like FATCA where other countries’ financial institutions holding accounts of Indian citizens shall disclose information to GOI. It is thus a reciprocal exchange of information from the financial institutions of treaty countries.
3. What is IGA? Inter Government Agreement or IGA is a bilateral agreement between USA and other countries who agree to share information about US Persons to IRS. For example, India and USA signed IGA on July 09, 2015.
4. What is US Person covered under FATCA?
  • All US citizens. An individual is a citizen if that person was born in the United States or if the individual has been naturalized as a US citizen.
  • You can also be a US citizen, even if born outside the United States if one or both of your parents are US citizens.
  • You are a ‘tax resident’ of the United States. You can become a tax resident under two rules: 1) The ‘substantial presence test’. This is a ‘day count test and based on the number of days you are in the US over a three year period and 2) The ‘green card’ test. A person who has obtained a ‘green card’ has been granted the right to lawful permanent residence in the United States.
5. Who are covered under FATCA? All Financial Institutions are covered under FATCA like Scheduled Commercial Banks, Mutual Funds, Insurance companies, non banking financial companies (NBFCs), Regional Rural Banks, State and Central Co-operative Banks, Primary (Urban) Co operative Banks, etc. If any falling under the definition of FIs.
6. What will be expected from these FIs? The bank shall conduct identification and due diligence procedures before on-boarding new customers and shall carry out the similar procedures on existing customers to be FATCA compliant, and where necessary carry out further documentation and investigation.
7. What information shall be sought from customers? Information will depend upon classification of customers under FATCA and CRS. Customers will provide following details such as country of tax residence, tax identification number (TIN), country of birth, country of citizenship, etc.

In case of non-individual customers, details of any of the controlling persons will be submitted.

8. In case of non – US Persons, applicability of FATCA? FATCA does not apply to non – US persons. However, if any one of the indicators mentioned below is found, you may be required to provide additional information/documentation to determine if you are a US Person under FATCA.

• US citizenship or US residence

• US place of birth

• US address including US PO boxes

• US telephone number

• Repeating payment instructions to pay amounts to a US address or an account maintained in the US

• Current Power of Attorney or signatory authority granted to a person with a US address

• If ‘Care of’ or ‘Hold mail’ address which is the sole address for the account holder.

9. Frequency of FATCA information FIs wills seek information from every new and old customers and shall continue with documentation if any further changes occurs in the identification of the customers.
10. Joint account of reportable and non reportable person In case one of the account holder is a reportable account holder, entire account becomes subject to FATCA/CRS legislation.
11. What would happen if new customer refuses to provide information? In case new customer refuses to provide information related to FATCA/CRS legislation, he might be refused to open an account with such FIs. In case of pre-existing customers, they will be treated as Recalcitrant Account Holders and shall be reported to the tax authority.

A Recalcitrant Account Holder shall be treated as one in which account has at least $ 50,000 and does not comply with FATCA rules and shall be subject to 30% withholding of withholdable payment and gross proceeds from sale or dispositions of US assets which can produce interest or dividends.

Central Board of Direct Taxes has modified Indian Tax Rules, 1962 that will facilitate implementation  of FATCA and CRS. For 2017, Form61B shall be modified for capturing the type of currency for reporting in 2017. Also it has introduced clarifications with regard to reporting financial institutions in relation to existing customer opening new FD account with bank. Suppose, if the customer is already a savings account holder and opens a Fixed Deposit account then he shall be treated as Pre-Existing Customers subject to fulfilment of certain conditions:-

  • the savings bank account is opened on or before June 30, 2014 in the case of FATCA, and December 31, 2015 in the case of CRS.
  • the due diligence requirements have been carried out, or are in the process of being carried out, for the pre-existing savings bank account.
  • the accounts are treated as linked, or as a single account or obligation for the purposes of applying any of the due diligence requirements and reporting.

Hindu Undivided Family or HUF shall fall under the FATCA and CRS compliance. Also Non-Banking Finance Company (NBFC) accepting deposits shall be treated as Depository Institution and shall report accordingly. Also, NBFC working as an investment entity shall report accordingly.

FATCA although has positive effects but is criticised on many grounds and some of the important grounds cannot be ignored. These grounds range from cost to data privacy and it has also gone to the extent of being labelled as unconstitutional in Crawford vs. U.S. Department of Treasury. Cost is the major hurdle as it has been estimated to be around $8 billion as estimated by Forbes. Association of Certified Financial Crime Specialist (ACFCS) estimated that the cost of implementing FATCA to be borne by Foreign Financial Institution would outweigh the revenues to be raised by the U.S. Department of Treasury. Next what comes is the privacy laws. Sharing the information in relation to Reportable Person is actually contradicting data privacy laws of home country. Many security concerns were raised against it by many countries. FATCA does not fulfil data privacy requirement of European Union (E.U.) as it states that data sharing shall be done with organisations only following Safe Harbour Principles but IRS doesn’t meet this demand. A legal challenge has been launched by attorney James Bopp claiming that FATCA violates Senates power relating to treaties, 8th Amendment excessive fines claim and 4th Amendment search and seizure claim.

Although FATCA is backlashed by many yet it has its own merit. Its currently reckoned as the global standard of sharing information.It has also been criticised on the ground that it breaches local laws of FFI s with regard to data privacy. However, FATCA works in two models. Firstly, FFIs reporting it to their respective government and secondly, FFIs reporting directly to IRS. Another myth revolving around FATCA is that it will create additional burden on US citizens. This is however not true. FATCA creates accountability upon FFIs for due diligence and reporting and withholding obligation is upon the institutions making payments to the FFIs. Let’s be clear the main object of enforcing FATCA is to track the foreign financial accounts or assets held by U.S. taxpayers or certain entities with U.S. owners so that tax evasion can be curbed or controlled.


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  1. K B Patil says:

    What really annoys me is that FATCA is not in any manner related to assets of Indians who have no financial transaction or assets in USA. Yet we have to engage in one more round of paper work to satisfy some other country’s government.

  2. Rick Adams says:

    Your report fails to mention how FATCA violates the privacy laws of the US and other nations. And it fails to mention the severe hardships imposed on hundreds of thousands of US citizens who have had their bank accounts closed or denied, mortgages refused, investments blocked, etc. simply for having American connections. There is pending legislation in the US right now to repeal FATCA, as well as an ongoing lawsuit that will probably end up in the Supreme Court.

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December 2020