India and USA sign an agreement to share info on how to evade taxes

Beginning September 30, banks, mutual funds, insurance, pension and stock-broking firms will report their Indian client details to the United States which will be shared with New Delhi.

As mentioned by him, with most countries now sharing information, fresh capital flows into equity and debt markets may depend on the tax exemptions given in source country and the total tax outflow for the investor, subject to other commercial factors. The agreement may not be of any great use to India in the immediate context – since the proportion of Indian tax-evaders hiding funds in the U.S.is negligible compared to those doing so in tax havens such as the Bahamas, Cayman Islands and Luxembourg – but signing it was still essential since the US imposes strict punitive measures on companies that are not registered under FATCA.

Shaktikanta Das, Revenue Secretary of India and Richard Verma, U.S. Ambassador to India signed here today, an Inter Governmental Agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA) to promote transparency between the two nations on tax matters.

United States have so far signed pacts with 110 tax jurisdictions to implement FATCA.

“With Fatca and CRS, they will be required to be geared up to exchange tax information of more than 60 countries. This kind of exchange of information is top priority for both governments”, Verma said.

Last November in Australia, India and the other G20 countries agreed to automatically exchanging tax information on a reciprocal basis by the end of 2018.

Financial institutions who do not comply with Fatca will have to pay 30 per cent penalty tax on all its United States revenues, including dividend, interest, fees and sales.

Basant Shroff, partner, EY India, said the finance ministry will now have to issue a detailed guidelines though competent authority to operationalise Fatca in India.

The signing of IGA is a re-affirmation of the shared commitment of India and U.S. towards tax transparency and the fight against offshore tax evasion and avoidance.

Shaktikanta Das said, “We reassured the US government of the binding commitment to fight the menace of evasion and bring transparency in the matters of payment of taxes which are legitimately due to the government”. It reaffirms the Government?s dedication to fight the menace of black cash.

“It is hoped that the exchange of information on automatic basis, regarding offshore accounts under FATCA would deter tax offenders, enhance tax transparency and eventually bring in higher equity into the direct tax regime which is necessary for a healthy economy”.

As stated by a Sebi circular previous year, Indian financial institutions operating out of the U.S. have to register with American tax authorities by December 31, 2014, to obtain a global intermediary identification number in line with the Fatca rules.