Tax Law Center Blog

By Parag P. Patel, Esq. | Updated August 26, 2016

India and the US have agreed to again enhance collaboration on tackling offshore tax evasion and increase cooperation in sharing of cross-border tax information after the United States Treasury and India’s Ministry of Finance met last week. Following the conclusion of the dialogue, India’s Ministry of Finance Minister Shri Jaitley and United States Treasury Secretary Mr Lew released the following Joint Statement:

“We were pleased to participate in the sixth annual ministerial meeting of the Economic and Financial Partnership and to welcome Federal Reserve Chair Janet Yellen, Reserve Bank of India Governor Raghuram Rajan and other participants.

The United States Treasury and India’s Ministry of Finance launched our Economic and Financial Partnership in 2010 as a framework commensurate with the growing importance of our economic relationship and the significant business and cultural ties that already exist between our two nations. At this meeting, the last for the Obama Administration, we took stock of the impressive efforts that have been undertaken by both sides to deepen mutual understanding, and to improve cooperation across a wide range of bilateral and multilateral issues. We reiterated that the U.S.-India partnership will be one of the defining relationships of the 21st century.

Contributing to our bilateral relationship, five work streams have been underway at the sub-cabinet level in India and the United States. Progress has been made on all fronts.

Over the past year, our tax authorities resolved a significant portion of bilateral tax disputes between the United States and India. In addition, our governments have begun to accept bilateral Advance Pricing Agreement applications by companies in both jurisdictions in an effort to enhance cross-border business processes and strengthen our commercial ties.

We have noted the progress in sharing of financial information between the two countries under the Inter-Governmental Agreement pursuant to Foreign Account Tax Compliance Act (FATCA). The two sides will continue to engage in discussions on full reciprocal arrangement on FATCA. We look forward to increased cooperation in sharing of cross-border tax-information.

We are committed to continued collaboration and sharing of experience in tackling offshore tax evasion and avoidance, including joint tax audits and tax examination abroad. We look forward to the Competent Authorities of the two countries engaging in bilateral dialogue to move forward cooperation in these areas.

Earlier this year, in India, the U.S.-India Financial Regulatory Dialogue brought together our respective financial regulators to discuss a range of issues pertinent to our domestic financial sectors and to financial stability, including banking sector reform and development of capital markets. In addition, expert staff from Treasury and the Ministry of Finance are having consultations on the United States experience and international perspectives on the regulatory design for India’s recently launched payment banks.

Under the U.S.-India Investment Initiative launched in January 2015, our governments have worked in collaboration with private sector to identify specific policies, regulatory reforms, and technical collaboration aimed at mobilizing capital from both domestic and foreign investors to build infrastructure and create jobs. We are working together to support India’s National Investment and Infrastructure Fund (NIIF) in order to increase financing options for India’s infrastructure growth. We look forward to continuing discussions in areas such as municipal finance under the future work of the Initiative. The next meeting of the Investment Initiative will be in the United States later in 2016.

Public debt management is an area of focus for India. India believes in continued efforts for more efficient debt and cash management, as well as the development of a deeper and more robust domestic debt market. It presents an opportunity for India’s Ministry of Finance and the U.S. Treasury’s Office of Technical Assistance to engage in knowledge and information sharing in India’s government debt management program. Accordingly, a Terms of Reference was signed between the two to collaborate on India’s government debt program.

We have enhanced our cooperation in tackling money laundering and combating the financing of terrorism through increased information sharing and cooperation, including a dialogue held recently in India. We both agree on the importance of fighting illicit finance in all forms as an important means of tackling global terrorism.

Finally, we are committed to further deepen our understanding of each other’s economies. As partners and peers, we are committed to working together to collaborate in multilateral fora, such as the G20, to steer our economies toward stronger, sustainable, and balanced growth. Under the aegis of our Economic and Financial Partnership, we held a sub-cabinet level discussion among our Deputies in India in early 2016.

We are encouraged with the developments that have taken place since the launch of the Economic and Financial Partnership and look forward to continued engagement in an effort to strengthen our relationship, our economies, and the global economy.”

The statement was issued after Jaitley and Lew co-chaired the 6th US-India Economic and Financial Partnership (EFP) here on the sidelines of the annual Spring Meeting of the International Monetary Fund and the World Bank.

Last year, India and the US signed an agreement to implement the Foreign Account Tax Compliance Act (FATCA) that will facilitate exchange of information between the two countries starting on October 1, 2015. Under the inter-governmental 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 has signed IGAs with more than 110 jurisdictions and is engaged in related discussions with many other nations. America had enacted FATCA in 2010 to obtain information on accounts held by US taxpayers in other countries. It requires US financial institutions to withhold a portion of payments made to foreign financial institutions (FFIs) who do not agree to identify and report information on US account holders. As per the IGA, FFIs in India will be required to report tax information about US account holders directly to the Indian government which will, in turn, relay that information to the IRS.

Under FATCA, financial institutions, including banks, deposit taking non-banking finance companies, mutual funds, private equity funds, custodians and life insurance companies, will have to maintain information about their customers, including name, address, tax identification number and in cases of individuals, even details such as place and date of birth.

Specifically in India, for example, many Indian banks and mutual funds have started warning customers who are believed to have foreign contacts for a FATCA Compliance Certificate.  Technically, there is no FATCA Compliance Certificate, per se.  Practically speaking, a FATCA Compliance Certificate simply refers to that indicates that the foreign account has been properly reported to US authorities.

FATCA requires financial institutions to carefully review the client records in order to identify foreign customers.  The bank review includes careful scrutiny of bank electronic databases, bank paper files of account records, and interviews of bank managers and relationship managers regarding customers’ foreign status.

If a customer is deemed foreign upon initial review, numerous other questions are to be raised by the financial institution and answered by the customer.  In addition, information and documentation may be required by the customer, such as self-certification forms stating residency and tax information of the customer.  Often, a foreign tax identification number, such as a US Social Security number, is solicited.

While the IRS has recently targeted Swiss, Israeli and Indian banks, India continues to be a focal point for the U.S.  government. While new criminal prosecutions start and continue, our law firm expects unabated aggressive enforcement of the U.S. tax laws, including increased criminal prosecutions and civil investigations. We have been advising our clients to expect the unexpected (and the worst) in their tax treatment and disclosure of offshore assets, particularly for Indian assets.

Patel Law Offices has consulted with hundreds of clients regarding their offshore asset compliance issues. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.

About the Author

Parag P. Patel, Esq. brings over three decades of experience to individuals and businesses facing complex tax problems. Holding advanced degrees from Georgetown University Law Center (J.D.) and New York University School of Law (LL.M. in Tax Law), the nation’s top tax programs, Mr. Patel delivers sophisticated and creative strategies in complicated federal and state audits, penalty abatements, and foreign asset/income reporting. His practice emphasizes international tax matters, specifically foreign financial account reporting (FBAR), voluntary disclosures, and penalty defense.

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