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India Signs FATCA Model Intergovernmental Agreement to Share Account Information with the US

The U.S. Treasury announced that on April 11, 2014, India agreed “in substance” to sign a Model 1 FATCA Model Intergovernmental Agreement (IGA) with the US. The IGA would therefore require Indian financial institutions to report information on U.S. account holders to India’s Central Board of Direct Taxes, which would then share the information with the Internal Revenue Service (IRS).  The US has so far signed IGAs with over two dozen countries in this regard, including the UK and Switzerland.

Once implemented, the agreement would provide the Internal Revenue Service (IRS), access to details of all offshore accounts and assets beyond a threshold limit held by Americans here, while a reciprocal arrangement could be offered for Indian authorities as well. Financial institutions in India will need to carry out a detailed due diligence on all their clients and report details of their US clients to the Internal Revenue Service.

Under Model 1, foreign financial institutions (FFIs) in India, i.e. an insurance company, bank, or mutual fund, would be required to report all FATCA-related information to Indian governmental agencies, which would then report these information to Internal Revenue Service (IRS). Some Model 1 IGAs have also provision for reciprocity, 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 US. Since India has entered into an agreement under Model 1, Indian financial institutions need not sign an FFI agreement, but they will need to register on the IRS’s FATCA Registration Portal or file IRS Form 8957.

Who is Reported?

Indian financial institutions would be to identify persons from the US, who have invested in India. US person for tax purposes are generally considered as:

• A citizen of the US (including an individual born in the US but resident in another country, who has not renounced US citizenship);

• A lawful resident of the US (including a US green card holder);

• A person residing in the US.

• Somebody who has spent considerable period of time in US on a yearly basis.

• American corporations, estates and trusts may also be considered US persons


Which Accounts?

Foreign financial institutions or FFIs need to report certain accounts to the IRS under FATCA. The need for identifying US person(s) arises from the fact that money invested in India needs to be reported to IRS in the US. While the threshold limit for reporting will be specified by the regulators in India based on FATCA regulation, institutions will have reporting requirements under FATCA, in terms of threshold limits. As per FATCA, US persons need to report to IRS in the following scenarios:

• If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year.

• The threshold is higher for individuals who live outside the United States.

• Thresholds are different for married and single taxpayers.

There is a provision for third party reporting under FATCA for FFIs which states, “Foreign financial institutions may provide to the IRS, third-party information reporting about financial accounts, including the identity and certain financial information associated with the account, which they maintain offshore on behalf of US individual account holders”.

While the IRS has recently targeted Swiss, Israeli and Indian banks, India continues to be a focal point for the United States government. While new criminal prosecutions start and continue, our law firm expects unabated aggressive enforcement of the US tax laws, including increased criminal prosecutions and civil audit examinations. 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.